A topic that comes up with clients almost daily is San Diego condo short sales. Are short sales a good idea or a bad idea? Will your credit be destroyed for life? All of these are valid questions and we will briefly discuss the answers.

Let’s take a step back and ask ourselves, why are there so many short sales on condos downtown San Diego? The answer is quite simple. Downtown San Diego Condo buildings started sprouting up all over the place in the early and mid 2000’s. Many of these buildings were completed at or near the peak of the market and now the values have dropped tremendously.

Short Sales at Electra Condos San Diego

Let’s take Electra for example. Electra condos San Diego were completed by Bosa Development in 2008, but many buyers secured their prices late 2006 and 2007. Not long after many of these buyers closed escrow, they quickly realized that the value of their condo was already less than what they paid. Now, 2 years later, many of these buyers have lost 30% equity or more.

Electra condo residence 1705 is a prime example. The developer settlement date on the sale of this new Electra condo was 7/08 and the sales price was $619,000. Just 14 months later, the buyer sold the same Electra condo for $460,000. Today, we are seeing an even more drastic price reduction at Residence at Electra.

What does this have to do with Downtown San Diego Condo short sales?

This scenario is one that can be applied to many downtown buildings and it leaves home owners in a situation where a short sale may be their best option. If the property owner that bought the downtown San Diego loft is upside down on the mortgage and has not refinanced, then they are a great candidate for a short sale.

For today’s discussion, we are going to talk about the above person that bought and is upside down, but still has the original mortgage. In order to successfully complete the short sale, this is a strategy that works.

1. Determine if the owner/seller has a hardship that would allow them to qualify for a short sale.
2. Determine that the loan is non-recourse meaning that the lien holder cannot go after the borrower’s personal property as collection for payment of the lien holder’s loss.
3. Determine the current value of the property.
4. Market the property, find a buyer and submit the offer and the short sale package to the bank.

Once all of the above has happened, the lien holder will send somebody out to do a BPO or broker price opinion. It is this person’s job to determine the current value of the property. They will report their opinion of value back to the lien holder. If the BPO value comes in at the same number or close enough to the price that the buyer has agreed to pay, then the bank will generally approve the short sale.

It is of great importance to be organized and stay in contact with the lien holder on a weekly basis. This is why we have a full time short sale processor in our office working on all of our short sales. As real estate agents, we can’t be in the office on the phone all day with banks and out showing property or meeting with clients to discuss marketing their property at the same time.

If your agent doesn’t use a short sale processor, forget it! If they are only going to work on selling your property and are not going to work with other buyers and sellers, then it could work, but let’s be honest, that is just not the case.

How will this affect my credit?

A short sale will negatively impact your credit, however you will be able to obtain financing, in most cases, within 2 years.  A short sale is much better on your credit report than a foreclosure because it shows up as “as agreed” even though you are settling with the bank for a lesser amount than what was actually owed.  One of the most important pieces that most real estate agents don’t know is that your credit score won’t actually drop that much if you only go 60 days late on the mortgage.  This means miss 2 payments and then try to keep making the payment until the short sale is approved.  A 90 day late will definitely have a huge impact on your credit report, but with a 60 day late, you can have your credit report back in the 700’s within a year or so depending on your other tradelines.

Because every home owner’s situation is unique, we always recommend having a conversation about the complexities of your own home and the possibility of a short sale. For more questions, give us a call at 619-309-8011. To schedule an appointment, simply email Chad at Chad@DanneckerAndAssociates.com