Short Sales in North County: “Feeding Frenzy” as banks pretend and extend
Jim the Realtor is back with a bunch of foreclosures, REOs and short sales on the market in North County San Diego. Some of these places look pretty nice. In this particular video, the property is in Carmel Valley and on the market for $1.249 million. It is interesting for a couple of reasons.
The guy in the house has been on the foreclosure roles for a long time. Apparently, he ran up loans 15% over the original amount, which suggests he may have been using the house price as an ATM when prices were going up. But now he is making partial payments to avoid being foreclosed. The interesting thing is that by making a partial payment, the owner can get off the foreclosure roles and stay in his home.. until he misses another payment, which in this case has happened several times.
This is called “extend and pretend” otherwise known as “delay and pray.” Banks love this because they don’t have to write down the value of the loan immediately and the owner is looking for an exit strategy that doesn’t put him out on the street. It’s all good, right?
Obviously, the inventory levels would be a lot higher if short sales like these were foreclosed.
Another interesting factoid is that this place got multiple offers over list – and we’re talking cash buyers here. Jim’s prospective buyer came in with 50% down as well – and lost. Jim calls this a “feeding frenzy.”
Clearly, record-low interest rates are doing the trick to reflate house prices in San Diego, a canary in the coalmine for the rest of the country (they led on the way up the first time and on the way down). This reflation is exactly why you delay and pray. For this particular seller it worked out as well as it could.