Portland Short Sale Market Report – Back in 2021?

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Short sales were almost non-existent in the Portland real estate market in 2020, representing a fraction of 1% of real estate transactions in the city. However, many expect short sales to rise in 2021 due to the impact of COVID-19 on the economy, and the end of mortgage relief programs that were passed in early 2020. Homeowners who are underwater on their mortgage should choose a short sale over a foreclosure in most cases, protecting themselves by enlisting the help of a Short Sale Certified real estate agent. 

Before we get into the differences between short sales and foreclosures, we’ll go over some short sale basics and look at the current market for short sales. For more information on our no-cost short sale services, you can go straight to that part of our website by clicking here. 

What is a Short Sale? 

A short sale is a way out for homeowners who can’t make payments on their mortgage and are underwater (owing more on the home than it is worth under current market conditions). A short sale allows homeowners to sell their home to a willing buyer for less than is owed on the mortgage. Lenders often prefer to negotiate a short sale over letting the home go into foreclosure, and homeowners get to walk away and start over (albeit with a big hit to their credit score, same as a foreclosure).

Short sales typically take anywhere from three to nine months, but are difficult to negotiate and see a higher rate of delays and terminated agreements than regular home sales. 

For homeowners, the short sale process begins whenever they contact a real estate agent who is a short sale expert – they don’t need to get permission from their bank first. Honestly, we recommend contacting a qualified real estate agent as the first step in the short sale process. From there, sellers’ and buyers’ agents negotiate with the various lending institutions, lien holders and other parties. If the maze is negotiated skillfully, a successful, bank accepted short sale offer will result. It takes an experienced short sale agent to stay on top of the communications and paperwork to move the deal along.

Portland Short Sales in 2020

Short sales were huge in 2008-14, driven by low home values following the real estate market crash. During this time, short sales made up between 20-40% of sales in the US. In Portland, the low point for home values was 2011: A median-priced home was selling for just $200,000. Compare that to today: The October 2020 median home price in Portland has more than doubled, to $460,000! 

With these strong home values, we saw just a handful of short sales in 2020. As of November the total number of short sales in Portland is just 16. A total of 9 with “Short Sale Pending” (SSP) status, meaning the seller and buyer have accepted an offer but the lender hasn’t yet approved the short sale yet. Another 2 short sales are ready to close, pending, the buyer, the seller and the bank have all agreed on the offer, and 3 short sales are active on the market without an offer. 

Short Sale vs. Foreclosure in 2021

Hopefully, mortgage relief will be extended into 2021 and few, if any buyers will end up needing to foreclose or short sale their homes. However, if you’re a homeowner behind on your mortgage payments, and you don’t have a way to get caught up again, a short sale is a much better situation to end up in than foreclosure. Here are a few reasons why:

1. Time. It can take years for a foreclosure to be completed on your home. While you’re waiting for the bank to complete their process you will likely be on the hook for the utility bills, property taxes, homeowners’ insurance, and all other associated costs with owning the home. Distressed homeowners need to get their financial lives turned around and foreclosures make this take way too long.

2. Credit score. A foreclosure will drop a person’s credit score between 200 and 400 points. A short sale will be a hit in the 150-200 point range (always varies). Still not good, but better than foreclosure, especially if you are starting out with a high credit score. 

3. Move on faster. A short sale can happen as soon as you become delinquent on your mortgage (late on a couple of payments), while a foreclosure usually requires several months’ of missed payments before the process can begin. The more missed mortgage payments, the more your credit score will drop, and the longer you’ll have to wait to be eligible to buy a home again.  

4. No need to negotiate directly with your lender. When using a real estate agent to handle the short sale, the agent will advocate on your behalf for the best terms available. They can push to have the balance of the mortgage forgiven when the home is sold and help ensure there are no strings attached. They can even push for relocation costs from the bank if you’re still living in the home (no guarantee, but it happens).

5. Lenders prefer it. Banks and mortgage lenders prefer short sales over foreclosures because in most cases, their costs will typically be much less with the short sale process.

Important: Watch out for these two things with Portland short sales

There are two major pitfalls to watch out for when it comes to short sales:

1. Taxable income. In cases where the lender forgives debt over and above what the home sells for, the IRS typically considers this taxable income. It is strange but true. However, most short sale homeowners get this waived by the IRS due to financial hardship. There is an insolvent waiver status that allows this to go away for most people. Ask your tax professional for more information before you start the short sale process.

2. Deficiency judgements. It’s sneaky, but some lenders do pursue repayment of the loan after the short sale. Some states have banned this, but Oregon is not one of them! To avoid being on the hook for the mortgage after the home is sold, sellers need to be sure that they have it clearly stated in writing that they are released of all obligations as homeowners, including repayment of the loan. The short sale agreement letter must expressly state that the lender waives its right to the deficiency and that the transaction is in full satisfaction of the debt. We always look over the short sale agreement letter from the bank and encourage our clients to have an attorney review it before accepting the final terms of a short sale. Good news, the vast majority of banks agree to short sales without strings attached, it is simply something to keep an eye out for.

Having a real estate agent who is certified and experienced in handling short sales is the best way to avoid these pitfalls Our success rate is over 90% and typically the only time we might not succeed is if the home has too many different liens attached and all the parties owed money won’t agree to terms amongst themselves. Read more about what makes our team the best in Portland for short selling your home. 

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