It's no secret that the rate of foreclosures is continuing to rise. The housing bubble has popped, people owe more than they can afford, or simply cannot afford to pay at all. The government may offer some relief, but the solution instead may lie in a strategy called the ?short sale.?



It's no secret that the rate of foreclosures is continuing to rise. The housing bubble has popped, people owe more than they can afford, or simply cannot afford to pay at all. The government may offer some relief, but the solution instead may lie in a strategy called the ?short sale.? RealtyTrak just released the data for October, and nationwide foreclosures rose another 5%, making it the 34th consecutive month that foreclosure activity increased over the previous year. In October alone, almost 280,000 properties filed for foreclosure, or 1 in every 452 housing units in the United States. Foreclosures can happen for many reasons, but these days homeowners are victims of the housing bubble. In recent years, institutions were giving risky loans to people with poor credit, or to those that may not have been able to afford them. Many loans even offered 100% financing. While there is some responsibility on the home buyer to evaluate what they could actually afford, many were seduced by the possibility of owning their dream home, and if banks were willing to take the risk, so be it. Institutions did this because confidence was high and they assumed property values would continue to increase. Unfortunately, in the last two years real estate prices began to decline. Now some people even owe more than their property is worth. The current state of our economy has caused significant job loss?the current unemployment rate the highest it's been in 14 years. Already paying more than they can afford, now some can't afford to pay at all. Freddie Mac recently reported that 45% of delinquencies were due to unemployment. There are other reasons someone might not be able to pay their mortgage such as a career change (rather than a job loss) or a personal crisis like divorce, a family tragedy, or serious illness. For many, the threat of foreclosure is very real and people are frantically searching for solutions. The $700 billion dollar Congressional bailout offers some hope. However, in the last week the Secretary of the Treasury announced that some of the bailout monies will not be used to purchase troubled home assets'a decision he reversed just days later. It seems nothing is certain yet, and since a form plan is not in place, relief must be sought elsewhere. A creative pre-foreclosure to consider is the short sale.With the help of a real estate agent, a homeowner may be able to sell their property for less than the amount owed to the bank. Most banks are willing to accept this kind of arrangement (and even pay the realtor's commission), because foreclosures are ultimately much more expensive than accepting discounted payments. This is similar in theory to credit consolidation, in the sense that credit companies would rather get something rather than nothing. The benefits of a short sale are three-fold: The homeowner avoids a foreclosure on their record, the bank avoids the effort and expense of the foreclosure process, and a real estate agent is able to make a sale in market where it is almost impossible to do so. The number of people in jeopardy of foreclosure will continue to rise as economic conditions deteriorate. Our government is making every effort to offer some relief but there is no certainty. The solution may lie in the short sale where the homeowner, the bank, and real estate agent can all benefit.