subject: How Foreclosure Became So Common Place [print this page] Short sales have been a popular transaction in todays market. Over 20% of all real estate transactions are short sales, Which makes sense because hundreds of thousands of homes are in foreclosure across the United States.
The current foreclosure boom was caused by lenient lending policies in the late 90's and in the early 2000's. Any one and their grandma could get a loan. For example a common practice in lending during those years was the "stated income loan." This loan is where the lender asks the consumer what their income is, and the lender would give the consumer a loan based on that stated income, without any verification. Because of this, there were people that didn't have jobs that were getting loans for hundreds of thousands of dollars that couldn't afford them.
To top this, some homeowners would want to get paid to buy a property. For example, let's say the purchase price of a home was 200,000 dollars. The homeowner could get a loan for 300,000 dollars to purchase the property because the property would appraise at 300,000 and the homeowner would walk away with a new house and 100,000 dollars cash. Over appraising a property became common practice. Appraisers would do valuations on properties and some companies would fire their employees if they did not put in high appraisals.
Obviously, this system of over appraising and lenient lending would eventually burst, and it did. In 2007 and 2008 home values quickly dropped, and homeowners who had gotten themselves into 5, 7 and 10 year arms were no longer able to afford their mortgages. Because home values started dropping, the sellers could not sell their homes for what they owed and here we are today.
Hundreds of thousands of over leveraged homes that owners cannot afford, and foreclosures have skyrocketed.
It is because of the above that short sales are such a common place in this market.
For those homeowners that live in Illinois that are interested in selling their home through short sale, they should check out ilrea.net. Otherwise, contact your local real estate office.
