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California Homeowner Short Sales on the Rise

California short sales have been on the rise for some time, particularly in southern California. This increasing trend is a bad omen for the California housing market. Let's explore the situation.

Staggering Statistics

In some cases, the year over year increase in short sales was reported to be as much as 74 percent or higher.  By further example, from January to May of 2010, California's Inland Empire region, which spans a territory covering four counties (Los Angeles, Riverside, San Bernardino, and Orange), experienced 12,906 total short sales. That unbelievable figure compares to the 2009 statistic of 7,405 for the similar period.  Los Angeles had the most short sales in the region, at 4,462, which represented a nearly 56 percent gain from the previous year. Riverside County next, with 3,444 short sales in 2010, an increase of 116 percent over 2009 figures. Then, San Bernardino County experienced an increase of 97 percent in short sales, reaching 2,089 in 2010's first five months. Finally, Orange County experienced the smallest gain of all, 55 percent, when it reached 1,880 short sales in 2010. The rising tide of short sales is undeniable.

Contributing Factors

One of the reasons for the rise in California short sales is attributed to lenders being more agreeable to approving transactions in which homes are sold for less than the homeowner owes the lender, rather than allowing those homes to go into foreclosure. In 2009, California lenders were more generous in their granting of lending relief programs to borrowers, so the correlating amount of short sales decreased. However, in 2010, lenders tightened their belts and granted fewer loan modifications to borrowers, equating to a huge upswing in short sales in California again.

Short Sale Challenges

Real estate short sales are extremely difficult to coordinate and implement, as there is no certainty in the closing process actually completing. Amazingly, some lenders take three months just to inform borrowers whether a short sale offer is even accepted.  Delays of that length are understandably problematic for buyers and sellers in short sale transactions. Not surprisingly, at least two (if not more) of every five short sales fails to reach closing status. 

Even with more homes for sale at lower prices, the California housing market continues to be stymied.  Solutions like short sales and foreclosure are helping move some out of dire financial straights, but the housing market simply cannot recover until banks in the region commit to efficiencies and improve the short sale transaction time line.