Wow, I never thought about it before but I think you’re on to something there. Back when typical home prices were below $250k a short sale might involve a $25,000 loan loss in addition to the loss of the borrower’s downpayment. A $15,000 or $25,000 loss is bad, but it’s not enough to justify going to court.
Now that prices are starting at $500,000 and many loans start out with no equity the intial loss to a lender with a 10% deficiency – which is where we are right now in some markets – starts at $50,000. A $750,000 purchase puts it up to $75,000. Those kinds of numbers start to make it worthwhile to skip the short sale or to sell the position off to a collector. It only becomes more viable as more markets go negative.
