BANK OWNED HOMES & SHORT SALES PRESENT CHALLENGE TO ATLANTA REAL ESTATE RECOVERY

This year will likely be remembered in Atlanta real estate circles as a year of change and challenge.

Change for the better in that values have apparently bottomed out in our market area and are starting to rise, according to both major reporting sources. And change for the worse as the flood of bank-owned homes continues to poison otherwise healthy neighborhoods with ultra-low price sales and lowball purchases.

Selling these homes for whatever they can fetch may be the cure for the lenders who end up with them, but they result in dramatically lowered values for the surrounding neighborhood. And still there is no source of mortgage money for the many investors who would otherwise buy these homes at higher prices, but necessarily offer less for a cash transaction.

The new challenge is the gradual increase in lender's acceptance of short sales as a way of stemming the foreclosure tide.

In a typical short sale, an owner facing foreclosure agrees to sell his house in exchange for being released from the loan obligation. Receiving no other compensation, he simply walks away and avoids a foreclosure action. Simultaneously, an investor offers to buy the house from the lender, but at a much lower price than the mortgage balance.

The lender eats the loss, but avoids the unappetizing prospect of owning and marketing the vacant house for months on end. By limiting their loss, they actually save money in the long run. And lenders are finally beginning to warm up to this practice.

However, because these same lenders will not offer new financing to even well-qualified investors for these purchases, they often drive down the prices a cash investor can afford to pay. Once again, this challenges any thought of re-establishing property values in many Atlanta neighborhoods.

Adding salt to the real estate wound is the current appraisal practice of considering these distressed sales to be comparable transactions in establishing market value. Sellers everywhere are complaining that when they finally do get a buyer, their house often fails to be appraised for contract price, effectively killing the transaction.

Yes, there are promising signs in our current economic picture, and I believe Atlanta will once again be recognized as one of the most desirable places to live in the country. Our economic output seems to be growing, and interest rates are still at bargain levels. Much wealth that was lost has been restored on Wall Street.

But on Main Street, the twin enemies of homeowners are short sales and bank-owned home giveaways. These are the toxic assets our leaders in Washington need to be concerned about. These, and the lack of available mortgage funds, must be addressed before we can look for a full recovery of the housing market in many parts of the country, including metro Atlanta.