Shiny, Happy Places

Denver’s most compelling residential areas have something more appealing—and more meaningful—than uncertain appreciation values: They offer a true sense of community.

May 2011

Difficult Decisions: Selling Yourself Short

Avoiding the tough questions about a possible foreclosure? There may be another way out of your predicament.

Although the front range real estate market has positive long-term prospects, we’ll have to endure more pain before reaching the promised land. Real estate research firm Clear Capital released a report in January that projected average home prices in Denver to shrink by 6.6 percent in 2011, following a 4.4 percent dip in 2010, slightly worse than the national average of 4.1 percent.

The results placed us 40th out of 50 metro areas surveyed, and a portion of the blame for this goes to our continuing foreclosure crisis. Colorado had the ninth-most foreclosure filings per household as of February 2011, and even though these dropped from about 46,400 in 2009 to about 42,700 in 2010, an 8 percent decrease, that slowdown may have more do to with confusion over the process, and with pending changes to it, than to an impending turnaround.

All over Denver, foreclosure-eligible properties often far outnumber the ones that are actually in foreclosure (see chart below). The discrepancies arise from uncertainty about when or whether a bank might begin foreclosure proceedings, or a sense of shame over being stuck in a precarious financial position, making distressed property owners slow to act on their options. But certain owners can escape the foreclosure nightmare altogether by trying the next-best alternative: the short sale. This occurs when the homeowner, in cooperation with the lender, sells a property for less than the outstanding balance on the loan. Everyone involved takes a financial hit, but it’s less of a setback than a foreclosure would be. “We brokers should be negotiating more short sales,” says Synergy Real Estate Team’s Joe Phillips, who specializes in distressed deals. “Right now about 70 percent of people with a distressed property just do nothing and let it go back to the bank.”

As with a foreclosure, a short sale negatively impacts your credit rating, though not as drastically. It lowers your deficiency—the difference between the sale price of your property and what you owe—and lingers on your credit report for less time. “A foreclosure can hurt you for about five years, but a short sale will be on your record for closer to two,” Phillips says. “Foreclosures hurt you not only when applying for a loan: A lot of employers now use credit checks when hiring, and if you have a job that requires security clearance, it could hurt you there.”

Phillips says those facing possible foreclosure should find a Certified Distressed Property Expert, a formal credential that real estate agents can obtain. It’s definitely worth exploring whether a short sale is right for you, because delaying the pain is a bad idea. So don’t be shy. “There’s a huge list of benefits [to short sales],” Phillips says. “I’m not sure if people don’t know about them or are just afraid to ask for help.”