South Florida is seeing a big jump in the number of homeowners who are selling their properties for less than they paid, highlighting the magnitude of the region’s historic housing slump.
During the first half of this year, 23 percent of sellers in Broward County unloaded their homes at a loss, according to sales data analyzed by the Sun Sentinel. In Palm Beach County, the percentage was even higher — 27 percent. That’s a significant spike from 2006, when only 2 percent of sellers in each county took losses.
“It’s fair to say that some people are desperate,” said Brad Hunter, a housing analyst in West Palm Beach. “But there are others who regret having bought the house at the price they paid and if they can get rid of the obligation of having to continue paying on it, they’re happy to do it.”
The winners in these fire sales are buyers who are getting houses that are much more affordable.
“There’s no way we could have afforded a house before,” said Katarina Lytle, 29, a first-time buyer who paid $205,000 for a house that had been listed a year ago at $355,000 in The Acreage. “My husband and I walked out of the closing, jumped in the truck and just screamed.”
Most people dumping properties this year bought during the peak of the housing boom in 2004 and 2005. Many strapped homeowners are negotiating so-called short sales, in which lenders take less than what is owed on the mortgages and forgive part or all of the remaining debt.
In Broward County, one in three home sales in Miramar in the first six months of 2008 went for losses, according to Sun Sentinel research, which did not include foreclosure sales. Coconut Creek, Parkland and Weston also were among the hardest-hit Broward cities.
In Palm Beach County during the same period, West Palm Beach and Palm Beach Gardens both had 34 percent of sellers taking less than they paid. Also hurting were the west-central communities of Royal Palm Beach and Wellington, where property values had soared during the housing boom.
South Florida is among the leaders nationwide in homes and condominiums fetching less than the sellers paid, according to Moody’s Economy.com, an influential U.S. real estate research firm. The current climate is a stunning reversal from the housing heyday of 2000 to 2005, when thousands of short-term investors were buying and selling homes in South Florida and pocketing huge profits, seemingly overnight.
That speculation drove up prices, causing buyers to squeeze into homes by using adjustable-rate mortgages and other risky loans that now are resetting with much higher interest rates. Many of the homeowners no longer can afford the properties and are losing them in foreclosure, dropping values across the board.
That’s evident in South Florida’s shrinking tax bases. Broward’s tax base for homes and condos decreased 9 percent from last year, to $167 billion. Palm Beach County homes and condos are valued for tax purposes at $113.9 billion, off 7 percent from $122.9 billion in 2007.
“We had an awful lot of stretch buying above people’s means,” said Lewis Goodkin, a Miami-based housing consultant. “And we’re really paying the price for it now.”
Short sales
James Diehl bought a three-bedroom house in Wellington for $389,000 in 2005 but quickly discovered South Florida was too expensive. The information technology analyst eventually found a higher-paying job in Atlanta, so he and his wife rented their house here for about a year, but the tenant had no interest in buying it.
Knowing they couldn’t sell the house for close to their mortgage amount and determined to avoid foreclosure, the couple worked out a short sale with Wellington real estate agents Katerina and Nestor Gasset, who found a buyer for $284,000 — 27 percent less than the Diehls had paid.
“The economic burden has been lifted,” said Diehl, 36. “Everything happens for a reason. Now we’ve moved to a place where we can settle down, survive and thrive.”
Homeowners interested in short sales must pass a hardship test, submitting W-2 forms, income-tax returns and other documents to prove to lenders that they can’t afford to stay in the properties.
Banks typically notify credit bureaus that borrowers completed a short sale or that the loan was paid in full with assistance, but that’s far better than losing the house in foreclosure.
A short sale negatively affects a person’s credit for 12 to 18 months and reduces a credit score by 75 to 125 points, according to The Coloney Group of RE/MAX in Fort Lauderdale. A foreclosure, however, stays on a homeowner’s credit report for three to five years and drops a credit score by 200 to 280 points.
Mary Cochrane bought a $290,000 townhouse in Davie for her daughter in 2005. But she didn’t read the fine print on her adjustable-rate mortgage and saw her monthly payments rise a year later from about $1,600 to $2,400. She said the lender wouldn’t modify the loan.
She eventually contacted her neighbor, a real estate agent who suggested she try a short sale. He found a buyer for $175,000 — 40 percent less than Cochrane had paid.
“It was a blessing,” said Cochrane, 60, a registered nurse. “I sleep at night now.”
Wells Fargo, Washington Mutual, Bank of America and Countrywide Financial Corp. are the largest lenders agreeing to short sales, said real estate agent Katerina Gasset. However, agents say the lenders sometimes drag out the process by not responding to offers quickly enough.
But agents say lenders, particularly the smaller ones, are responding more quickly as the housing crisis deepens.
“My feeling is that it’s easier now than it was six months ago, and six months from now it will be easier than it is now,” said Scott Coloney, principal of The Coloney Group.
Loans reworked
Riverside Bank, a community bank with six offices in Palm Beach County, meets with borrowers directly and will consider short sales if their circumstances warrant, said Andy Wells, a Riverside vice president and special assets manager.
But the bank would rather keep the borrowers in their homes, even if that means restructuring the loans, Wells said.
“It’s much more beneficial to us because the bank doesn’t have to take the hit,” he said.
Gerry Thompson bought at the height of the housing boom and soon regretted it.
He paid $585,000 for a Fort Lauderdale home in 2005 for his daughter, an investor. But values started dropping the next year, and the house needed major repairs. Fed up, Thompson sold it five months ago for $380,000 — a 35 percent price cut.
Because he didn’t qualify for a short sale, he had to bring $83,000 at closing to make the deal work.
“I was quite happy with the sale price, although it was considerably less than what we had in it,” said Thompson, 75, who splits his time between northern Florida and North Carolina. “We’re done with the real estate business, believe me.”
Hunter, the West Palm Beach housing analyst, said the mistakes that people have made in this real estate cycle will be remembered for decades.
“What’s happening is historic,” he said. “Much will be written about it in textbooks, articles and essays long after we’re through this.”
Lehigh Acres, FL - Vacant Land 
