Why are there short sales in Oahu when real estate prices are up island wide?

Short sales are becoming more common these days, with home owners falling behind on their adjustable loans that have reset, or just falling behind on a regular loan. A short sale is a house for sale by an owner that owes more than their home is worth. It doesn't mean that the price of the home has dropped at all. In fact, in Oahu it's unlikely that the value dropped, since most of the island's home prices have been steadily rising.

It's more likely that the home owner borrowed 100% or more of this home's equity, as in, he took out an equity line for 125% of the home's value. So let's say he just took 100% of the equity, and the home value either stayed flat or moved only 1% up in the last year, because he lives in an undesirable area. If he lives on the North Shore, prices have actually come down about 10%.

But let's say it stayed flat, and the owner started falling behind on his payments because he lost his job or got hurt or he got some big medical bill. After a few months, the lender is going to start threatening to foreclose on him if he doesn't catch up. He calls the bank to get a new loan or home equity line, and finds that he can't get one because his credit now sucks due to his late payments. It's a catch 22. He can't pay the loan because he has no money, and he can't borrow any money because he hasn't paid the loan.

So now what? Enter the short sale. If he owes $800k including late fees and missed payments on his nice big Ewa Gentry house, and the house is worth $750k because it's a big house in Ocean Pointe, he has to sell the house and be short the balance owed to the lenders.

The lenders will go through a long difficult process of approving the payoff below the amount owed to them, because it's cheaper and faster than foreclosing on a house. They don't want to own houses, that's not their business. They just want most of their money back.

The approval of the short sale could take months. Literally, month. It might never get approved. The best thing is if you can get the lender to pre-approve the short payoff balance, because then you don't have to wait for the loan payoff approval, you just close in about 3 weeks.

The new lender is almost certainly going to require you to put 20% down, because it's a short sale and they don't want to end up in that position either. Short sales are not too common in Hawaii, but when you see one, it might be a good way to get a good deal on a house, if you have alot of time and a big down payment.