Short sales are having a very pronounced effect on house values in high class neighborhoods. Once million dollar neighborhoods and now half million dollar hoods. It is no secret that the foreclosures and short sales are making home values plummet across the country. 

In definition, a short sale happens when sale proceeds do not make up enough to cover the balance owed on the properties current mortgage. the mortgage lender makes the decision to take the loss on the property through the short sale. Why? Because otherwise, a foreclosure would ensue, meaning a very long and expensive process for both the lender and the borrower alike. While it does leave the borrower with a “deficiency” amount to pay back, it does save them from the catastrophic effects that foreclosure has on credit ratings.

What are some short sale effects on upscale neighborhoods?

Short sales have long been akin to foreclosures and are usually mentioned in a lot of the same conversations. If a house was being sold for $1,000,000 dollars, and a short sale provided $550,000 of that, the short sale saved the upscale neighborhood the bad publicity of a foreclosure. But now this sale has brought down the values of other homes in the near vicinity and this is is happening in many high end housing areas across the country.  One of these sales can result in values taking a hundred thousand dollar plus decrease in worth over night and there appears to be no end in sight.

Where’s the jobs?

To couple the short sale affect on upscale neighborhoods, you have the unemployment tsunami that is engulfing many white collar professionals who once enjoyed six figure salaries. This continued jobless wave will wreak havoc on high end communities has it continues to spread across the U.S.

When a home is appraised they will take a close look at the surrounding areas recent sales to ensure the get an accurate amount. If there are many foreclosures and short sales in the neighborhood this will deppreciate the value of the properties in that area.

But for the most part it is our failing economy that has drove home prices way down, not short sales.

What will a short sale do to my credit?

Whatever the neighborhood, upscale included, a short sale will have an adverse effect on the credit rating of those involved. Typically staying on a person’s credit report for 7 years, it’s not so much the neighborhood that gets affected, but the people who live there. Because it is a far less damaging than under taking a foreclosure, another mortgage loan can be possible in as little as two years after the short sale. Typically ones credit rating can drop anywhere form 100-250 points through a short sale.

Also some borrowers are able to achieve this without even missing one monthly payment on their mortgage. If you are able to accomplish this your credit may be damaged as little as 30-60 points!

The overall effect on an upscale neighborhood suffering from frequent short sales is detrimental to its progress as a growing community or prosperous place to live. But from the looks of the current real estate market, it is something that is here to stay. Short sales and foreclosures will remain to have adverse affects on neighborhoods across the U.S. for years to come.

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.