Short-Selling the Bend Market

Bratton Day - April 25, the day when appraiser Dana Bratton said the Bend real estate market would start its rebound - has come and

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Bratton Day - April 25, the day when appraiser Dana Bratton said the Bend real estate market would start its rebound - has come and gone with no discernible sign of an upswing. But The EYE is prepared to be patient. Meanwhile, "short sales" are becoming epidemic around here - not an encouraging development.


A quick search of craigslist for Bend this morning turned up 56 homes advertised as short sales - and, of course, that only counts the ones on craigslist, not those being sold through other channels.

A short sale in real estate isn't the same thing as selling short in the stock market. A short sale on a house simply means you sell it for less money than you owe the bank. Sometimes the bank will agree to a short sale to avoid foreclosing and maybe losing even more money.

A short sale might look like the easy way out for homeowners who are in a deep hole, negative-equity-wise. But there are some serious pitfalls.

The worst is that if you sell short, the IRS treats the difference between what you owe the bank and what you actually repay as income. In other words, if you owe $300,000 on your mortgage, your bank agrees to a short sale and you only pay back $200,000, when tax time rolls around the IRS will say that $100,000 was income and tax you on it - even though you didn't get one cent of actual cash in your hand.

One source who's prominent in the local real estate industry said many short-sellers aren't aware of this trap and will be surprised when they owe a big chunk of taxes next year.

A number of local realtors have jumped on the short-sale bandwagon, even advertising themselves as "short-sale specialists," evidently figuring it's better to get some commission money than nothing. But The EYE's source said the rash of short-selling is helping to keep the local market depressed.

"It hurts the lender, it hurts the seller, and it hurts other people who are trying to sell," the source said. "The only person it helps is the realtor who gets the commission."

This source warned owners who're thinking about a short sale to get some advice from a good accountant first - in the long run they might be better off going through foreclosure, even though that will damage their credit rating.

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