More homeowners selling houses for less than they owe

After years of borrowing in a sizzling housing market, more homeowners are finding themselves upside down on mortgages.

They borrowed more to buy or fix up homes than they can now afford, and a growing number are turning to short sales — selling homes for less than they owe — to unload high payments and avoid foreclosure or bankruptcy.

No organization tracks short sales, but real-estate agents, housing counselors and mortgage companies say they have been seeing more of them since the economy tanked and employers began laying off workers.

Most are the end result of delinquent mortgages — those not paid for more than 90 days — which have risen dramatically in the Seattle-Tacoma area the past three years. The number of delinquent mortgages rose 50 percent between June 2000 and July 2003, according to Loan Performance, a San Francisco firm that tracks mortgage data monthly.

For GVE, the increase in mortgage trouble is good news. GVE, in Covington, is one of the few companies in the area that brokers short sales, and business is up 70 percent in the past nine months, founder Joanne Anderson said.

She has been working 16-hour days, six or seven days a week, to keep up with demand, she said, and plans to hire 10 employees in the next year.

In the late 1990s, people were encouraged by rising stock portfolios and a robust economy. They took out large mortgages and tacked on home-equity debt with the help of looser loan-qualifying rules.

But low down payments, subprime loans (high-rate home loans aimed at buyers with terrible credit), and predatory mortgages (loans for people who often shouldn't have one), have gotten more people into homes they can't pay for.

"We're seeing tons of short sales and foreclosures because people are in over their heads," said Debra Snoey, branch manager at Windermere's Federal Way office, who works with Anderson on short sales. "It's refreshing when a buyer has equity now."

Although some lenders say buyers should max themselves out for a mortgage, being more practical is safer.

"(People) are buying more expensive homes because they want one bigger, newer and better," Anderson said. "But they don't realize that if they bought a home for $20,000 less and saved up $5,000 for a down payment, they'd be sitting so much better."

Some homeowners find themselves in trouble when they least expect it.

An Issaquah woman who recently sold her house for $30,000 less than she owed on it never thought she'd be in that position.

The woman, who didn't want her name used because she's embarrassed, said she and her husband earned more than $200,000 a year, lived in a 3,200-square-foot custom-built home on an acre, and bought a new car every year.

Then her husband took a pay cut to save his job, and they couldn't keep up with the bills. The couple divorced, and he filed for bankruptcy, leaving her with three kids and two mortgages.

To make it, she put the family's home on the market, reducing the price four times in six months. In May, it finally sold, but at a loss.

"It's awful and embarrassing to do a short sale and admit you're a deadbeat," she said. "(But) people make mistakes. This can happen to anyone."

Sellers lose a lot in a short sale, but buyers can make out because the homes usually are worth more than they cost.

Hal Bancroft and his partner bought a 3,330-square-foot house in Everett last year from a couple who could no longer make their payments. The former owners had taken out a second mortgage to buy a motor home, but the man lost his job at Boeing and his wife broke her back. They sold the home for $205,000 — $30,000 less than they owed.

The deal had strings, though. Short sales can take several months to close because lenders take longer to approve them.

"It took four months to close what should have been a 30-day transaction," Bancroft said. "The byword with short sales is patience."

For real-estate agents, short sales aren't so good. Adnan Othman, with John L. Scott Real Estate in Lynnwood, said he usually receives a reduced commission of 1 to 1.5 percent and sometimes doesn't get one at all — agents typically get 3 percent on a regular sale — but he keeps handling them. Othman is working on four now.

"There's a lot of sadness when you see this," Othman said. "You want to throw a life preserver to them and see if you can help."

Kristina Shevory: 206-464-2039 or kshevory@seattletimes.com