The recent home price boom started in California, then spread to Las Vegas before arriving in Arizona. Hopefully, this article about “short sales” in the Sacramento Bee doesn’t foreshadow things to come in Arizona.

I think of a “short sale” as a sale where the seller needs to bring a check to the closing. That is, the seller’s mortgage and selling costs add up to more than what the buyers are paying for the house. Therefore, to complete the sale, the seller has to bring a check to closing.

That’s gotta be a bad day, to pay money to sell your house.

This SacBee article focuses on those less common situations where the seller doesn’t have the money needed to sell the home and then asks the lender to “forgive” part of the loan. Lenders might consider this when the alternative is foreclosing on the property.

“The real cost in a foreclosure action is what it costs the lender to carry that loan until such time as they can resell the house, Brinkmann said. “We have interest costs we have to pay, and who is going to pay the taxes? The same thing with insurance. Do you have to start covering the insurance? And finally, there’s maintenance and repair costs.”

Californians have a lot of experience with these short sales from the housing bust of the early 1990’s.

Declining real estate values often aggravate already onerous financial situations. An individual may be facing divorce, job loss, a sudden drop in income, or the inability to meet rising payments of adjustable-rate mortgages.

Fortunately, the median Maricopa county home price is similar to what is was a year ago while prices in Sacramento County are down 5% from a year ago, according to the the article.

Nevertheless, short sales with or without a bank involvement will be more common next year.

If you bought a home within the last 12 months but due to “divorce, job loss, a sudden drop in income, or the inability to meet rising payments of adjustable-rate mortgages” or otherwise you have to sell, you likely have a short sale.

My personal rule of thumb used to be that you needed to own a home for about 2 years before it appreciated enough to cover your costs of selling the home. We may be back to a market were that rule of thumb works again.