Realty Check

Published: Thursday, 25 Jun 2009 | 9:32 AM ET

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I received the following email from Jeff in San Diego and was so struck by how reasonable, matter-of-fact and truly troubling it is. I know it's California, but I believe it's an example of a spreading trend nationwide:

"Last year I was paying triple payments to pay down my mortgages. I stopped overpaying at year end because my business was slowing. I think it was in April that I started really wondering what my house was worth, then there were 3 short sales that went through in my neighborhood and I was shocked at the price they sold at. I was 30% underwater after paying down my mortgages $100k in the previous year. My house value fell from (last appraisal) $1.250 to $650k! At this point (about 2 months ago), I started looking closely at loan modifications and I quickly got the impression that principal reduction was not realistic. Suddenly it occurred to me that the 3 short sales in my neighborhood had accomplished principal reduction, when loan modification would not. I told my wife to find us a rental for $6,000/month or less (the amount I was paying to stay in this house), and within about 2 weeks we were happily renting for $4,400 in the nicest neighborhood we have ever lived in.  I was advised to stop paying my mortgages and we listed our short sale at $650k since the comps were clear and rec’d multiple offers immediately. I expect the banks will accept the offers, but the are very slow, so who knows. My perfect credit has been ruined for now, but I have no debt anymore, so I think it is a fair trade. In my view, unless principal reduction is available, prices will continue to drop and people will continue to walk away from their houses."

Check Out these Real Estate Slideshows on CNBC.com

• Slideshow: 10 Most Affordable Metro Areas
• Slideshow: The World's Most Expensive Real Estate Markets
• Slideshow: Where The $200,000+ Crowd Lives

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