We list and sell real estate in good, bad and indifferent markets. Short sales are becoming common, though. So is blood in the streets.

People move up, down and out all the time because life is about change and transitions. And each time the real estate market shifts, we regroup and modify strategies for buyers and sellers. There may be some inconveniences and pricing adjustments for our clients, but only once every decade or so does the process of buying or selling a home become a very worrisome or blood-filled experience.

Our usual focus centers on the luxury home market, but we end up working in many arenas, especially when asked to do so. And though our San Diego luxury real estate market is doing fairly well (with a few casualties), other fringe markets are suffering–and even bleeding into the streets. But that is the nature of short sales and foreclosures.

A week ago, I received a call from a  25 year-old San Diego real estate investor who was underwater on both a townhome in South Bay and a property in Las Vegas. These were investment properties purchased when both cities had started their upward price spirals. The San Diego investment property was purchased with 100 percent financing in 2003. It was refinanced in 2005, with enough money pulled out to purchase the Las Vegas property, along with another San Diego flipper in 2005. The latter was sold at a small loss a year later; in the meantime, the second lien interest rate on the San Diego townhome had spiked to an intolerable interest level.

Oddly, it is the Las Vegas investment that may survive, because HSBC Mortgage Corporation took the initiative to call this client and ask if he would like a one year extension of his very low entry interest rate. The investor breathed a sigh of relief and was reasonably assured that his Las Vegas rent would continue to cover the mortgage payments–at least for another year. (Three cheers for HSBC for taking that initiative)

Tomorrow, we will be calling GMAC and Countrywide Mortgage Companies to see if they might offer similar relief for the San Diego property.

Otherwise, this investor (who now has a family to support) will either be forced to sell under short sale conditions (where the lender accepts less than what is owed on the property) or allow the property to go into foreclosure. The outstanding mortgage debt on the San Diego townhome is $337,000 and its value in today’s market is something less than $275,000.

It is so difficult to advise the young father and husband who can no longer afford his mortgage payments and wants out from under the maintenance headaches of his investment properties. Though I suggested we try and seek a loan modification with GMAC Mortgage that might allow him to hold onto his investment, he seems inclinded to take his punches and let it go.

Whether he chooses a short sale or foreclosure, it will bloody his credit rating and could leave him with either a hefty 1099 tax bill, or judgment lien for the losses suffered by the lender on the San Diego home. These are things we will attempt to negotiate on his behalf, once we have his bank statements, tax returns and hardship letter ready to submit.

This is not a singular situation. We receive calls weekly with similar stories. These people either purchased their homes in the last three years with one hundred percent financing, or refinanced their properties to the limit during the same timeframes. The anguish in their voices is real. These homeowners don’t want ruined credit, they fear huge tax bills, and wonder if they’ll ever be able to sleep through the night again.

This is a story that will continued—along with suggestions for possible resolution. The repercussions from these failed loans reverberate through all economic levels—from the borrower to the investor who bought the loan to the real estate market as a whole. It is an issue none of us can ignore. There is truly blood in our streets–and, I suspect, on the hands of some folks on Wall Street.

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