The Sad Story of a New Jersey Short Sale

In the week I've been writing about the economic stimulus, I haven't told a real-life story of who's being helped -- or hurt.

But yesterday I heard a story of joy and pain from a friend of mine in New York. For the past few years, she's been living and renting in Brooklyn, but with an eye toward buying a place of her own. When the housing market was bloated, she was priced out of the city, and the burbs in Jersey, so she sat tight.

But things are different now: after a few years' saving, she's got a decent downpayment and good credit. Interest rates are low, and as a bonus the just-passed stimulus bill would give her an $8,000 tax credit this year if she buys.

All that's left is to find a decent place, and now she has: a three-bedroom, one-bath in New Jersey about 15 minutes from the Holland Tunnel. The price: $190 grand, way below what you would have bought anything decent for in the New York area two years ago.

But that's where the pain comes in: the house is so cheap because she's buying it in a short-sale, meaning the person who owned it couldn't afford to keep up with the payments. Rather than going through the hassle of a foreclosure, the bank approved the sale of the property for less than they're owed on the mortgage.

In this particular case, the house was owned by a woman who paid $295,000 for it no more than five years ago. After an accident, she could no longer afford to keep up with the mortgage (although given she bought at the height of the housing boom, it's unlikely the house would be worth what she paid for it today anyway; even without the accident she may well have been one of those "underwater" homeowners that Obama's housing plan is supposed to help).

This is recovery at it's finest and worst: there's no avoiding the ugly necessity that many people will be hurt in order for the overall economy to rebound. Without this sad story of a short-sale and many others like it, many houses would simply go into foreclosure or continue to be owned by people who have no chance of selling them for more than they borrowed.