Best Cities for Trapped Homeowners

Homeowners looking to bail on speculative purchases in Tennessee have been able to find buyers at a rate that's better than most in this situation. In Memphis, 31.6 percent of homes sold had less than one year's occupancy; in Jackson, the rate was 27.5 percent. Overburdened residents' ability to get out of mortgages quickly--even at a loss--means fewer foreclosures, and is a sign that there are buyers out there.

"Every market is a little bit different," says Jonathan Miller, president of Miller Samuel, a Manhattan-based real estate appraisal firm. "But while faster sales don't necessarily mean a bottom is around the corner, it is a significant reversal."

But California cities dominate the list, accounting for five of the 10 spots ranked. Buyers searching for steals have returned to that state's markets with force. In Sacramento, San Diego, Los Angeles and San Jose, transactions have exploded by 100 percent, 90 percent, 87 percent and 55 percent, respectively, in year-over-year terms, according to Radar Logic. Unfortunately for sellers, buyers are nabbing properties at rock-bottom prices, which often result in homeowner loss.

This is a double-edged sword for both homeowners and lenders. Those scrambling to unload a speculative property for a loss need their lender to sign off on the short sale. If more is owed on the house than it's worth--what's known as negative equity--banks lose more money by letting the transaction occur.

"If the equity in the house is sufficiently negative, there may be an incentive for the household to engage in a short sale," says Sanders. "But the more negative the equity, the less likely the lender or servicer will be willing to agree, since it increases the loss."

Though with the number of foreclosures most lenders are rolling up, forgiving some debt from a trapped flipper is fast looking like a better alternative than going through with foreclosure and being stuck with the property.

Best to leave that for a short-sale buyer trying to time the market's bottom.

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