The Art Of The Strategic Short Sale
I spoke with a client of mine this week and they asked me the definition of a strategic short sale. I happen to have run across this explanation of a Strategic Short Sale by a great broker from California, Daniel Dima Batsalkin, and thought it would be good to share!
The Art Of The Strategic Short Sale
If you've been following the real estate market over the last few years, you probably already know what a short sale is. Just in case you don't, it's essentially a situation where the proceeds from the sale of real estate are insufficient to cover the existing loans encumbering the property and pay all selling expenses.
A typical short sale also involves some sort of owner hardship situation. For example, the owner lost his job, had a medical issue, his ARM loan adjusted and his payment skyrocketed, etc. You get the idea.
Starting around the middle of last year, I began seeing a new form of short sale ... the STRATEGIC SHORT SALE.
Just what is a strategic short sale, you ask?
A strategic short sale is a situation where the owner is able to continue making payments on the loan(s) and is often times current on the payments, but is upside-down on the property and wants or needs to unload it. There may be a slight or severe hardship, or no hardship at all.
In a strategic short sale, the homeowner is essentially making a business decision to sacrifice a derogatory remark on credit and some other possible negative outcomes to get an upside down property off his books and decrease his debt load.
Let me give you a real life example. I have a client who is a physician and makes a good, stable income. During the explosive market in the past decade, he purchased three single family homes as investments using 100% financing and initial teaser rates on the loans. Sounds pretty common, right?
He leased the properties out and had positive cash flow. His plan was to improve these properties and sell them at a large profit. Everyone knows what happened next. The market plummeted, his rates adjusted, the rental market is down and he is now cash flow negative on these properties. He is current on the payments, has great credit and plenty of money in savings.
This client can technically afford to continue making the payments and may be able to ride it out. However, he is upside down on all of these homes.
What should he do?
OPTION 1. Continue paying the shortage every month and slowly deplete his savings while waiting for a turnaround of the market.
OPTION 2. Sell the homes at a loss and cover the shortage out of his savings.
OPTION 3. Sell the homes as short sales.
If you selected OPTION 3, you've entered the world of the strategic short sale.
Now you may be wondering, what are the drawbacks and disadvantages of a strategic short sale?
There are three.
First, the lender may ask for an owner contribution to approve the short sale. Lenders are asking for this more frequently from borrowers who they (the lender) think can afford it.
Second, the homeowner will take a credit hit. The short sale will be reported as 'settled for less than full balance' or a similar remark and this will lower the homeowner's credit score. How much credit will be affected is a case-by-case scenario and depends upon a multitude of factors that I'm not going to cover here. Suffice it to say that credit will take a hit.
Third, there may be certain tax consequences to the forgiven debt. The general rule here is that debt forgiven on a principal residence will not be taxable, but I'm not a tax professional and I won't get into those issues here.
It also takes an experienced real estate agent who specializes in these types of transactions to get the short sale approved.
I am a Los Angeles short sale expert and specialize in listing short sale properties and negotiating the transaction with the lenders. I have a 100% short sale closing rate and an experienced, dedicated team to ensure a smooth and efficient transaction.
Our expert team of attorney short sale negotiators can negotiate your strategic or regular short sale transaction.
- Behind on your mortgage?
- Facing foreclosure?
- Payments skyrocketed?
- Can't afford your mortgage payments?
- Upside down in your property and need to move?
- Interested in a Strategic Short Sale?
CALL ME NOW AT 310.933.4281 FOR A COMPLIMENTARY, CONFIDENTIAL CONSULTATION!
Click here for more information on Boulevard Realty's short sale division. If you have any questions regarding a short sale property in the Greater Los Angeles area, or are looking for an expert short sale Realtor, please call me at 310-933-4281 or e-mail me.
-- Danny
© Boulevard Realty 2010. All Rights Reserved.
About the Author: DANIEL DIMA BATSALKIN is the Principal Broker and CEO of Boulevard Realty, a full service real estate brokerage serving the discerning needs of clientele throughout Los Angeles, California. Mr. Batsalkin specializes in representing sellers and buyers of residential real estate in Los Angeles, Beverly Hills, Brentwood, Bel Air, Santa Monica, Sherman Oaks, Valley Village, Studio City, Encino, Tarzana, Calabasas, the South Bay and other Los Angeles communities. Capitalizing on a background practicing real estate law, Mr. Batsalkin provides clients with a strong level of comfort due to his extensive knowledge of real estate contracts, powerful negotiation skills and use of the latest technologies
Mr. Batsalkin may be reached directly at 310.933.4281 or via e-mail.
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