Why a Strategic Short Sale May Make Sense.

Wow..worse than my area...we're at about 50% and still not enough for me to work on my tan!

Oour prices are down to 1998 to 2000 prices. EVeryone is upside down, those that have to sell must go short. Thanks for a easy to explanaton with the numbers.

Many home owners will have to look at this and say ... "How much am I missing out by not selling"? Aside from the moral aspect which nobody here should get into, 100%+ appreciation to BREAK EVEN is staggering, let alone the truckloads of mortgage payments made over the timeframe ... and when you stop to think of what else you can do with that money; save it, help a needy family, help your kids prepare for college ... it becomes a very complex emotional situation.

Sorry, but I just don't feel like paying for other peoples' bad investments, bad gambles, or bad judgment. Back many years ago I invested $5,000 in a Broadway play--Seascape by Edward Albee. See http://en.wikipedia.org//wiki/Seascape_(play)  It was critically well-received, but closed fairly soon and I lost every penny. Did I demand that the producers refund my money? No. I recognized that not all investments succeed.

Since then, I've made plenty of other bad investments, some in real estate. No one ever guaranteed they'd turn out well. And when they didn't, I took my lumps and tried to learn from the experience. What would I do differently? In some cases, like Seascape, probably nothing. In some of my real estate ventures, a lot more due diligence. But you've got to take responsibility for your own actions.

In the case of a strategic short sale (or a strategic foreclosure), that's not what the owners are doing. They're saying: "I made a commitment. Now the numbers aren't working out the way I'd expected. So I'd like to pass my losses on to someone else."

And who are they passing them on to? Oh, no. Not the big, bad banks. Those losses flow right through the big bad banks to the federal government and back to us. You and me. We're the ones who'll pay. Are paying. Oh, and our children and likely our grandchildren. If someone's got to pay for a bad decision, I'd prefer that it be the person who made that poor decision.

The original posting, and many of the follow-ups, say it's not our position to judge. As Realtors, we're expected to best serve and represent our client. Same with a lawyer who's defending a guilty client. OK. That's our professional responsibility. But, come on, of course we can judge. Do we check our morals and ethics at the door? I hope not.

Bryant - great post - short sales are indeed necessary for some situations - we are seeing single family home prices going up a little but condos are still dropping - will it ever end???

If you are going to do a short sale, now is the time to do it.  5 years from now, most people including lenders are going to look back and say 2010 was a very bad time in the economy for all of us.  But if you wait 5 years and then try to short sale, you are going to be frowned upon heavily if the economy has improved. 

Great blog and it will hit home for a lot of folks across the country.  Florida will recover as will the rest of the country, the ? of course is how long will it take.

I agree it is our job to present the facts and let the seller make the best decision as to their particular situation.

Clear, concise example, BB, of the challenges some face with their underwater homes. Your numbers show just how long it will take for some homes to appreciate back to a break-even price level.

And what if someone is just a few years away from retirement and doesn’t have the time to wait and financially recover? Strategic default may be their wisest choice. Thanks for posting this.

Bryant, well put. My area isn't that bad. As you say, you don't judge but you gave us great facts to consider. Not every loan made during 2003-2007 was a bad loan, but the people who bought during that time over paid for their properties.

I would not like to be put into that position, but if I were, I'd have to look at the numbers as you suggest.

Your numbers are staggering and I get it. But the issue I've faced ... and perhaps I just haven't been willing to go down the path with this sort of short sale ... is how does one say to the banker who's to approve this short sale "Hey, I'm selling my house short just because I don't feel like making the payment!"

Yes, there'll be a defiiciency and tax ramifications, but with the difficulty we often face just getting banks to approve short sales with really sad hardships, make it hard for me to understand this one well. (count me naive ...)

I'm curious to know how many of these types of transactions are truly closing; I'd like to be a fly on your wall for a while to hear how you're convincing lenders to approve them.

Luckily our prices haven't dropped to the extent you see in Poinciana (we're closer to 2004-2005 numbers), but we tend to lag behind most of the other parts of the country by several months ...

Good post, Bryant. Love the ones that truly make you think.

Are the banks really taking the strategic shorts sales?  Perhaps in your area, but I dont know that this is the case all over.

Abandon ship......

I, too, have made a 180 turn around on this topic. At what point do you stop throwing money into a really bad investment???? I think that it's easy for people to condemn those who purchased in the early to mid 2000's at the height of the real estate boom for making "bad investment decisions", but the reality is that many people were steered into awful loan products because it made more money for the brokers at that time. What about those individuals??? Were they stupid??? Did we really expect them to fully understand the ins and outs of our profession?

Wow! What an eye popper & a different, yet very logical way to look at Short Sales! I hope your post is somewhere for the general public in your area to view ... perhaps a local paper (site).  I feel for those people who bought in the early 2000's they, like Vanessa above stated probably didn't fully understand our profession & no doubt were steered more into their "i want to buy a house" craving. I think your post is necessary for them to see!

Cheers & Thanks for another great post!

Bryant - Thanks for the comment on your reblogged blog. Wow that was a keyboard full. It's reall valuable information, and even though we haven't had nearly the valuation problems you do, short sale situations do come up. Anything you write about short sales will probably get reblogged by me. I hope it sends you some additional business, and me also. Keep up the good work.

Agreed.  Poinciana has been hit the hardest in the area.  Your numbers are staggering and at the same time illustrate the reality of realty. Will Florida come back- of course it will. Being one of the first States to tank, it is making a gradual improvement in year over year comparisons.

Hard for folks to argue with unemotional facts and numbers like that. Thanks for making it crystal clear!

I've never thought of short sales as a moral issue.  It's a business decision.  If Wall Street can do it, Main Street can, too.  No judgement here.  Thank you for putting this issue into perspective.