To do a strategic short sale or not to do a strategic short sale ... that is the question

Maybe you’ve heard the term ‘Strategic Short Sale’ before. Maybe you haven’t.

Here’s the quick and dirty definition of a Strategic Short Sale —

A Strategic Short Sale occurs when homeowners who purchased at the top of the market — then watched the value of their property decline to such an extent that they’re now upside-down on their mortgage — decide to sell their house as a Short Sale even though they have no problem making mortgage payments.

Neither a borrower nor a lender be

Strategic Short Sellers are different from Strategic Defaulters.

Strategic Defaulters simply walk away from their homes and let the bank take it. Or stay while they ‘bank’ their missed payments for as long as the foreclosure process takes, and finally move on.

Consequently, they lose their ability to buy another house or car or refrigerator on credit for years to come.

They also risk their employment status, especially when it comes to positions of trust.

Finally, they face the possibility of having the bank come after them for the deficiency as well as court costs, interest, penalties, and other incurred expenses.

There is nothing either good or bad, but thinking makes it so

Strategic Short Sellers, however, don’t ‘walk away’ in the figurative or literal sense. They stay on and try to sell their house in the only legitimate way available to them ... as a Short Sale.

Just like anyone else who buys a house and a few years later decides to move, Strategic Short Sellers arrive at their decision based on financial, personal, and lifestyle reasons. Better schools. Different neighborhoods. Downsizing or upsizing. Wanting to be closer to work and cultural venues or farther from congested city or suburban life.

While they don’t have any pressing hardships that prevent them from staying on, they feel that getting out from under is the best decision for them. Especially after considering that they may very well lose thousands of dollars more in a weak market.

At the core, Strategic Short Sellers just don’t want to be hogtied to an undervalued yet expensive piece of property that may never recover its value. To them, choice, freedom, and the preservation of hard-earned dollars are more important than a signature on a note.

O horrible, O horrible, most horrible!

Many homeowners in the Chicago area purchased homes at the top of the market, when prices were skyrocketing and no end to the madness was in sight.

Before the Bubble Years — which happened roughly between 2004 through 2006 — we saw solid but reasonable advances in home prices. Then everything went mad.

Like all bubbles, this one was destined to burst. Boy oh boy, did it ever.

At first, it seemed like a much-needed correction. A temporary blip that would bring values down to 2004 levels. At the worst, 2003 or 2002 levels, before returning to good times. Surely, prices couldn’t slip much lower.

They could and they did.

The correction turned into a crash. In just about every neighborhood throughout Chicagoland, values are now down to 2001 levels or lower.

If you purchased at the top of the market, you’ve lost at least 33% of your home’s value. Depending on where you live and what kind of property you purchased, possibly much more.

Now you’re upside-down on your mortgage.

No one knows when the downward pressure will stop. Or when it stops, how long it will take for the market to climb back.

This we do know. Price erosion for some has been so steep that it’ll take years if not a decade or more for the real estate market to fully recover.

This above all — to thine own self be true

If you are one of these homeowners, you may feel strapped, trapped, and tapped out.

You’re thinking many thoughts, considering many alternatives, and asking many questions.

• Should I stay in my house?
• Is it worth making mortgage payments on a house that won’t recover in value for years?
• Wouldn’t it make sense to sell now, rent for a while, and buy a home later at a discounted price?
• Should I do a Strategic Short Sale? Or just hold on until the bitter end?

If these are the kinds of questions you’ve been struggling with, make sure you understand the ramifications of doing a Strategic Short Sale.

Are you happy in your house?

If you like living where you live, think carefully before pulling up stakes. When you first purchased your house, you had many good reasons for doing so. Do these reasons still hold up? Or have you ‘moved’ on?

People change their minds every day, and you may have a perfectly valid reason for changing yours.

Is it easy for you to keep up with monthly payments?

If you’re doing just fine, if your job is secure, and if you’re able to sock savings away as well as live comfortably, then moving just for the principle of it may not be to your benefit.

But if you believe there’s no sense in paying for an overvalued house in a depressed market, then this may be the time to do what you feel you must to ensure a better future.

Have you thought about the negative ramifications of doing a Short Sale?

All choices have pros and cons, and Short Sales are no different. So consider this —

• Your credit rating will be impacted.
• You may be subject to taxes for the forgiven portion of the debt.
• The bank will probably ask you to bring a cash settlement to closing, sign a promissory note, or both.
• You won’t be able to purchase another house with a conventional mortgage for 2 years.

Are you lying to yourself about your motivations?

Often people like to tell themselves they’re doing just fine but just want to move on. What they’re hiding from themselves is a crisis waiting in the wings.

They may have purchased more house than they could afford, and now the strain of trying to keep up is becoming an increasing burden.

The economy may be making more of a dent in their wallet than they anticipated when they bought. They talk themselves into believing it’s just temporary. But it only gets worse ... like Chinese water torture ... one drop at a time.

If this is you, you’re really in a straightforward Short Sale situation. You have a hardship. Admit it. Don’t be embarrassed by it. Then get on with your life by divesting yourself of an obligation you can no longer maintain.

Though this be madness, yet there is method in ’t

Whether you’re a Strategic Short Seller or a regular Short Seller, ask questions, get answers, understand the pros and the cons, and do what’s right for you.

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 JUDY CHAPMAN |What can I do for you?  

Residential Sales ∙ Short Sales ∙ Residential Rentals

Koenig & Strey | 1925 Cherry Lane | Northbrook, IL 60062

Judy@JudyChapman.net | Office: (847) 521-4111

     

© 2007-2011 www.activerain.com/blogs/NorthShoreChicago by Judy Chapman. ALL RIGHTS RESERVED. Portions of this content may be used with attribution. The information contained in this blog is the author’s own opinion and does not reflect the opinions of Koenig & Strey Real Living.