“I won’t qualify for a short sale.”
This is one of the biggest myths out there, and it’s one that I hear from people all the time. They think that they won’t qualify for a short sale because they have high income and excellent credit. The fact is, all homeowners have the right to ask for mortgage forgiveness, no matter how high their income is or how great their credit is. The “too big to fail” banks are receiving billions of taxpayer money for bailouts; this same bailout courtesy should be passed down to help the very same people who pay those taxes: YOU, the homeowner, their faithful client who has gladly paid your mortgage every month for years.
I also hear people saying that they don’t want to do a short sale because they are concerned about their credit score. But this, too, is a huge misnomer! The only time that a short sale kills your credit score is when you stop making your mortgage payment. Obviously, when you miss payments, your credit score is going to be affected. The good news is that you don’t have to miss payments to do a short sale! Short selling a property without missing any mortgage payments will only have a very small impact on your credit score. The mortgage will be recorded as “Settled. Mortgage Paid In Full” on your credit report, and it won’t make any references to a short sale. Your credit score is only impacted by approximately 15 to 30 points, and starts recovering in as little as 6 months.
I’m sharing this information with you because it’s not fair for the short sale advantages not to be spread evenly. You can benefit from a short sale whether you have high or low income, high or low credit score, own one property or own multiple properties. At the end of the day, a short sale all boils down to one thing: increasing your net worth by getting out of an upside down investment. Anybody can qualify to short sell any property if the short sale request and accompanying documents are packaged and submitted correctly.
Case in point: I had a client recently; we’ll call him Mr. Travolta. (What? I’ve already used Mr. Smith and Mr. Jones… I’m running out of traditional last names!) Mr. Travolta is a small business owner who does very well for himself. He earns over $500k annually, and has retirement funds and stocks like crazy. Mr. Travolta also owns several pieces of real estate. I walked Mr. Travolta through some basic asset protection strategies to keep his exposure to a minimum. He was concerned at first that his mortgage lender would be able to just reach in and take his money, but that’s not true at all. What can happen, however, is that the lender can use those liquid funds in negotiations as leverage in asking for a cash contribution in exchange for short sale approval. My job is to protect sellers from these lender’s asking for cash contributions, which is why we use asset protection strategies.
We got started on Mr. Travolta’s short sale and quickly got an offer for full-market-price of $75,000. Quite a loss considering that Mr. Travolta had paid $266,900 when he purchased it; that’s a 70% loss on his investment! So, did Bank of America approve such a loss to a seller who nets over $500,000 a year, perfect credit, never missed a payment, and owning other real estate investment properties?
YES. Bank of America approved the short sale for $75,000, a 70% loss, without Mr. Travolta ever missing any mortgage payments or losing assets. Mr. Travolta brought a small check to closing in return for a full release of $266,900 in outstanding mortgage debt, which means that Mr. Travolta’s net worth just jumped up by $266,900.
The bottom line is that no short sale will be rejected if handled correctly. Don’t keep throwing money at a bad investment. These properties have experienced a huge loss in value and that value most likely won’t return for ten to fifteen years. Continuing to pay for them is like trying to stop a ship from sinking with a thimble. Now is the time to dump that “investment property” and reuse the money saved for a safer investment with actual returns!
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