In spite of some of the previous articles I have written on this subject, there is a definite positive side to the short sale business. When a homeowner is "upside down" on their property for whatever reason, something must be done to solve their problem. Believe me that with the way the market is right now, lenders do not want foreclose on another property. Lenders are already up to their eyeballs in foreclosures, short sales, and REOs. If they can resolve another bad loan, that is a good thing for all parties involved.
If the homeowner does not want to move out and can still afford the payments, they can try and re-structure their loan with the lender via a mortgage modification agreement where the loan terms and interest rate are re-negotiated. Or they can possibly do a forbearance agreement where the delinquent payments are added on to the back end of the loan for the homeowner to pay later. Or they can try and refinance their loan with another lender like with the new FHA Secure program.
If the homeowner simply cannot get back on track and needs to sell (or dump) their property, a short sale is a good possible alternative. In order for a short sale to work, (1) there needs to be a legitimate hardship on the part of the homeowner (i.e. illness, death, job loss, divorce, etc.), (2) the homeowner cannot have a bunch of other assets (i.e. cash in the bank, big 401K accounts, other properties, etc.) or a big income, and (3) the net proceeds from selling the property and paying off any liens need to be greater than the total amount owed. If all 3 of these criteria are met, then a short sale is at least a possibility.
A short sale can be good for a homeowner in many ways. First of all, a short sale reflects much more positively on your credit than a foreclosure. A short sale shows up as a partial payoff, whereas a foreclosure is what it is - a repossession of a house. A few years after the short sale, the borrower might have a great credit score again. On the other hand a foreclosure will show bad on your credit for 7 years or more and will have to be disclosed on future credit applications.
Secondly, a short sale can often be negotiated where the personal liability of the borrower is waived and therefore no deficiency judgment can be obtained for the shorted amount.
Thirdly, both the homeowner and the lender(s) are rid of a non-producing, unwanted asset. An asset which is really a big alligator-sized liability in disguise. This is often a huge relief to the homeowner who may be under incredible stress because of the imminent foreclosure situation. If the lender had to reposess this house, it may be another year before the foreclosure finalizes and the house is re-sold to a new buyer. A short sale shortens this whole process drastically and hopefully saves the lender tens of thousands in fees and losses.
Fourthly, Congress passed a law back in December which allows this debt relief to be a non-taxable event. So in most instances, there are no negative income tax consequences for the borrower in doing a short sale.
Fifthly, short sales keep the economy moving. Another sale means that lenders get some of their money back to lend out again (hopefully smarter than the previous time); title companies, mortgage brokers, Realtors, surveyors, taxing authorities, etc. all get paid; a neighborhood eyesore gets cleaned up; and a new buyer gets a good deal.
Somebody has to work through all these distressed property situations. Either it is going to be in the pre-foreclosure stage via short sales and mortgage workout arrangements, or in the post-foreclosure REO or auction arena. The sooner it all works through the process the better for all of us in the real estate industry.
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(Copyright © 2008. Sand Dollar Realty Group, Inc. All rights reserved.)
Rob Arnold, ABR, CPL, CRB, GRI, Managing real estate broker, Licensed mortgage broker, Notary Public
407-389-7318 / 1-877-389-7318 www.SDRhouses.com/ www.WeBuyHousesFlorida.com/
Your full service and investor friendly Realtor in Orlando. Learn to invest in Central Florida real estate and Orlando real estate. Investor mentoring and counseling available. I also provide flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Central & South Florida, the Space Coast, and the Treasure Coast including Orlando, Tampa, Miami-Dade, Fort Lauderdale, West Palm Beach, Ocala, Volusia, and Brevard.
We buy houses cash, sell properties, and list properties in Central Florida including Orlando, Winter Park, Maitland, College Park, Ocoee, Winter Garden, Apopka, Pine Hills, Altamonte Springs, Casselberry, Longwood, Winter Springs, Oviedo, Lake Mary, Sanford, Deltona, Debary, Deland, Daytona Beach, Melbourne, Mount Dora, Eustis, Leesburg, Clermont, Kissimmee, Saint Cloud, Davenport, Winter Haven, Lakeland, and more.
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