We have seen the devastation reaped on homeowners and our communities especially the San Diego Homeowner from foreclosures in record breaking numbers. But what about the Short Sale, is it actually more beneficial than a foreclosure? Yes, and there are more entities than just the homeowner that benefit from the short sale as opposed to the foreclosure.
The first beneficiary is of course the homeowner. They benefit 1st by avoiding the often humiliating foreclosure process. While having to move is never pleasant ,they can stay in the home during the short sale process and make their plans for moving in a less intimating way. They can often avoid the pursuit of any deficiency judgment and take advantage of a temporary law that might helps them avoid the reporting of the discharged debt.* It is most important to seek the help of your tax counselor on any tax discussion.
So who else might benefit from a Short Sale?
The Investor on the mortgage ( Fannie Mae, Freddie Mac, HUD). It helps reduce their losses over the insured amount and avoids the REO and the costs involved.
The Real Estate Professional. Short sales can help build new relationships of the Sellers and the Buyers. They may become repeat customers of a new home or even selling the property that was gained through the short sale transaction. It certainly builds the agents production ,especially in slower market times.
The Loan Servicer. The Servicers of the loan benefit with enhancing their relationship with the investor by avoiding foreclosure. They may receive incentives from the investor by saving some of the loss the investor takes in an REO situation. They avoid the expensive servicing costs on the insured delinquent loan and it all helps build good will with the investor.
The MI ( Mortgage Insurance) Company. It helps them reduce claim loss and avoids REO and their share of the expenses.
The Neighborhood. It help to minimize the excessive lost value that is often associated with REO’s. The bigger benefit is that helps to maintain the neighborhood's potential for refinance by minimizing the loss in comparable values.
Taken all together, there seems to be some rather compelling reasons why a Short Sale work out would be more beneficial to the consumer than foreclosure. Time is of the essence and with the multitudes of people upside in their homes, it would seem that the real estate professional could serve better as the first line of defense to prevent the spiraling number of foreclosures. Figuring most Home Owners are not calling us for whatever reason, we need to find a way to reach out to them and waiting around for the NOD is not the best option.
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Good points all around William of who all can be ok with a short sale. I do think if it can be pulled off it makes the best of a bad situation but in most cases for the homeowner they still get a pretty big dent in their credit rating.