SHORT SALE OR LOAN MODIFICATION

Loan modifications are changing, and lenders are more and more making that option available. In many cases, homeowners are changing their minds about doing a short sale and deciding instead to attempt a loan modification. That brings up a question “should a homeowner choose a loan modification over a short sale?” The answer-“That depends…”
 
First, there are some cases when a short sale always makes sense over a modification.
 
      1. When the homeowner cannot afford even a modified payment
      2. When the property is upside down to such a level that, at best, it would take years to break even and the lender is not offering principal reduction
 
By the same token, there are times when a loan modification always makes sense:
 
       1. The lender agrees to bring down the payment and principal to an acceptable level, and one the homeowner can afford.
 
However, for most of us, the answer isn’t so easy.
 
Consider the situation being considered under the new HAFA rules. The proposal is that a portion, approximately 20%, of the negative equity would be forgiven each year for 5 years. In effect, you would have “0” equity in 5 years. For many homeowners, that may not be preferable to a short sale. For example, the home may not be appropriate in 5 years, or you may be forced to move by job-related or personal reasons in under 5 years, or even later. In that case, a short sale might be better. Look at the difference. Do a short sale now, buy a replacement house in 2 years, or sooner. After 2 years in a loan mod, you still have 60% of your negative equity, and can’t buy. You are much better off in this case by getting the short sale done. You have many more options.
 
Take the same example above and assume the seller who did the short sale bought another property after 24 months using low down FHA or similar financing. At the end of the 5 years, he owns a house that may have appreciated in value. Remember, our average annual appreciation in Orange County over the last several years has been 8-10%. The person who did the HAFA loan modification has no equity.
 
Bottom line, each decision is an individual one. We have helped many homeowners make the evaluation, and would be happy to assist you.
 
 
Frank DiLauro , CRS                                  949-707-4472
Broker-Owner                                              frankdilauro@cox.net
Regency Real Estate Brokers                      www.frankdilauro.com