Know When to Short Sell Your Home
A frequently asked question asked by distressed homeowners is “How do I know when to short sell my home?” The answer to that question, while seemingly simple, is much more complex than one would anticipate. The first question a homeowner needs to ask is why is short sale even a consideration at all. Homeowners tend to fall into categories. The first category of homeowners are those that are concerned about the value of their house. These homeowner’s only concern is how much they owe on their loan versus its currents market value. They feel that unless they can obtain a principal reduction short selling their house is the best answer. For these homeowners the key information that is needed for them to be able to make their decision is whether or not their lender (investor owning the loan) participates in principal reduction programs or not. The answer to that question makes their course of action very clear.
The second category of homeowners are those that are not overly concerned with the value of their house; these homeowners are more concerned with obtaining an affordable payment. A good test for a homeowner that is significantly underwater on their home to use in determining whether they should keep their home or not is If a homeowner is significantly underwater on their home and the lender is not willing to cut the principal then the lender should be willing to offer the homeowner a modified payment equal to or less than the homeowner could rent a similar property for. In other words, if the lender is not willing to modify a homeowner’s payment into a reasonable payment, and they are not willing to modify the principal balance then, emotions aside, a homeowner should strongly consider short selling their home. The key is for the homeowner to take emotions out of the equation and to look at their housing situation as a business (financial) decision.
The third category of homeowners are those that are resolved in losing their home but want to try and stall the process for as long as possible. These homeowners use many tactics to stay in their house as long as possible without making payments. Sometimes these homeowners press their luck and end up with a foreclosure on their record. Homeowners desiring to stall the foreclosure process need to keep several things in mind:
1) Some lenders do not mess around; they are on top of their time-lines and are rigid with their rules.
2) If the homeowner has a recourse 2nd lien the homeowner might be risking too much because if the house goes to foreclosure the 2nd lien holder will come after the homeowner for a deficiency judgment which will cost the homeowner significantly more money than if they negotiate settlement via the short sale;
3) The homeowner might be risking significant relocation assistance from the lender; for example, Bank of America currently has a cooperative short sale program that could potentially pay the homeowner between $5,000 and $30,000 in relocation assistance; and
4) Stalling a foreclosure pushes off the time period for a homeowner to qualify for a new loan; currently, FHA guidelines allow for a homeowner to qualify to buy a new home via a FHA loan 3 years from the end of a short sale. Homeowners who continuously push off short sales desiring to stay in their house as long as they can without making a payment could really be tripping over dollars to pick up pennies. In the long run the better financial position might be to dump the house as fast as possible in order to let time pass in order to qualify to buy a new house in a down real estate market.
The decision on when to short sell a house is an extremely personal decision that should be made by setting aside emotions and looking at the situation from a strictly objective perspective.
Schedule a complimentary consultation with Michael Gaddis, Real Estate Attorney and Short Sale Expert to determine if a short sale is the best option for you.
Jenny Winford July 23rd, 2017
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