Short sales are popular. With literally millions of homeowners hit by the double whammy of adjustable loans and financial dire straits, it’s no wonder that so many have chosen to avoid foreclosure and short sale their homes. Banks document the hardship and then agree to the sale.
But, homeowners with bad loans or victimized by the economy are not the only ones wanting to get out of their over-priced mortgages and underwater homes. In fact, anyone with the smallest touch of financial acumen has figured out that paying a mortgage double what the property is now worth hardly makes sense. Enter the strategic short sale.
Simply put a strategic short sale is a voluntary short sale that does not necessarily involve a hardship. Increasingly, homeowners are making the financial calculation that not only are their homes and properties underwater but are likely to remain so for the foreseeable future. Even if they can make their payments, homeowners, especially the more financially literate, are determining that it simply is financial suicide to stay in a home, paying on the mortgage when the property has lost half its value. Better to bail. It’s better to keep your head above water than to drown.
For those who feel it’s possibly not “honorable” or “moral” to treat the sacred contract signed with the bank so cavalierly, consider this: according to a recent New York Times article, Morgan Stanley itself made this “strategic” decision to walk away from five office buildings it had bought in San Francisco at the height of the boom. Yet, Henry Paulson, as U. S. Treasurer, expostulated that homeowners who walk away from their bad deals are nothing more than “speculators’. Oh, right, Mr Paulson, formerly CEO of the now-universally-acknowledged odious Goldman Sachs.
Today in February 2010 about 25% of all mortgages are underwater. 10% of these mortgages are actually delinquent. Whatever you hear from the Pollyannas of real estate, those figures are likely to rise this year. Why? Simple–the unemployment rate is astronomical by our normal standards. Loan mods not only don’t work; they also require the homeowner to have a hardship, but not too much of a hardship since that would mean no money to pay the loan….The refi program isn’t working. All the wonderful ideas about helping homeowners have not helped, at least not enough.
What’s a homeowner to do? Follow the lead of the very banks to which you owe money and do a short sale. Make the calculation and decide if this is the best route for you. Today, if a homeowner is not delinquent, he can short sale his home and buy another at the same time. Increasingly, too, homeowners can get that short sale wiped off their credit reports in record time, especially if they have the money to purchase another home.
People who short sale their homes frequently have lost thousands and often hundreds of thousands of dollars of real money, not paper equity. It’s not their fault the economy tanked. People operated synergistically with the banks in our economic ecosystem taking on the bad loans that banks offered, both in good faith at the time. Neither is totally at fault for the resulting disaster, though both are suffering, people more than banks, I dare say. In a short sale, banks get something less than the promised amount but usually 35% to 50% more than in a foreclosure.
Short sales, strategic or not, make the best sense for both parties. A classic win-win, if you will, or, more aptly, lose-lose.