Bull Gains in a Bear Market: Week 1 - Short-sale Property Basics

What is a short-sale?

A "short-sale" situation occurs when a borrower's loan value exceeds the current market on the home. More simply put, the homeowner has a higher principle balance on the mortgage than he or she can sell the home for today or tomorrow.

In these types of situations there are limited options:

1. Continue payment of mortgage and hope home values rise (presuming homeowners can continue making payments)

2. Stop making payments and face foreclosure, major reduction in credit score, possible deficiency judgment for uncollected balance of the lien and other negative future consequences

3. Modify the loan with the lender for terms that are more affordable

Note: Any borrower can attempt to modify any of their home loans. Borrower's DO NOT NEED TO HIRE THIRD-PARTY COMPANIES OR ATTORNEYS and NEVER PAY FEES UP FRONT FOR LOAN MODIFICATION! The most important thing to remember in loan modification is that the optimal result is a reduction of principal AND interest rate. This is not possible in all circumstances but should be considered the most strongly desired outcome.

4. Attempt to sell the home through a realtor as a "short-sale" or "potential short-sale" (potential if the home is near becoming a "short-sale" )

5. Attempt to sell the home without a realtor as a for sale by owner (FSBO).

6. Work with an investor to release interest in your equity (or lack thereof) in the proeprty

Which option is best for ME?

I should take this opportunity to note that I am not a licensed realtor. But speaking strictly as a business consultant, my first piece of advice is get a referral to a trusted financial advisor, realtor, attorney, tax specialist, and any other professional whose advice is pertinent to your specific situation. Though there are multiple possible outcomes in a "short-sale" situation, each has its specific advantages and disadvantages.

The simple answer is you want to take the course of action that will have either the greatest potential gain, or the least potential loss with least amount of future ramiciations; or shortest future ramifications if they are unavoidable.

Because of the complicated nature of the real estate industry, a property that may sell quickly, be easily flipped, repaired, or rented in one neighborhood; can't be used as a benchmark for another property with similar metrics in another neighborhood.

There are few certainties in the real estate market. The three I've found so far are as follows;

1. Location, location, location

2. 10% of the realtors do 90% of the volume

3. Everything is negotiable

Now I'm really confused...

You are now probably thinking that reading this entire article was a waste of time, but it wasn't. Read on...

Who do I listen to then?

There is a simple way to find out who are the people to listen to in the market. I will use the example from my personal life. I ride a motorcycle. Ninety-nine percent of people I meet tell me one of the following;

1. Motorcycles are dangerous

2. Be careful

3. You have to drive defensively

If I only ever spoke to the 99% of people who ordinarily don't ride motorbikes these are the opinions I would get. However, if I speak with the 1% of the population that DOES ride motorcycles, the attitude is entirely different.

The point is that if the realtor you are speaking with is SUCCESSFULLY working with clients in your situation than chances are they know what they are doing. If the realtor or professional you are working with can not provide solid details about their professional experience in the field, RUN!!

Note:

Please feel free to comment on this blog. If you have a major contention with any of the above material please do not hesitate to contact the author. All statements made above are intented as informational only. Please speak with a licensed professional before making any serious financial decisions.

www.Hitchingsconsulting.com
paul@hitchingsconsulting.com