Short Sale Perspective for the Homeowner

Many homeowners find themselves in a situation where the current market and economic conditions converge causing the homeowner to be over encumbered in their property. The ease at which lenders have offered to finance all or most of the purchase price, second mortgages that place a lien against the homeowner's equity, a depreciating real estate market, and long term financing with minimal principle reduction have all contributed to this phenomena.

One simple solution for the homeowner that finds him or herself in this dilemma is to simply not move. Stay in their present home and enjoy the tax benefits of home ownership, the features and benefits of their present home, wait for market conditions to change, principle reduction to accumulate, and home values to appreciate. Your Realtor can keep you informed of changing market conditions and values. When the time is right make your move. In the meantime, enjoy your home.

But what about the homeowner that must move due to job loss, reduced income, death, divorce, job transfer, pending or eminent foreclosure, or even for medical reasons? Certain options are available. These options often require the cooperation of the homeowner's lender. Some lenders are willing to consider a variety of options that may assist the homeowner with a move. As a homeowner faced with moving and an over encumbered property, there are some possible solutions to consider.

The first step is to have your Realtor prepare a competitive market analysis. This analysis should provide you, the homeowner, with an understanding of the current market value of your home. Your Realtor should also prepare an estimate of your potential proceeds from the sale minus the normal selling costs and mortgage payoffs. If the estimated proceeds are a negative number, the homeowner is unable to payoff the balance due, and the home must be sold, the next step is to contact the homeowner's lender. This is particularly true when the homeowner is unable to make future mortgage payments. The lender does not want to own the home and does not want to foreclose.

The homeowner can prepare for the call to the lender by gathering the necessary contact information and account numbers for each lender. The homeowner should understand and recognize that the lender's perspective is entirely different from the homeowner's perspective. The lender simply wants and deserves the mortgage payments. Homeowners should be prepared to answer their lender's questions about their present circumstances and their current financial situation. If the homeowner can demonstrate a serious need the lender may consider offering a compromise. This is commonly called a short sale. Many lenders actually have a procedure in place to apply for a short sale. The homeowner should simply follow the lender's procedure to determine what considerations may be available. Short sale solutions range from nothing, to transferring a partial balance to an unsecured loan, and or forgiving part of the mortgage balance.

William Frohriep, Ph.D.

Associate Broker, Sales Manager