IS SHORT SELLING YOUR HOME INEVITABLE?
It may be, if you purchased or refinanced during the boom years of real
estate and your property is now worth significantly less than your
mortgage debt.
Many properties in Bronzeville are now worth only about half the mortgage debt, and some even less. If
your home is worth half what you owe on it, it will need to appreciate
an average of about 10% per year for the next 7 years just to break
even. If it appreciates an average of 5% per year it will take about 14
years to get to the breakeven point. And there is still
downward pressure on prices due to the high number of foreclosures and
short sales, and the large inventory of foreclosed homes that have not
yet been put on the market. Unless there is a widespread modification of
mortgages to lower principal balances and interest rates, short sales
and foreclosures will continue at pretty high rates.
Given this scenario, if you are significantly “under water” why
wouldn’t you do a short sale? I can think of only 3 good reasons not
to:
-
You don’t want to impair your credit ratings. With a short sale, your
credit scores will be impacted negatively, similar to a foreclosure. And
you will most likely be precluded from obtaining new financing for
several years.
-
You love your home and neighborhood, expect to be there for a very
long time, and/or don’t think there is an alternative, attractively
priced housing choice available to you.
-
You can convince your lender or loan servicer to reduce your mortgage
balance close to current market value and bring your interest rate to
current market rates.
If you think you will be moving in the next couple of years, you might
want to consider doing a short sale sooner rather than later. The Home
Affordable Foreclosure Alternatives(HAFA) program, which alleviates
certain borrowers from the requirement to pay back any of the
“deficiency” (difference between amount owed and amount sold for)
expires at the end of 2012. Also through the end of 2012, for many
homeowners there will be no requirement to pay income taxes on the debt
that’s forgiven. Unless Congress extends these provisions, if
you are a homeowner considering a short sale, you may want to aim to get
the property sold before the end of 2012. And short sales can take a
long time, so start early in 2012.
If you are considering a short sale, consult an attorney with experience negotiating short sales.
It is important to understand the ramifications of a short sale and
what the likelihood is that you will be required to repay any of the
deficiency. And if you have a second mortgage (a home equity loan or
line of credit), it can be a little more complicated.
When you sell your home as a short sale, you should have little to no
cost. The lender generally pays the agents’ commissions and the lawyers’
fees. In addition, your property is sold “as is”, so there is no need
for costly repairs or redecorating prior to listing.
Contact me if you would like to understand what your home may
be worth in today’s market, and for more information about the short
sale process. I can also refer you to a qualified attorney.