During these unfortunate times I have been asked more times than I can count by clients, friends and acquaintances what is involved in a short sale and whether it makes sense to do it. My response is always “It depends.” Every homeowner’s situation is different, from their financial situation, the number of loans on a property, what kind of loans, what institutions hold the loans, the value of the home, the long term goals of the homeowner and ultimately the individual homeowner’s ability to handle stress. Basically, the process is complicated and there is no easy answer.

Short sale in a nutshell is when a lending institution agrees to accept less than what is owed on a loan and to allow the transfer of title to a new homeowner. Short sale makes the most sense when a homeowner has fallen behind on the payments and the lending institution has already initiated foreclosure proceedings. But even in that situation with the new federal modification guidelines (makinghomeaffordable.gov) homeowners might be able to work something out. Essentially, short sale makes sense if there is no way you can afford to stay in your home or if there is a life change necessitating the sale such as a job transfer, death or divorce.

What I see increasingly, however, are people considering a short sale even though they can afford their loan, because they owe far more than their home is worth. This is understandable. It is demoralizing to know that your home is worth $200,000 less than the loan you are paying. It is also difficult to swallow when your neighbor buys the home next door for 1/2 of what you paid. It is depressing. It is the type of situation that has people grinding their teeth and wishing they could turn back the clock. In these situations, again, where people can afford the loan, I stress that a short sale is not an easy solution. It is damaging to credit, it is a long process and is stressful. I also believe it is short sided. Property values will eventually go back up and 5-10 years from now values will be vastly improved. The question of short sale really boils down to whether a homeowner can stick it out.

Whether someone can stick it out has many factors, but most important is whether they can afford their loan long term. Some people are thinking ahead and know that their loan will soon adjust and become unaffordable, and in those situations it makes sense to explore options proactively. Again, with the new federal modification and refinancing guidelines (makinghomeaffordable.gov) hopefully, they can get their loans adjusted to a long term affordable rate. If not, short sale may be the best and only option. Each homeowner needs to make the best decisions for his or her situation and ultimately, life is too short to stress each month about where your loan payment will come from. Owning a home is wonderful but it is not the measure of a life well lived. There is no one answer to the question, to short sale or not to short sale. Each homeowner must make his or her own determination with the help of knowledgeable professionals.


Posted By: Jen Phillips