To Short or Not to Short...part 3

After all the conflicting information we hear about short sales and their impact on credit scores you are probably wondering what you should do. When working with a distressed homeowner the first question I like to ask is "What do you want?". While this may seem like a very open ended question, it isn't. Most people know what I am asking and are able to answer fairly quickly. While some may respond with "I want to keep my home, I just need a payment I can handle" others quickly jump to "I just want this over and want to move on with my life.". There is a wide range of answers in between as well.

One consistent requirement for your servicer to agree to a short sale is a valid hardship. They need to see why you need to sell your home. And here's the thing, the fact that your house is worth less than you owe is not a hardship. I know, that might not be what you want to hear, but a lack of equity was not the intent when these programs were set up. What is a hardship? Loss of job, death of a spouse, medical bills, necessary relocation, and other similar life changing events.

You may also hear stories of the bank "forcing" 30 day lates in order to allow the short sale. While in most cases a servicer will not allow a short sale without the payments being late, the intended purpose again, is that if you can make your payment, you should. If you can't then you can't.

Foreclosures, short sales and being delinquent have become almost mainstream. The stigma once attached is rapidly diminishing and what was once a private matter most people would prefer to hide is now becoming nearly a badge of honor to be worn with pride. The result? A continuous snowball of distressed properties, each one contributing to lower neighborhood property values. While there are true hardships and people who honestly need to sell their homes, there are also many cases of owners who just simply don't want to pay on a home which is underwater, from an equity point of view. The problem is that with each short sale or foreclosure the surrounding home values decline and decline, and then decline some more.

In a normal fair market sale, a seller will work as hard as possible to obtain the highest sales price. Why? Because the higher the selling price, the more money in their pocket. When it comes to the point that the seller will be receiving no funds from the transaction their motivation to get the highest price possible is removed from the equation. We see sellers accepting virtually any offer because they just don't care. But they should care. Another $5,000 or $10,000 not only decreases the loss the investor absorbs, but it also helps to maintain property values of the surrounding homes. The game should not be to get any offer as fast as you can, but to get the highest and best offer you can.

The answer is never clear and each person is different. But if you can make your payment, do it. Your credit score will thank you, your future ability to buy a home with thank you, and your neighbors will really thank you. If you can't, consult a Realtor, do your best to sell the property for the highest possible value.