The Upside of Short Sales

note: I received this in an email, and thought it was worth sharing:

• First, from the Realtor’s perspective, there isn’t much of an option.  Since REOs and short sales account for 59% of homes sold in April, Realtors must be willing to take these listings.  That percentage is expected to increase since there is a huge shadow inventory of homes that will be hitting the market in the next few months as lenders have stopped their moratorium on foreclosures after the beginning of the year.  JPMorgan Chase Warns Investors about Strategic Defaults. 
• Short sales becoming more socially and ethically acceptable to homeowners because of government programs like HAMP and HAFA that have legitimized this option.
•  For homeowners that face a potential deficiency liability, a short sale gives another opportunity to get a release from that liability.  If the lender will not allow the language necessary for this release, a short sale may still reduce the amount of that liability as opposed to a trustee sale.
• If a homeowner knows there will be tax implications as a result of exiting a home, that liability may be reduced through a short sale as opposed to trustee sale that will typically fetch a lower price.
• More and more homeowners are deciding to exit their property compared to a year ago when most were trying to keep their home through a loan modification.  The reality that loan mods are a failed exercise and that lenders are not doing as promised has seemed to reach consumers.  Here are 8 reasons that loan mods fail.

1.  
   1. Lenders make promises and later deny or retract loan mod offers.
   2. Temporary mods are often required but 3 to 5 months later they are told they do not qualify for a permanent mod.
   3. Lenders continually request updated financial records.  This is not just a nuisance but is a method used by lenders to extract further payments from the homeowner and try to determine available assets for lawsuits.
   4. After following the lender’s instructions to make reduced payments as part of a temporary mod, when the lender later rejects that loan mod that borrower is now in default and the lender can file for trustee sale.
   5. Most loan mods are only a forbearance under which the missed payments, penalties and interest are added as a balloon to the end of the loan, further increasing the homeowner’s negative equity.
   6. Failure to disclose the investor and their NPV (Net Present Value) calculations to the homeowner make the decisions of the banks seem unreasonable and counter to financial logic.
   7. “Permanent” mods are not typically permanent.  In most cases the lower interest rates are only fixed for 3 to 5 years.
   8. If a borrower decides to exit the property after receiving a permanent loan mod, it may be too late to receive the benefit of the Mortgage Debt Forgiveness Act (through 2012) creating a tax obligation that the borrower may not have faced, if they made their decision earlier.

• Short Sale Decision Tree
• Stay or Go Calculator

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