For the past several years now in San Diego, the real estate market has been declining and homeowners have been losing homes to foreclosure. Other homeowners discovered the process of a short sale here in San Diego, which allow a homeowner to sell a property for less than what they owe. Short Sales are designed for homeowners who have a hardship or immediately impending hardship. Typically from some type of financial hardship such as a job loss, reduction in pay, too much debt. It can also however, be applicable to someone in a situation where they are being relocated, and while they can afford the home, they have to move to another area and sell the property, or perhaps a divorce where together a couple could afford the home and its payments, but separately they could not. All of these hardships are legitimate reasons a bank would allow a home owner to sell a property for less than what it is worth. If a homeowner could prove as well that one of these hardships were imminent in the future (2-3) months they could also do a short sale while never missing a payment.
Well times have changed. It used to be that home ownership was a goal and symbol of pride everyone strived for. Homeowners would do whatever it took to retain their home, including working two jobs to keep up with their mortgage, borrower from credit cards to make the payment, or even borrow from friends and family in order to keep their home. Hopes of values someday coming back and the thoughts of being able to sell in the not too distant, to earn a profit that would make all of one’s hard work and collateralization payoff, have started to diminish, immensely!
Areas in San Diego have experienced depreciation as great as 70% since 2005. We did see a stabilization of prices in the early part of 2010 but that was due to the state and federal government buyer incentive programs that totalled a tax credit of 18K. Since then, those programs have been eliminated that has again resulted increase of inventory across the board, thus resulting in simple supply and demand economic scenario of again prices starting to decline. So people are left with homes that are 50K, 100K, 250K underwater, and based on real estate conditions it could be 3,5,even 10 years plus in order to just possibly see their home values return to what they owe, not taking into account any closing costs. Many homeowners could end up paying literally hundreds of thousands of dollars on interest only payments that result in nothing other than some tax advantages. Some homeowners have literally “woken up” and realized the numbers just don’t make any sense and decided to get out of the property and cut their losses.
Whether it be an investment property or their primary residence, people are starting to remove their emotional attachment from their homes and realizing from a financial standpoint things don’t make sense, even if the banks grants a loan modification to lower the payments temporarily.
From there the choice comes down to many homeowners, how to get rid of the home? Foreclosure is an option that requires no effort and you could stay in the home awhile, but precludes you from obtaining financing on any other property for 7 years, could lead to job loss or complications, destroy your credit to the point on not being able to even get a credit card. In today’s market it is looked upon as the most irresponsible thing you could possibly do, because there are some many other alternatives.
The next and most logical option is the short sale. But isn’t a short sale for people who have a hardship? The simple answer is NO. Many people have discovered that by stopping payments to a lender, you are almost automatically guaranteed to get approved for a short sale. Why? Well because if a homeowner chooses to stop making payments, the only alternative in many cases is to foreclose on the property. A homeowner is perfectly within their legal rights to decide to stop making payments and walk away from a property and allow it to go to foreclosure. But if a homeowner chooses to stop making payments while at the same time present an offer to the bank for a short sale, most times a bank will accept this because they will recoup more money through a short sale process than a foreclosure process. Homeowners use Strategic Short Sales to move forward with life. This is known as a “strategic default” and it can be done on any property, even if you have millions of dollars in the bank.
A short sale process is a negotiation process, that is all about leverage and in order to do one, and by choosing to do a strategic default, you are creating leverage for yourself as a homeowner and creating a situation where you are essentially forcing the bank to allow you to do a short sale. If successful, and if you work with an experienced broker you can strategically dispose of a upside down asset, with little or no tax implications, not owe anything back to the bank and be able to possibly purchase another property with financing with in a period of 2 years. If you work with a VERY experienced broker they can even help you eliminate the short sale from your credit reports altogether and allow to purchase a property right away after the short sale, thus eliminating the upside property and entering and buying one that has value and has a sensible market value.
The key here to attempting a strategic default is working with someone who knows what they are doing, and has a team of professionals as a resource for the homeowner lined up so you can plan your exit strategy in advance. Too many real estate agents are entering the field of handling short sales and have little to no experience in dealing with these matters, and they can completely mess up a homeowner attempting to do this with bad advice and incorrect methods. For example the broker you choose to work with needs to have experience dealing with your bank or servicer, and have very special contacts in order to get these things done correctly, so that the homeowner does not owe anything back to the bank. Likewise they need to understand how to structure these deals from day one, not wing it as they go along.
Kurt Wannebo (AKA Short Sale Kurt), with San Diego Real Estate and Investments and ShortSaleinSanDiego.com, have completed over 400+ successful short sales with almost every lender that lends here in San Diego. We have worked with clients in this situation and helped homeowners walk away from an upside down property, even when they had millions of dollars in the bank and didn’t have to pay the bank back anything. We have connections at the executive level with most lenders allowing things to happen that traditional or inexperienced agents are not able to utilize. The best thing to do is to have an upfront FREE and NO OBLIGATION consultation with a broker who has handled hundreds of these and has a team of professionals at his clients disposal, such as a real estate attorney, tax advisor, and a credit repair attorney to service the client the whole way through. A short sale does not cost you anything at all, so it doesn’t hurt to talk to someone about your options. To see if you might possibly qualify to be able to get rid of your upside down property and move on with your life without any consequences, give us a call for a FREE and NO OBLIGATION consultation.