First an explanation of what a Strategic Short Sale really is…..

• You own a home that is upside down in equity.
• You can afford to make the monthly payments.
• You have made a decision to Short Sale the property and cut your losses-thinking non emotional about an investment gone bad

The same type of decision the Mortgage Bankers Association made when they decided to do a Short Sale on their corporate headquarters.

BofA’s credit loss mitigation executive, Jack Schakett, said today that the amount of strategic defaulters (those who can pay their loans but opt not to) are “more than we have ever experienced before.” He went on to say, “there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers.”

To be clear, there is a huge difference between a Strategic Default and a Strategic Short Sale.

The obvious difference is a Strategic Default ends in Foreclosure. In a foreclosure the seller chose not to work with the lender to obtain resolution to their obligation.  In California, if the seller had a second mortgage on the home the second mortgage lien holder can still pursue the seller for collection of that debt.

When a Strategic Short Sale is negotiated many sellers are able to walk away free and clear of their debt.  In some cases, the seller of the home may be asked by the second lien holder to contribute to the sale.  In most cases a standard amount requested is 5% of the balance owed.  This can be accomplished in several ways.  The seller can sign a promissory note and in most cases pay zero interest over 10 years. Compare this to and IRS negotiation where you pay pennies on the dollar to release your lien.

What do you think?  There is no doubt that homeowners are facing life altering decisions….stay in a home that they can afford, but the neighborhood is now different.  Home prices have fallen, and in most cases the neighbors moving in are not the same “footprint” of the neighbors that moved out.

I’ve heard it said many times….People need to live up to their obligations!

Think about what you would do if you were facing paying 25-50% more for a home in the same neighborhood and had the opportunity to have your lender accept less than what you owe on it and walk away.  The outlook on home values increasing is not in your immediate future.  Recent reports tell us that we can expect homes to decline in value in some states for the next 5 years……

Looking forward to your responses!