Thoughts About Short Selling
If you’re having problems with your mortgage payments and can’t get the banks to renegotiate with you, an option you might have would be to sell your home at a much reduced rate from what it’s worth, especially if other homes in your neighborhood have lost their worth also.
This is known as short selling, and it’s seen as both a panacea for many home owners and an albatross that they may not be ready to deal with on the back end. Short selling is trying to sell your home for less than its worth. Many homeowners in California and Florida are trying to do this to get out from under some of the debt incurred when the housing market crashed, banks faltered, and the cost of their monthly mortgages went up. That, plus many people were suddenly unemployed, and couldn’t keep up with their mortgage payments.
Banks and lenders are happy they’re at least going to get something for their troubles, even if they may not recover everything. Sellers are happy because they won’t be listed on credit reports with the dreaded “foreclosure” word, and they can get out of debt faster and move on with their lives.
Or can they? There are some schools of thought that, while the immediate solution might be taken care of, this could hurt a lot of people on the back end.
Why? One, because even though it’s not listed as a foreclosure, it is listed as a default on your original home loan, unless the former homeowner happen to deal with a very forgiving bank, or can make a deal over so many years to pay back the difference between the new sale and what is still outstanding. Two, the banks don’t have to agree, and they can actually sue the former homeowner for the difference between what you sell the house for and the outstanding amount, if the price of the house has been drastically reduced just to move it. And three, people who default either way on their homes might discover it’s hard to find rental places that will accept them as tenants.
In some areas of the country, people are also finding that not every realtor will work with them to short sell homes. This is for two reasons, one which may be a little surprising. One, some agents don’t believe they’ll be able to make much money on the deal. Two, some agents don’t know all that much about short selling because, even though it’s happening, it wasn’t considered a common occurrence before the housing slump.
In states such as Texas, realtor associations are developing courses on how to handle foreclosing properties and short sales. The Texas Association of Realtors has had a course for three years for realtors to receive more training on increasing the retention rate of homeowners. "We changed the curriculum a little bit and added a second tract that includes a new eight-hour course on short selling and foreclosure prevention," said John Gormley, spokesman for the Texas Association of Realtors.
Other states are getting the message also, as they’ve recognized that this isn’t a problem that’s going away any time soon, as it’s starting to look more and more like it will take at least another 18 months until the housing market has a chance to start resembling what it once was.