Distressed Property Owners
Learn about the Short Sale Strategy

Are you a Connecticut property owner in financial distress?  Yes? Well you're not alone!  Read on...........

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated (based, contingent) on the most cost-effective way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure.

A bank will typically determine the amount of equity (or lack of), by determining the probable selling price from a Broker Price Opinion BPO (also known as a Broker Opinion of Value (BOV) or through a valuation of an appraisal. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating a payoff with lien for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.   It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Underwater mortgages are mortgage arrangements that effectively leave the owner with more debt on the property than the current market value.  Generally, an underwater mortgage situation does not arise when a buyer takes out a first mortgage. The condition tends to arise when a second or third mortgage is taken out, or if factors within the area cause the property to unexpectedly depreciate in value.

According to March 2009 data from First American CoreLogic, a Santa Ana, California, research firm, as of December, 2008, more than 8.3 million U.S. borrowers were “underwater” on their mortgages with an additional 2.2 million mortgages about to head beneath the water’s surface.  According to an article published on May 14, 2009 in the New Haven Register, New Haven, CT, foreclosure filings jumped 32 percent nationally to 342,000 in April, compared to the same month a year ago, and Connecticut ranked 19th among all states, with 2,174 filings. The Connecticut statistic represents a 25 percent increase over the number of filings for April, 2008. One in every 374 housing units nationwide received a foreclosure notice in April, 2009.

If you are underwater on your mortgage, facing or about to face foreclosure, and you are in financial distress, the way you choose to deal with your problem will have far reaching implications on your financial future and well being. Regardless of the reason for your distress, if you cannot establish a repayment plan acceptable to your lender, eventually, your home will be foreclosed and the proceeds will be applied to your debt. In today’s declining market, the amount realized will seldom be enough to satisfy the full amount of your debt, resulting in the possibility of a deficiency judgment. Fortunately, there is a strategy available to distressed homeowners to avoid the debilitating emotional and potentially devastating financial consequences of foreclosure.

That strategy is a “short sale”, the topic of this entire web page. A homeowner is “short” when the amount owed to his lender, when combined with closing costs and commissions, is higher than the current market value of the property. A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company or companies to accept less than the full balance of their loans at closing. A buyer closes on the property and the property is “sold short”.

Although every attempt will be made to obtain a full release from liability when your short sale is negotiated, this result cannot be guaranteed. A short sale is not a “get out of mortgage free card” and lenders do differ in their willingness to grant complete releases from liability. It is also important to recognize that all sellers do not qualify for short sale approval. To qualify, you must be in foreclosure or headed there, and you must have a valid financial hardship for why you can’t pay your mortgage.

If you are upside down on your mortgage but have the financial ability to weather the storm using your personal income or the sale of other assets, you are not a short sale candidate. Unfortunately, if you have the wherewithal to pay, you will have to either wait out the market, bring cash to the closing or, in the most extreme cases, allow your property to go into foreclosure.

If you have a family, or plan to have one in the future, it is critical for you to use every means available to minimize the future consequences of your present predicament. The homeowner consequences arising from a judicial foreclosure are significantly worse than those associated with a successful short sale. After a successful short sale, if you mind your credit, you may actually end up in a better position than you were in before you went into financial distress. If you rent economically, watch your expenses and begin saving immediately for a deposit, there is a good chance that with your credit intact, you will be able to re-enter the housing market advantageously while it is still a buyer’s market.

On the other hand, if you walk away from your property, allow it to go into foreclosure or elect to “milk the situation” by delaying its loss for as long as possible, you will destroy your credit and your future home owning opportunities will be severely limited.
If you are committed to responsibly working to minimize the future consequences of your present predicament, the first step is to find someone who can help you determine if you qualify for a short sale.

CDPE - - Certified Depressed Property Expert

As an attorney holding the CDPE designation, (“Certified Depressed Property Expert”)a, I can determine if you are a short sale candidate, and guide you through the process. Just as a professional real estate agent is required to successfully complete a short sale, I can also refer you to a real estate agent with similar qualifications and expertise to ensure that your short sale application has the greatest possibility of success. CDPEs, such as myself, have a common goal: the elimination of the negative emotional and financial consequences of foreclosure.