Loan Modification or a Short Sale, Which is best?

I was on our weekly conference call this morning and an agent asked “ I spoke with a homeowner who said they are trying to do a loan modification. Should I try to convince them to do a short sale instead ? Which is better?

It has been our experience that short sales have a MUCH higher success rate. Some studies have shown that the government HAMP loan modification program has a success rate of less than 3%. Our success rate with getting short sale approvals is better than 95%. So from an odds of success perspective it would seem that short sales are better.

It is however important to consider not just the odds but to heavily weigh the seller’s objectives. If the seller is looking for a long term solution a short sale can be a more permanent solution. Most loan mods are temporary reductions in payments and still leave the owner owing more than the home is worth. If the homeowners objective is to stay in the home for another year or two or three and/or the homeowner believes that the market will come back up to where he/she has equity than a loan mod may be the way to go.

If I were an agent speaking with a homeowner who is in the process of doing a loan modification. I would do the following:

Ask enough questions to determine the owner’s objectives. If a loan mod still seems to make sense encourage them to keep trying.

Advise them as to the distinct possibility and odds that they may be turned down.

Keep in touch with them on a regular basis so if they do not get the loan mod you will be there to assist with the short sale.

As always never attempt to give legal advice and always encourage them to check with their lawyers and accountants to see what makes the most sense for them.