Strategic Default

4 years ago when we first started working short sales virtually 100% of our customers were homeowners who were in desperate financial situations.

While we still have customers like this today at least half of our clients can actually afford their properties but they choose to make a business decision to stop supporting an upside down property.

We are here to help people that want our help and we make no moral judgments about their reasons for doing a short sale. I have not and never would advise anyone to not make payments or not pay their debts. That is a very personal decision. I do believe however that it is important to level the playing field by making sure that all parties understand how the system is currently working and all of the possible outcomes. There are several interesting articles on this subject under the articles tab on this website.

I received a call yesterday from a seller who told me "I owe over $200,000 on a home that is worth less than $100,000 and I can go rent a house in the neighborhood for half of what this place is costing me. When real estate was going up in value this place was an asset now it’s just a liability that I need to get rid of".

Many sellers have the idea that they cannot do a short sale unless they have a desperate hardship. In our experience this is not the case at all. We recently had a surgeon making hundreds of thousands of dollars per year who was over $400,000 upside down on a luxury condo. We got the short sale approved and any deficiency forgiven. He did have to bring $10,000 to closing but he thought this was a great deal to get rid of a $400,000 headache.

Regardless of a sellers situation they still need to fill out all of the paperwork and state some reason or type of hardship as to why they want to do a short sale.

So why would the bank approve a short sale for someone who can afford their property? Why do we get 95% of our short sales approved when sellers who apply for loan modifications have less than a 2% success rate?

If the banks want to help people why would they not just let them stay in their homes and approve a loan modification? The cold hard truth is that the lenders do not do anything out of the goodness of their hearts. Just like a homeowner who chooses strategic default denying a loan mod and approving a short sale is a business decision for the banks.

The lenders know that a vast majority of the people who somehow do get a loan modification will get right back into trouble again. They also know that on most loans they have insurance to cover loses and on a short sale if they do lose money they know that they will lose up to 30% less than on a foreclosure.

So does it make any sense for a homeowner to try to do the “right thing” and disregard the business decision that might make the most sense for their family when the lender is doing only what makes the most sense for the lender?

As I said in the beginning this is a decision that is highly personal and up to each individual homeowner to decide for themselves!