Central Florida Short Sales

Hi folks. Judy Chapman wrote a very good article titled  "To do a strategic short sale or not to do a strategic short sale ... that is the question". 

If you haven't read Judy's post please take a minute to do so.

A couple of her readers didn't understand why a Lender would even consider a Strategic Short Sale. This article may help answer that question.

A Strategic Short Sale is a choice. It's a choice made by a seller (borrower) to sell their property to get out from under a mortgage that no longer makes sense and put their money elsewhere. These borrowers do not have a "normal" hardship.

Here's an real life case of a Strategic Short Sale situation:

I have as young family right now who bought their house in 2005. They paid $250,000 and put 20% down. They purchased using an ARM because the mortgage broker convinced then that in 3 years they could refinance into a fixed rate. This 3 year period was the amount of time the husband needed to complete his internship with his job and go into a higher salary.

Before they could refinance the bottom dropped out of the market. Their mortgage went up from $1,500 a month to almost $2,500 a month. Their home is now worth $55,000.

Anyone that reads this and thinks these folks should just stay and honor their obligation is just flat out wrong. And folks that "think" they would stay, if in the same situation, are just kidding themselves. There's not a Lender on the planet that would modify this loan so that it works.

So this family can stay  trapped in their home for the next 25 years or they can sell now and move on with their lives. It's a no brainier. By the way, we are closing on this Strategic Short Sale in 2 weeks.

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But why would a Lender accept this Strategic Short Sale? Because they know that it is inevitable that this loan will go into default or have to be settled at some time in the near future. On average folks in the US have to move and sell every 5-7 years. This loan will still be way underwater at that time. So why not just take the loss now?

A Strategic Short Sale almost always requires the borrower to participate in the Lender's loss. What this means is the borrower will be required to make a cash contribution at closing and/or sign a new promissory note paying back some of the money owed over time.

A Strategic Short Sale is a settlement. It's the Lender agreeing to a lump sum of money now instead of continuing to accept payments over the existing life of the loan. 

Never forget the time value of money.

Simpler explanation: You owe me $100. You have agreed to pay me $1 a month for the next 100 months. You come to me an offer me $45 today to wipe out your debt. I agree. Is that $45 today worth more to me than the $1 a month for the next 100 months? Probably. I can't predict the future so cash in the hand is a safer bet. Plus I can now re-lend the money and get it working for me again. Plus I received some money from the mortgage insurance company and the government for taking the "loss". It only looks like a bad deal on the surface.

Things aren't always what they seem. Make cents?

Are you facing foreclosure in Florida?

Hi folks. Let's talk about this Strategic Short Sale thing a little. I know there are many people that just can't understand why anybody would do a Short Sale if they can afford their mortgage payment and they do not have a hardship. In fact, there are those that would call this immoral. Well OK then.

My job is not to judge. My job is to inform people so they can make a decision based on facts, their needs and what's best for them. And as much as it sucks a Strategic Short Sale MAY be the best option. Just because someone can afford their mortgage payment does not mean continuing to make it is the best way to go. 

This post will give you some hard cold financial data. Do with it what you may.

First, you have to remember that in my area property values are down 75% and in some communities as much as 85%!!!! Folks that purchased from 2003-2007 with 20% down are still way up side down. Just to put our decline into perspective.....the average house in Poinciana, in the year 2000, sold for $81,000 and $56 per sq ft. Today, 2010, they are selling for $72,500 and $41 per sq ft. Unfortunately our MLS data only goes back 10 years so I can't see how far back values have gone. But we do know houses are worth less today than they were 10 years ago!!

If you purchased a house in Poinciana Florida in 2006 at $220,500 (average 2006 selling price) and put 20% down ($44,100) today, that house is worth $72,750! Your PITI (principle, interest, taxes, insurance) payment, if you have an interest rate of 6.75%, would be roughly $1,450 per month. You would still owe $168,000. This is 232% of what the house is now worth (LTV). So just to be EVEN on your mortgage, values would have to increase by 132%!! Of course this doesn't include the $44,100 you put down.

So.....should you continue paying? Only you know the answer to that question. Just remember that until values increase by 132% you will STILL be upside down on your mortgage.

If you did decide to do a Strategic Short Sale today and rent a similar house you would save approximately $700 per month. If you invested $400 of that savings at 5% you would have almost $28,000 at the end of 5 years. If you kept your mortgage instead you would still owe $150,500. What would your house be worth in 5 years? I have no clue. But I can only guess that it would not have appreciated 100%. That means if you needed to sale in 5 years you would SILL have to do a Short Sale. Do you take the hit now or take it later?

The numbers are staggering. What say you?

Are you facing foreclosure in Florida?