Suppose you can’t pay your mortgage, and you can’t sell your house because you owe more than it’s worth. You’re in a real jam.
You can stay until the sheriff shows up with the move-out order. Or, as more people are doing these days, you can try to escape your debt with a short sale.
Put the house on the market, and find a buyer willing to pay less than the mortgage amount. Then convince the bank to eat the difference, letting you off the hook for the remaining debt.
Are short sales of property on the rise? The answer is yes.. Short sales accounted for 25% of all residential sales in 2014. Recent changes on the rules regarding short sales by Fannie Mae and Freddie Mac resulted in many more short sales being approved prior to foreclosure. The rules require less documentation from the consumer.
There are many driving forces. For consumers and lenders this is a less traumatic and more controlled event. Lenders now realize they will sustain smaller losses if they approve a short sale rather than approve a foreclosure. Buyers prefer to purchase from an owner, who can give disclosures and information about the property rather than buy from an anonymous bank who has no information about the property. Another driving force is that the foreclosure process continues to take more and more time due to increased litigation, regulations and delay tactics by consumers.
Is this a positive sign or a sign of more trouble ahead for the housing market? The answer appears to be yes and no. On a positive side, a short sale helps preserve communities. Besides having a higher price point, it is less disruptive to neighborhoods as the property typically will not be vacant or vandalized. Short sales create the benefit of having property occupied with a family that is able to buy services, keep up the property and pay real estate taxes.
On the negative side, large numbers of short sales also opens the potential for fraud. Some argue that short sales are actually part of the housing market’s problem as it reflects the negative sentiment about the housing market. It says that lenders and investors only approve short sales because they do not see a real recovery. The people who are buying are typically not first time homeowners but investors who are purchasing real estate at discounted prices to use as rental properties.
The law surrounding sale/purchase of an “underwater” home is complicated. Plus, the facts of each case are unique. For more information contact the real estate attorneys at HoganWillig at 636-7600.