If you find yourself in a difficult financial situation with your current mortgage in today’s market, take a step back from all of the noise to reflect upon your situation. At each point in your financial history, you made the decision that you believed would best help you realize your goals.
Because nobody has perfect foresight into our future income, or the property market generally, it is only natural to come to re-evaluate your current debt situation. One option for home owners are short sale negotiations, which may allow you to sell your home to satisfy the existing loan.
Firstly, it’s important that you act as your primary advocate in this situation – put your best foot forward because short sales only work when fully agreed to by both the borrower and the lender (your mortgage holder.) Understand that, given today’s extraordinary market environment, even high profile individuals are often in a position where there is a gap between what they can afford and what they believed they could afford in the future.
Take the case of well-known TV personality Ed McMahon: his Beverly Hills home potentially faced foreclosure due to unexpected changes in property values, interest rates and his own personal income (see Businessweek ). In order to satisfy the requirements of the loan, McMahon has been working to reach an agreement with a 3rd party to clear a short sale to satisfy his mortgage.
Like McMahon, you may find it initially difficult to find a market clearing transaction to satisfy your lender, but remember: just as hard work and persistence allowed you to afford a home in the first place, diligence can help you overcome obstacles to find the best way to address to your current home loan.
Ultimately, a short sale can be understood as a negotiation to recognize a changed environment from that when the loan was originally signed. Any offer to buy the property must be evaluated by the lender, who is in a favorable position of being able to determine whether to accept such an agreement. Because of this, it’s crucially important that you present your property in the best possible light, just as you would in selling your home directly.
Never accept the least common denominator as the only solution to the issue – by working hard as an advocate for your own cause, you can make a solid case to the lender that a short sale might be in both parties’ best interest.
In short sales, just as in any negotiation, it’s important to put yourself in the lender’s position and try to understand their approach. The decision they make is based upon the opportunity cost of holding onto the property after foreclosure and then determining what to do with the asset – if they believe that properties value are artificially low, then it will make it more difficult to clear a short sale.
Because of this, it’s important to present the property as a potential investment to other buyers, putting your value proposition at the center to generate the highest possible offer; the higher the offer, the more likely your bank will be open to accepting a short sale.