Three Reasons to “Short Sell” Now

Just a few short years ago, the average homeowner may have heard of a short sale, but very few understood what it really meant. Today, not only do most people know what it is, there's good chance they or someone they know is considering "short-selling" their house.

The real estate market crash in 2007 and the subsequent decline in prices has left millions of homeowners upside-down on their homes. That coupled with a declining economy, adjusting loan rates and job losses adds up to the current real estate market where distress sales are now the norm.

If you are someone you know is considering a short sale, now may be the best time to take advantage of some laws that will work to your favor. Here's why:

1.  Earlier this year, SB-931 was passed in California which makes it illegal for lenders who enter into short sale agreements to require repayment of any amount over the sale price of the property.  This is great news for homeowners—especially those who had “home equity lines” or HELOCs.  Prior to this bill, a homeowner could short sale his houses, the lenders would sign off but the “second” lien holder who often didn’t get much from the deal could and sometimes would come after the borrower after the close of escrow for more money. Not a good thing.

Now once the deal is signed and closed, the lenders have to take it and that’s it.  So the homeowner knows he’s done and can thus move on to rebuilding his credit and financial situation. This has been a huge relief to many homeowners who otherwise were facing the foreclosure route or even bankruptcy as the only way to erase the debt.

2.  The Mortgage Forgiveness Debt Relief Act is set to expire in 2012. In 2007, at the peak of the housing crisis, Congress passed this act that was designed to provide some tax relief to home owners who had lost their homes to either foreclosure or a short sale. Prior to this legislation, any “forgiven” debt (money that didn’t have to repay) would have been considered income on your tax returns. 

Well time is running out to take advantage of this relief which is set to expire at the end of 2012. The average short sale can take between 4-8 months, so homeowners who have been on the fence trying to decide what to do should know about this time limit and take steps so as to not miss out.

3.  The final reason to short sale your home now is that most banks have finally figured out how to speed up their processes. Many of the larger banks have implemented new streamlined standards and are working more efficiently with agents to get the properties sold and the “bad” loans off their books. 

The rate of defaults on mortgages is still at record highs and most predictions are that we are still a few years away from any type of significant market recovery.  But for California homeowners that are underwater and finally ready to be free … now is the time to literally move.