Mortgage Underwater?
With the prevalence of real estate news hitting the headlines about everyday for the past five years, many people have asked “What is a short sale?” Some of you might be very familiar with term (maybe too familiar), but there are plenty of people who don’t understand the concept or phrase. After all, while it may seem like short sales have been a frequent topic of real estate discussions for some time now, it’s only since the market turned in the middle of the last decade that shorts have become a strong subject of concern. So let’s get to it.
What Exactly Is A Short Sale?
A “short sale” is simply a sale of real estate property in which the mortgagee (lender) agrees to sell the property for less than the mortgagor (borrower) owes on the mortgage. The name comes from the fact that the lender is taking a “short” position on the mortgage balance owed them, i.e. they are forgiving a portion of the debt. This happens when the balance of the mortgage is greater than the local market value of the property. This is where the terms “upside down mortgage” and “being underwater” with your mortgage come from. Now this answer may lead to a new round of questions such as: Why would a short sale be needed? Can anyone do one? What’s involved? Is a short sale right for me?
Why Would A Short Sale Be Needed?
There are many reasons why someone may seek a short sale with their lender, but they all generally point to a homeowner’s inability to continue to pay the monthly mortgage payments according to the current terms of the loan. It could because of any one of the following:
- The borrower lost their job or had their hours reduced
- The borrower or a family member became sick and income has been reduced to care for the family
- A spouse’s or partner’s income has been lost or reduced – possibly a death or divorce situation
- The monthly loan payments spiked beyond the borrower’s ability to pay
- If it’s a second or vacation property, rental income may have dropped with the local market
- Any other life situation — financial, economic, personal — for which a borrower can no longer make the monthly payments and risks a foreclosure (Hawaii was recently ranked 11th in the nation for foreclosures)
Can Anyone Do A Short Sale?
Not every borrower can get a short sale done on their house / mortgage, whether here in Hawaii or elsewhere in America. Let’s be very clear here: your lender has the final say on whether or not to grant you a short sale. They are taking a loss on the balance due them and may deny your request for a short sale for various reasons. You can dramatically increase your likelihood of success by working with true short sale professionals like Big Rock Investments and our partners and allowing us to present the best case possible, but a short sale is not anyone’s “right”. Increase your odds by working with PROS.