Do you know the difference between a “short sale” and a “bank owned” property? The reason I ask is because we are finally seeing some movement by the banks to adjust their policies to make a “short sale” right BEFORE it goes to foreclosure – “bank owned”.
A Short Sale is the moniker for a property that’s on the market for sale by the owner (not the bank), but the loan amount is higher than the property value. So, the sale will go “short” and the home will sell for less than the mortgage is. The Bank will then write off the loss. There are literally millions of these loans out there right now; Wachovia Bank just announced they have 70,000 in California alone.
So if your loan amount is higher than your home value, what should you do about it? If you have the cash flow to keep making your payments you are probably trying to keep the house. But if your home is really underwater, and there is little chance it will rebound sufficiently in the next three to five years, it may make sense to sell it “short” now.
With most banks, a short sale will ding your credit 60-80 points – something you can recover from while you rent for a year or two. A delinquency or foreclosure will kick your credit score down by 200-300 points! That could take YEARS to recover from. The good news is that at least one bank, Wachovia, not only finally “gets it”, but they are doing something about it. In just the past few weeks Wachovia Bank has announced that they have put policies and procedures in place to address both short sales and loan modifications. This is huge.
We’ve seen lots of indicators that we may be at the bottom of the housing crash – though I think the high end will continue to come down for awhile. But if your loan is eating you alive, you now have some options – especially if your loan is with Wachovia (or World Savings). I recently attending a specific Wachovia / World Savings short sale / loan modification training to learn more about it and I was very impressed with what Wachovia is doing. So much so that I called about my own loan!
And all this means that there are still some great deals out there. If you can afford to buy up or down, if you have grown kids thinking about moving back home, now is a great time to do it. We can look for both short sales and foreclosures and even regular sales. Financing is as good as it’s been in years and now that at least one bank is in line with the consumer, it’s a great time to be thinking through your options.