I’ve said it before, and I’ll say it again (and you don’t have to like me for it…but I feel it’s the truth). Capitalism must be allowed to play itself out. You cannot change the rules of a game that is already set in motion and so indoctrinated into the very fabric of our economy it might as well be likened to Gravity in Nature.

Bailouts, whether for the financial industry, or the auto industry, or any other industry are band-aids…short term fixes that wear off and lose their stickiness after a relatively short time. The problem – as I’ve said before is that we’ve got a broken leg, and you can’t fix that with a bandaid. A broken leg must be re-set (and it’s going to hurt, big time) and then allowed to heal over time if it’s ever going to mend properly.

Do I feel bad for the people losing their jobs in the auto industry and the people who are losing their homes to foreclosure? Absolutely. They are the casualties and unfortunately most of them had no say in how it went down – the blame and fault doesn’t lie with them.

But regardless of how I may feel about them and their situation, companies that make cars that people don’t want to buy are supposed to go out of business. Companies that are mismanaged to the point where they need BILLIONS of dollars in taxpayer money to sustain them for just a few months are absolutely supposed to go out of business. People who bought a home they couldn’t afford because they thought they’d be fine and able to figure it out the details later CANNOT keep their homes (as much as we’d all like that to be the case…).

That’s trying to cheat the game…it’s trying to work against gravity…but gravity is a natural law…it’s the rule of the game…you can’t change it and fighting it will only put you in a worse position than you were in beforehand.

Does it hurt? Like setting a broken leg – yes it does. Is a bailout going to help? In the short term – perhaps…in the long term…absolutely not. Funds transferred to a company that is unable to turn a profit are not funds well-spent. Even if it keeps you in business for an extra 4 months. Loans modified to help you keep the house you couldn’t afford to begin with…? While it may “feel” better in the short-term…it’s a band-aid on the American Economy’s broken leg…and that’s NOT helpful in the long run.

Capitalism…this game…must be allowed to run its course…as much as it hurts to do so – it will hurt more if we try and reverse gravity.

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The big question, though, is “What exactly IS a short sale?“

WELL – a short sale occurs when a bank agrees to take less than a homeowner owes as payment in full for the loan. The easiest way to explain this is with an example.

Say you owe $200,000 on a very nice home that you bought in Spring Hill, but because the market has been declining, your home is now only worth $180,000. You go to the bank and say “I’ve got an offer on my home of $180,000 and I need to sell it…I know that I owe you $200,000…but I can’t afford my payments and if you don’t take the $180,000 you will have to foreclose on my home”. The bank then looks at the numbers and makes a determination as to whether they would rather take the $180,000 (and lose $20,000 on their loan amount) or foreclose on the property, sell it at auction, and hope to make more than the $180,000 when all is said and done (foreclosures are expensive for a bank…and you never know where the property will end up price-wise at auction…so in many cases, short-sales can work out better for everyone involved).

Sounds like a great thing, right? SIGN ME UP!

Not so fast…there are very specific conditions with short sales and whether or not banks will work with you on one.

You need to have some sort of Financial Hardship.

“Financial Hardship” does NOT mean:

“I want to sell my house, but nobody will buy it for as much as I owe.”

Desire to sell does not equal a hardship.“

I already bought another house and I need mine to sell because I can’t afford two mortgages.

“Desire to purchase a different home does not equal a hardship.

“I’m not going to come to the closing table with cash – I paid XXX for this house and I’m the one getting screwed here because of this market!”

Again, wanting to sell your home does not equal a hardship.

“My mortgage rate just reset and now my payments have jumped up by $500/month and there’s no way that I’m paying that!”

Your mortgage documents clearly stated what your terms were when you signed them and rate adjustments do not immediately equal a hardship.

So what IS a Financial Hardship?

A few examples might be:

“My wife died and as a result, I’m living on only one income and can no longer afford my payments…if you don’t work with me, you will have to foreclose on my home.”

“I lost my job and/or had to take a $XXX/year pay cut…as a result, I can no longer afford my payments…if you don’t work with me, you will have to foreclose on my home.”

“I got hurt on the job and my disability pay doesn’t cover as much as my old job used to pay, as a result i can no longer afford my payments…if you don’t work with me, you will have to foreclose on my home.”

“My mortgage rate just reset and now my payments have jumped up by $500/month…I was planning on refinancing but now they’re telling me that I can’t and I can no longer afford my mortgage payments…if you don’t work with me, you will have to foreclose on my home.”

Another factor that comes into play is “Can you afford to pay your debt?“

Example: My household earns $300,000/year but now my home is worth $20,000 less than what I owe…I want a short-sale.

Your situation will most likely not be seen as a financial hardship by the bank. The bank will most likely determine that you can afford your payments, whether you want to or not, and will not forgive any debt.

Hope this has cleared up the term “short sale” for you, as well as the criteria banks might look for when considering your particular situation and whether they’ll work with you to short-sell your home.  If you’d like some further reading  - check out my article about how short sales work once an offer has been received.  It details the process from the time an offer is received, until the property is sold.

Any questions? Call me any time at 352-397-5182 or email me at Josh@HernandoLuxuryHomes.com. I’d be happy to go over things with you and help you figure out what your best option may be for your particular situation. The scenarios mentioned in this post are by no means definitive. They are simply the opinions of a Real Estate Agent in Hernando County, Florida based on his personal experiences with the subject matter at hand. I am not a lawyer, and this does not constitute legal advice.

Take care.

-Josh

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Short Sale and Foreclosure Effects on Credit: http://homebuying.about.com/od/4closureshortsales/qt/060907SScredit.htm

How to Do a Short Sale: http://www.ehow.com/how_8132_short-sale.html

Short sale vs foreclosure?: http://answers.yahoo.com/question/index?qid=20070825084435AAm1Pv5

Joshua P. Hanoud
Experience a Higher Level of Service!
Tropic Shores Realty
http://www.HernandoLuxuryHomes.com
Josh@HernandoLuxuryHomes.com
24/7 Cell:  352-397-5182

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