Home Selling: Strategic Defaults & Short Sales


As home prices have declined precipitously over the past couple of years, many homeowners have discovered that the price that their home can sell for in the local real estate market may be far less than what is owed on the mortgage.  When a home is Sold under these conditions, the transaction is referred to as aShort Sale.


One question which is on some folks’ minds is whether continuing to make payments on a declining asset makes sense.  Particularly when they do not stand to make a dime on a home they have been making payments on for years.


Well, although defaults on mortgages have increased significantly over the past several years due to the economic down-turn and there is a sharp increase in the number of folks who have made a strategic decision to default on mortgage loan payments although they can well afford the payments, it is prudent for anyone thinking about this option to consider the latest word from HUD (the Department of Housing & Urban Development) on the topic.


Here’s a link to the Mortgagee Letter, a document which provides guidance to lenders and underwriters about WHO will be able to qualify for new FHA loans if they have gone through a Short Sale.


Reading through the letter, it seems to make sense to stay current on your loan even while continuing to try to sell your home…even if that involves a Short Sale.