The Short Sale Conundrum
July 15, 2009
I looked up "conundrum" on google to be sure that the definition fit what is happening in the world of short sales. While the first definition was that a conundrum was a puzzle that usually included a pun, the second and third definitions seemed an appropriate description of what faces lenders, sellers and buyers in today's market.
A "conundrum" is a question or problem having only a conjectural answer; an intricate and difficult answer; a difficult choice or decision that must be made.
Surely these definitions fit short sales.
A lender must decide whether to agree to take less from a borrower than the borrower owes. The lender must decide how much less and whether the borrower is actually financially unable to make the payments on the loan. The latter determination is difficult because lenders often will not consider reducing the mortgage balance until the borrower fails to make the payments for several months. Ultimately, if the borrower fails to make payments and the property goes into default, the lender must then decide which nets the most from the non performing loan - a short sale or selling the property once the lender gets the property back though a foreclosure sale. on the surface, getting rid of the non performing asset sooner rather than later, especially in a declining market, seems like a no-brainer. However, from the length of time it takes a lender to make a short sale decision, there must be many other factors to consider - thus the "conundrum" e.e. the intricate and difficult problem.
For the seller who can no longer keep up the mortgage payments and for whom the balance of the mortgage is greater than the property's current market value, trying to "short sell" it and negotiating with the lender for a reduced pay-off seems a reasonable decision. Unfortunately, some sellers who put a property on the market as a "short sale' could make the payments but choose not to because the property is worth less than they owe. If a property owner must make a choice between letting the property go though a foreclosure action or selling it "short", the decision might be influenced by the impact of this decision on the seller's credit scores and the future ability to purchase another property. In both cases, the seller's credit has been affected. The question becomes is on effect worse than the other. Many financial advisers believe that the short sale may have less negative impact because the number of missed payments may be less. The short sale may more quickly put an end to the credit damage. In fact, one attorney expressed an opinion that a seller who sells with a reduced pay off demand should request that the loan be reported as "satisfied" rather than as a reduced pay-off.
For the buyer, a short sale is a conundrum because the wait for an approval from a lender has been extremely lengthy; it could be six month or more. Most buyers are faced with the problem of wanting to purchase a home now, not in six months plus the reality that the property may even have declined in value after they submit an offer. Another factor for the buyer is the not knowing whether the sale of property will be approved or whether it will just continue on the path to foreclosure.
As should be evident, short sales pose a true "conundrum".
I looked up "conundrum" on google to be sure that the definition fit what is happening in the world of short sales. While the first definition was that a conundrum was a puzzle that usually included a pun, the second and third definitions seemed an appropriate description of what faces lenders, sellers and buyers in today's market.
A "conundrum" is a question or problem having only a conjectural answer; an intricate and difficult answer; a difficult choice or decision that must be made.
Surely these definitions fit short sales.
A lender must decide whether to agree to take less from a borrower than the borrower owes. The lender must decide how much less and whether the borrower is actually financially unable to make the payments on the loan. The latter determination is difficult because lenders often will not consider reducing the mortgage balance until the borrower fails to make the payments for several months. Ultimately, if the borrower fails to make payments and the property goes into default, the lender must then decide which nets the most from the non performing loan - a short sale or selling the property once the lender gets the property back though a foreclosure sale. on the surface, getting rid of the non performing asset sooner rather than later, especially in a declining market, seems like a no-brainer. However, from the length of time it takes a lender to make a short sale decision, there must be many other factors to consider - thus the "conundrum" e.e. the intricate and difficult problem.
For the seller who can no longer keep up the mortgage payments and for whom the balance of the mortgage is greater than the property's current market value, trying to "short sell" it and negotiating with the lender for a reduced pay-off seems a reasonable decision. Unfortunately, some sellers who put a property on the market as a "short sale' could make the payments but choose not to because the property is worth less than they owe. If a property owner must make a choice between letting the property go though a foreclosure action or selling it "short", the decision might be influenced by the impact of this decision on the seller's credit scores and the future ability to purchase another property. In both cases, the seller's credit has been affected. The question becomes is on effect worse than the other. Many financial advisers believe that the short sale may have less negative impact because the number of missed payments may be less. The short sale may more quickly put an end to the credit damage. In fact, one attorney expressed an opinion that a seller who sells with a reduced pay off demand should request that the loan be reported as "satisfied" rather than as a reduced pay-off.
For the buyer, a short sale is a conundrum because the wait for an approval from a lender has been extremely lengthy; it could be six month or more. Most buyers are faced with the problem of wanting to purchase a home now, not in six months plus the reality that the property may even have declined in value after they submit an offer. Another factor for the buyer is the not knowing whether the sale of property will be approved or whether it will just continue on the path to foreclosure.
As should be evident, short sales pose a true "conundrum".
posted by shirley harry at 7:57 AM
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