Short Sale? Modification? Foreclosure?

These are the three questions many of us are asking in the current economy.. The answer however is a very individual decision. Which choice is best for you depends on a variety of factors including your long term goals, the amount you are “upside down” in comparison to loan amount and market value.

Many more lenders are now offering modifications to homeowners in distress. These are generally what I consider more of a temporary solution as the banks seldom offer principal reductions. Usually the bank will offer to lower you payment over a fixed period of time. The problem with these terms is that without a principle reduction you are not building equity. In today’s market where a homes value may be upside down or have a negative equity of over 70% current appreciation projections show it would take years just to break even on the balance of the loan. This makes your situation like a long term lease.

Foreclosure or simply walking away from the home is another option. There are of course pros and cons to this approach. The legal repercussions can vary depending on each individual’s situation. California is a non-recourse state and has what is called a one action rule which basically states that if your homes is foreclosed and sold by the trustee that is the only recourse for the lender. Which means, generally speaking you can walk away with little or no legal consequence. These rules can apply to primary homes and second or investment property. I would definitely advise anyone seeking foreclosure to seek legal advise for there individual scenarios.

If you are considering a default I highly suggest you look into a short sale an option. Choosing a short sale will put you back in control of your life and when you need to move. A Short Sale is when the borrower/owner sells a property during a pre-foreclosure process. It is called a short sale because the owner will sell the property “short” of the balance owed on the note not because it is quick. Because a short sale is perceived as a proactive choice by the borrower the credit compiling agencies tend to score it higher than a foreclosure or a deed-in-lieu.

I would always advise my clients to seek advise from an attorney under bankruptcy protection a well. Many homeowners have incurred a substantial amount of debt in this economy and a bankruptcy may be a good option to help you afford to keep your home by eliminating burdensome debt. Although legally you may not need to pursue a short sale after the bankruptcy, in regard to credit building it is still a good option.

Let me be clear, I am not advocating to anyone to ignore their financial obligations. What I am saying is that you should look at your own situation and make the decision that is best for YOU and your family and not the bank. It is very important that you should be informed about your options and possible consequences.

Remember to always seek legal and tax advice before making any decisions and if you have any questions or need more information please call, and let me help you make the best real estate decisions.

Loan modification, Short Sale or Strategic Default Which one is right for you? Call me today for a no obligation one hour consultation to discuss and compare your options.

Patrick McCarran is a local Realtor and can be reached at (925) 899-5536 or Prudential California Realty is an independently owned and operated member of The Prudential Real Estate Affiliates, Inc., a Prudential company. Equal Housing Opportunity.

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