Short Sales - Why is someone else getting the better deal?

Short Sales - Why is someone else getting the better deal

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As the push for short sales will grow even stronger throughout 2011 many will ask themselves why is the bank willing to sell the home to someone else for less but won't simply reduce the principal allowing them to stay in the home. Logically why should someone else get to purchase their home for less?

According to CoreLogic more than 11 million borrowers currently owe more on their mortgage than it is worth and this group of borrowers would all love nothing more than to replace their current underwater mortgage with whatever the accepted "short sale price" is deemed to be.

Many industry professionals believe that this logic is irrational, I don't. I believe that such a response on the part of borrowers should be considered rational. Many ask me why they have a mortgage at a higher amount, especially if the bank is willing to sell the house to another buyer for less money. Why does someone else get the lower purchase price? Isn't easier for the bank to just give me that loan instead?

The truth is that the bank and/or investor may not always have the luxury of defining their terms on principal write downs.

Generally speaking, the mortgage world can best be divided up into three sub-worlds: the GSEs, private-label securities, and whole loans. Depending on what class of mortgage asset the lender tends to hold, their viewpoints can differ dramatically; and if they hold all three, as most commercial banks tend to do, they're facing more than a mild case of financial schizophrenia.

While the truth is that many investors are in favor of principal write-downs, at least to a point-and many investors buying distressed whole loans are already forgiving significant amounts of principal, because they can, many commercial banks are constrained by such a maneuver. What's more, plenty of consumers (rightfully) are upset at the notion that financial rewards would be given to those that don't pay.

For most major commercial banks, Bank of America for example, their whole loan portfolios present a distinct set of challenges apart from any securitized servicing they do, especially in the case of second liens. Wide-scale principal reduction for these banks means recognizing massive losses on their second lien portfolios, losses that would be so large that regulators wouldn't be able to ignore it.

If you are thinkingof a short sale BEFORE taking any actionconsult an experiencedFlorida real estate attorney, get the legal advice you need, understand your rights,know your options and have a plan.

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