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Hi folks. Why would a Lender consider a Strategic Short Sale? This article may help answer that question.

A Strategic Short Sale is a choice. It's a choice made by a seller (borrower) to sell their property to get out from under a mortgage that no longer makes sense and put their money elsewhere. These borrowers do not have a "normal" hardship.

Here's an real life case of a Strategic Short Sale situation:

I have as young family right now who bought their house in 2005. They paid $250,000 and put 20% down. They purchased using an ARM because the mortgage broker convinced then that in 3 years they could refinance into a fixed rate. This 3 year period was the amount of time the husband needed to complete his internship with his job and go into a higher salary.

Before they could refinance the bottom dropped out of the market. Their mortgage went up from $1,500 a month to almost $2,500 a month. Their home is now worth $55,000.

Anyone that reads this and thinks these folks should just stay and honor their obligation is just flat out wrong. And folks that "think" they would stay, if in the same situation, are just kidding themselves. There's not a Lender on the planet that would modify this loan so that it works.

So this family can stay trapped in their home for the next 25 years or they can sell now and move on with their lives. It's a no brainier. By the way, we are closing on this Strategic Short Sale in 2 weeks.

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But why would a Lender accept this Strategic Short Sale? Because they know that it is inevitable that this loan will go into default or have to be settled at some time in the near future. On average folks in the US have to move and sell every 5-7 years. This loan will still be way underwater at that time. So why not just take the loss now?

A Strategic Short Sale almost always requires the borrower to participate in the Lender's loss. What this means is the borrower will be required to make a cash contribution at closing and/or sign a new promissory note paying back some of the money owed over time.

A Strategic Short Sale is a settlement. It's the Lender agreeing to a lump sum of money now instead of continuing to accept payments over the existing life of the loan.

Never forget the time value of money.

Simpler explanation: You owe me $100. You have agreed to pay me $1 a month for the next 100 months. You come to me an offer me $45 today to wipe out your debt. I agree. Is that $45 today worth more to me than the $1 a month for the next 100 months? Probably. I can't predict the future so cash in the hand is a safer bet. Plus I can now re-lend the money and get it working for me again. Plus I received some money from the mortgage insurance company and the government for taking the "loss". It only looks like a bad deal on the surface.

Things aren't always what they seem. Make cents?

Are you facing foreclosure in Florida?