Why Bank and Government “Short Sale” Strategies Will Fail by Aaron Zapata

Why Bank “Short Sale” Strategies Will Fail     

I’ve spoken to agents all over California, and we are all finding similar scenarios when it comes to working with homeowners on Short Sales (when a home is valued less than the amount owed).  What the banks and the government have failed to ask is what I believe to be the most important question of all: “Will the outcome of the short sale be better than what they currently have?” The answer is NO.

What do a lot of these homeowners have? 

Many are in attempting to get Loan Modifications and have stopped making their payments (banks typically aren’t willing to evaluate a homeowner if they are current on their payments). If they have stopped making their payments, they have been living in their homes for months, virtually for free.

The loan mod process is exhausting and frustrating as they try to work with the banks.  It seems like, to the homeowner, that the bank is in no hurry to work out a solution with them. As a result, when a home owner is given the option of a “quick and hassle free” short sale, they are not impressed and really upset.  The thinking goes like this, “I’ve been trying to work for months to work out a loan mod and haven’t gotten anywhere.  Now, they want to make it possible for me to quickly move out?” 

Finally, those who bought homes in the last five years are not all that excited about “homeownership”. Most have ruined their credit through the loan modification process.  Others have been foreclosed on or know someone who has suffered through the process. The promise of being able to buy another home sooner because they go through a short sale vs. a foreclosure just isn’t that appealing. “We’re happy to be renting.” many have told me.

There is an obvious disconnection between what the government and banks want compared to what the people want.  The banks want to get them out of the house via short sales.  Homeowners, however, want to work out a loan mod and stay in their homes as long as possible, especially if they are staying there virtually for free.  Just because a bank offers a way out of the home doesn’t mean that the homeowner wants it.

I predict that over the next two years, the banks and government will realize that they still can’t get enough homeowners to volunteer for the short sale offers being made. Sure, there are those that will take the option, but many will not.  Eventually, the banks will be forced to increase their foreclosure rates again. 

What do you think? I don’t have statistical data to back up these claims.  Many conversations have led me to this conclusion.  Am I wrong? I hope I am wrong.  I hope banks and the government make it possible for people to stay in their homes with affordable payments.

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