Should Buyers Purchase a Less Expensive Property BEFORE they Try to Short Sale a Current Home?
Q: I am facing financial crisis and yet I haven’t missed any payments. My house isn’t worth as much as I owe on it and I want to buy something else, smaller, lower mortgage and move into it before I try a short sale. Is that a wise thing to do?
A: This is an excellent question and one I am faced with regularly these days. Sellers who accomplish what you just suggested, perhaps unknowingly, may bring themselves more troubles further down the road. Here is the typical scenario, the homeowner sees that sometime in the near future, maybe a matter of a few months, their funds are going to run out and they will no longer be able to continue to support the costs involved in their current home. They may or may not try to sell the home during this period, but are unable to do so because they owe more than the value of the current home. In what they may feel is prudent financial planning, they find and purchase a second home in which they close escrow, move into the new home and then the following month, they cease paying the mortgage on their prior residence and try to enter into a short sale on that prior residence. With the tightening of lender qualifications and the need to disclose all assets and support the purchase of the second property which they plan to make their personal residence, the first question that begs answering is that if there were enough actual assets to qualify for the purchase of the second home and carry both, then how can a hardship be documented for the first lender in the first home to accept a short sale. Short sales are not meant to be a creative alternative to financial planning to rid one of higher debt in order to buy a smaller lesser property at a much lower interest rate and leave the first lender to absorb the loss of the loan and the cost of the sale. This is the same logic or lack thereof that led to “don’t show , don’t tell” in stated income or no income, no job verification loans that contributed to the financial crisis that we currently experience. This is the reflection of it’s always “someone else’s responsibility, not mine” logic. Be wary of this thinking or anyone suggesting that this is a legitimate way out of your financial crisis. The consequences could be ominous. The lender on the first property could deny your request for a short sale. The lender on the second property could allege mortgage fraud and third, the homeowner, his mortgage broker and the real estate brokers could be subject to the scrutiny of ongoing HUD investigations. Make sure your financial plans, assets, purchases and sales are 100% transparent and full disclosure with no exceptions is the rule. This is not an additional financial and legal challenge that any homeowner would welcome.
Opinion by Gayle Henderson PC CDPE, RE/MAX Excalibur Realty. 602-850-4335. www.azavoidforeclosurenow.com