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Strategic Default

Considering Strategic Default in San Diego?

Strategic default is often a sound financial decision. And in almost every case, choosing to strategically short sale your house is a better decision than simply letting the property go into foreclosure.

Thousands of San Diego property owners have come to the realization that continuing to make payments on their homes, second homes, and residential rental properties might not be a wise business decision. And, there are times when sound business decisions should outrank other considerations.

Strategic default is generally thought of as the decision by a homeowner or investor to let a property go into foreclosure, whether or not they have the ability to continue making payments. But contrary to what many believe, such homeowners can also choose the short sale method of strategic default in San Diego – and with far better consequences.

Some San Diego property owners have both assets and income – they are able to continue making the payments. But for many, the property has lost so much value that continuing to service the debt does not make good financial sense.

In the long run, the benefits of a short sale over a foreclosure make the effort worthwhile. Here are a few of the reasons why:

  • A foreclosure is far more damaging to your credit scores – and for a longer time
  • A foreclosure will prevent you from securing some kinds of employment
  • After a foreclosure, you’ll be ineligible for a new home mortgage loan for 5 to 7 years
  • After a short sale, you’ll be able to get a new mortgage loan after only 3 years
  • If you have a non-purchase money second mortgage, the bank can sue for deficiency after a foreclosure – but not after a short sale.
  • You could become trapped in a “Zombie Foreclosure” and remain financially responsible for that house for years.

Some San Diego homeowners are now making monthly mortgage payments that are roughly double what their next door neighbors are paying for a similar home purchased recently. Worse, their homes are often worth 30% – 50% less than the balance they owe on their mortgages. In San Diego, most condos are now worth 50% less than their current mortgage balance.

What about the new Fannie Mae / Freddie Mac “Mortgage Release” Program?

This program, which went into effect in March 2013, may be a help for some – but not for California residents.

Under California Law the banks may not demand a deficiency payment from the homeowners in conjunction with a short sale. Under the Mortgage Release, homeowners with financial reserves can be required to pay up to 20% of those reserves as a condition of the release. In addition, second lien holders are not required to release their liens without payment – so homeowners could potentially be liable for the full amount.

As for the effect on credit scores – the mortgage release will be reported just as if it had been a foreclosure. The only advantage is that homeowners will be allowed to sign a deed-in-lieu of foreclosure without being late on payments. This is small comfort.

Some rental property owners should also consider a strategic short sale.

Faced with competition from investors who purchased in the last few months, many are being forced to lower their rents. Properties that were once San Diego income earners are now a monthly drain on bank accounts. Owners are writing checks to make up the difference between rental income and the mortgage payments, taxes, insurances, HOA fees, and special assessments.

For some it means using every last dollar and forgetting about such things as saving for retirement or college tuition for the kids. For those whose income stream has been severely reduced, it could mean going a little farther into debt each month on credit card accounts, just to keep food on the table. And, making those payments could bring a serious and negative result in their future and their loved ones’ futures.

It might not make sense to risk all of that for a property that will not cash flow for many years.

Thus, some rental property owners as well as San Diego homeowners are considering “Strategic Default” as a wise business decision made to protect themselves and/or their families from future financial devastation.

If you’re considering a Strategic Default Short Sale in San Diego County, call on us.

 
In spite of what you may have read, banks do allow short sales on investment properties and second homes as well as primary residences, and they do allow the short sale of a home whose owners who have both income and assets.

And, while inexperienced real estate agents will tell you it can’t be done, we have negotiated short sales involving debts of $100,000 up to $4 million.

Every San Diego short sale, and especially every high dollar short sale, is unique and requires a unique strategy and approach. One size definitely does not fit all. And that’s probably why you’ve heard so many stories of failure.

Perhaps the biggest mistake anyone can make when attempting the short sale of a home is choosing an inexperienced agent. And even choosing an agent with success in short selling low to moderately priced San Diego homes can result in failure with a luxury home, a second home, or an investment property.

We are San Diego short sale specialists. Unlike many agents, we don’t subcontract out our short sale negotiations, but handle all negotiations in-house. Through our experience in handling hundreds of short sales, we have developed effective processes for dealing with high dollar San Diego short sales. As a result, we have a 98% success rate.

Preparation, Presentation, and Skilled Negotiation Lead to Success

When the request is presented properly and negotiated skillfully, bank negotiators usually conclude that allowing a San Diego short sale is the best business decision for them, as well as for the property owner. And of course it is. Foreclosure is not without cost to the bank, and a vacant home requires maintenance and upkeep. Then, it sells for a lower price than an occupied home.

During the past 6 years of handling short sales, we’ve learned that each bank has a different way of handling short sales. Some are aggressive on certain issues and not on others. Our knowledge of these differences is one reason why we succeed in closing San Diego short sales while others fail.

By knowing their policies and procedures, and by knowing who to contact at each bank, we can present the picture in a manner that leads to “yes.”

We’ll be happy to answer your questions, explain the real estate short sale process, and let you know what information will be required from you in order to submit a winning request package to your bank – or banks.

You can reach us by writing td@tomdunlap.com or by calling 619-325-4170.

 

P.S. Are you SURE you need a strategic default?

The San Diego real estate market is changing rapidly, so your home that was underwater last year may no longer be underwater.

To get an estimate of your home’s current value, just CLICK HERE to get an instant estimate.

Then call 619-325-4170 or write td@tomdunlap.com to request a detailed market analysis.

There just might be good news in your future…


Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.