Rental or Short Sale??

Recently I received this question via email, I thought it the perfect Blogger topic:

Q: My wife and I want to sell the four-bedroom home she owns in Santa Cruz County, near Pleasure Point. She refinanced it in 2006 for $910,000, but it's only worth $480,000 now. We want to sell it to get rid of the financial burden, so my wife can quit her job and we can start a family. But we can't do it without a short sale. We have a good tenant renting the place right now who may want to purchase it. What should we do?


A: A short sale is the quickest way out of your dilemma, but it will wreck your wife's credit for years to come. Given that she will be out of the work force, limiting her ability to rebuild her credit, I'd consider this only as a last resort.

In the meantime, look into these other options:

* Consider a loan modification. Because this home is now an investment property, and not your primary home, it won't qualify for any refinancing programs sponsored by the federal government. Still, your lender might be willing to restructure your loan. An attorney can advise you on the best way to broach the issue. The attorney can review your loan's documentation to see if it fully complies with the Real Estate Settlement and Procedures Act–a federal law designed to prevent kickbacks and promote ethical lending practices. If the loan isn't in compliance, your attorney will be able to argue that the loan is void, and will be in a good position to negotiate a reduction of your principal and/or interest (you may also be due a refund of your original closing costs).

* Wait for the real estate market to recover. According to Zillow.com, home prices in Santa Cruz County have indeed taken a hit since their mid-2000 highs, and dropped almost 8% in January 2010 from a year earlier. At some point, perhaps soon, prices will recover. In fact, the most recent statistics are encouraging, research shows prices for Santa Cruz homes that are not in foreclosure actually rose 6.1% in March 2010 from the month before.Recently I had a listing receive a full price offer after only a few short weeks on the market, needless to say- the home sellers are packing.

* Talk to your tenant. Usually, I'm a big fan of rent-to-own deals, but since your property is only worth 52% of what you owe, I doubt you could negotiate a sales price and terms that would recoup all or most of your debt. But you never know. If your tenant has blemished credit, loves your house and wants to rent for four or five years before buying (when prices are sure to be higher), you might be able to come to an understanding. Such a deal would ensure that your property is kept in good condition, Make sure that if this is the route you choose,that a licensed Real Estate Agent is involved to avoid any mis-communication, while insuring that all contract documentation is correct and LEGAL.

If you have any questions that I can answer for you, please Contact Me.