To Pay or Not to Pay
To pay or not to pay? – That is the question…
I have been coming across more and more homeowners who are in a quandary. They are not behind in their mortgage nor in any stage of foreclosure, and yet they want to sell their home which has dropped in value and would end up being a short sale. Although more and more banks are accepting short sales that are not in default, it is hit or miss. An impending foreclosure really motivates the bank. The thought of yet another non-performing asset does not bode well with the balance sheet so the bank really doesn't want to become a homeowner.
So as a homeowner in this situation what are your options? Well for one keep paying as agreed and wait for the market to turn around. If that isn't an option because of an upcoming ARM reset, forced relocation, or other outside circumstance out of your control, then you have some tough choices to make. You have to look at your monthly expenses and arrange them according to priority and see if paying your mortgage makes logical and economical sense. For example if your refrigerator is empty and you have 1/4 tank of gas and your choice is pay your mortgage or eat and be able to get to work then the answer should be obvious.
I would never advise anyone to miss mortgage payments for the sole purpose of gaining leverage for negotiating a short sale. This is the same type of thinking that got us in this mess to begin with. There is nothing wrong with not paying your bills if you can't, It's using it as a strategy for some other reason is what I and the law has a problem with.
Owners of investment property may have a tougher time but it really depends on the individual’s financials. If he has a portfolio of investment properties and wants to short sell one because it is under performing, good luck. On the other hand, the small time investor with one or two properties may have a fighting chance if you present a good case.
Of course there are people in our business advising this type of behavior. My only response to those who are thinking of it is to speak with a competent attorney and/or accountant.