Some Strategic Short Sale. A strategic short sale occurs when a homeowner who bought their home through no fault of their own has let its value fall below what it owes. The Homeowner decides that it no longer makes sense to continue paying on a property (investment), even if he has the financial means to do so. Essentially, they have “strategist” their way out of a declining investment. A strategic sale is a business decision to attempt to settle your debt with a creditor.
In a traditional Short Sale, an underwater seller must prove some kind of hardship, such as job loss, death of a spouse, illness, or some other unfortunate circumstance in order to qualify. But those who have no financial problems and have seen the value of their properties plummet to less than what is owed should use a strategic short sale to sell their home. Since they have the financial capacity to make the payments, it is seen as a strategic decision and not one caused by hardship.
Unlike a strategic default where you just walk away and hope for the best, in a strategic short sale you pay “paid as agreed” for less than the original amount. Offering a settlement is the least damaging to credit, the most controlled and decisive, and closes the door to future judgments. You give your creditor an option. It is their decision whether or not to accept it. In most cases, they will.
Short Sale Credit Consequences
Depending on the number of missed payments, a short sale lowered credit scores from 5-250 points. Not being able to use a mortgage for 2 years. In California, SB 931 and SB 458 are written with the specific intent of protecting homeowners, Who choose a short sale, from ANY lender (1st, 2nd, HELOT, Or refinance) from collecting a deficit as soon as a short sale is made on their home.
Strategic Default Consequences: Foreclosure hits the desk and lasts for 7 years. Big hit on credit 250-350 points depending on missed payments. Couldn’t use a mortgage for 7 years. Fortunately for strategic defaulters, California is a state with no recourse on its original loan in the first place. BUT so many defaulters may not be aware.
Default Consequences in California
As the economy continues to weaken, the number of individuals and companies that decide to “walk away” or strategically default on the debt continues to grow. Lenders have taken note. Lenders have a long-term view when it comes to collecting a debt. In short: lenders understand that a debtor who cannot pay now can pay later.
As a non-recourse state, California (for homeowners with the only original mortgage on their home) closes the door for debt collection agency lenders to sue homeowners with flawed judgment, seeking assets and income years after a strategic default for less. then the mortgage owed. It is important to understand that a lender has several options when a debtor walks away or defaults strategically.
A lender can seize and obtain a judgment for the full amount of the unpaid 2nd lien, the refinanced amount, or the HELOT amount. or an opinion on the breach of the difference between what it owes and what it collects. The lender can submit a request to the court to convert the claim into a default judgment.
If a lender receives a default judgment, the lender may garnish wages, place a lien on a bank account, or place a lien on personal, business, and real estate assets. In principle, loans made after the home was purchased through a refinancing or a second mortgage may be subject to a legal process – California Code Civil. proc. 726. A defect judgment can remain valid for up to 10 years. A lender can sell the shortfall to a third-party collection agency.
A lender can accept a negotiated short sale and cancel the entire debt (the difference between what he owes and what he collects).