Hardship Short Sales: A Break for Sandy Victims

The recent Hurricane Sandy affected mortgage holders in hard-hit Northeastern states in a number of ways. Lenders from Fannie Mae and Freddie Mac on down stepped up to offer ways to ease the burden of mortgage payments and avoid foreclosure. Among those options is eligibility for a short sale of a distressed home due to hardships including natural disasters. These options put houses on the market without foreclosure, avoiding mortgage default and allowing the homeowner to rebuild credit more quickly.

In recent posts we’ve discussed the – a homeowner in distress who’s making payments on a mortgage, but just barely, who petitions a lender for the right to sell the

house for less than the mortgage is worth. The homeowner gets out of the deal with no profit, but without foreclosure and the resulting stain on their credit. Either the lender takes what they can get and forgives the difference between the loan total and the sale amount, or the seller ends up repaying it as a debt in collections.

One key reason short sales are outstripping foreclosures involves concessions made by lenders, whose newly established hardship criteria make it easier now to approve a short sale. These hardship criteria have been expanded to cover a wider range of misfortunes that can put a homeowner underwater – unable to manage monthly mortgage payments.

Under these standards, homeowners who are current on their mortgage payments, or nearly so, can qualify for a short sale if they are unemployed, involved in a divorce, or have a long term disability. They can also qualify if they’ve  been forced to move more than 59 miles away for a job.

But other, less obvious categories of hardship have also been created, ones that are suddenly made relevant by the damage of Hurricane Sandy. In addition to the failure of a business or the death of a wage earner in the family, homeowners experiencing a man-made or natural disaster, such as fire or flood, can also qualify for a short sale. This qualification helps property owners in areas hard hit by Sandy, who already struggling to keep up with their mortgages, to cut losses and get out of their mortgage quickly without going through foreclosure.

What does this mean for income property investors following Jason Hartman’s advice on creating wealth through real estate investments? The changing standards of mortgage lenders in response to the new, economy-driven housing market will affect investors seeking financing for new investments. The trend in short sales means fewer foreclosure houses to hit the market, though more will end up there via the quicker short sale process. These factors, combined with historically low mortgage rates, open new opportunities for investors to purchase properties.

Jason Hartman advises purchasing investment properties on a fixed rate mortgage of around 30 years. Changes in the mortgage industry itself and the effect these changes have on homeowners and buyers not only contributes to a healthier housing market, but also creates new opportunities for investors to start creating wealth with income property.

The American Monetary Association Team


 

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