Short Sales On Underwater Mortgages–Will Foreclosures GIve Way To Short Sales In 2011?

As underwater mortgages continue to be problematic for numerous homeowners across the nation and foreclosures seem to show little promise of slowing in the near future, there is concern over the ability of homeowners to meet payments associated with underwater mortgages, especially when factors like unemployment remained such a detrimental problem for homeowners across the nation. However, when it comes to underwater mortgages, there are some who feel that 2011 may offer more short sell opportunities for homeowners than foreclosures.

In an interesting article by Housingwire.com, mention is made that losses which may be sustained as a result of foreclosures could increase in 2011, which would obviously be problematic for financial institutions, mortgage servicers, and investors. Understandably, there have been difficulties which have arisen related to foreclosures over the past months as many homeowners have felt they were unjustly foreclosed upon, and many feel that financial institutions are simply rushing through foreclosure paperwork without offering proper foreclosure prevention.

Yet, homeowners in some cases have been looking for a way to escape their mortgage when negative equity is a problem. There were problem with homeowners strategically defaulting, meaning they simply walked away from their underwater home loan, but other homeowners have attempted to stay afloat through a variety of foreclosure prevention and underwater refinancing plans, yet there are still homeowners who are unable to continue owning their home due to their underwater situation.

Also, decreases in housing values and troubles with homeowners leaving some properties either sitting empty with banks paying the bills or homeowners remaining in their home for long stretches of time while the foreclosure process is ongoing. Obviously, banks who work with homeowners in order to tailor a short sale may be better off in the long run as new homeowners would take over the mortgage, and even if some loss is sustained due to a depreciation in value, it may be less severe since new homeowners will take over the mortgage payment and a home will not simply be sitting empty.

Many servicers are looking at their costs and looking for a way to recover any losses or avoid financial strains due to foreclosures, but the opportunity for homeowners to short sell their home, if more servicers do implement this practice in 2011, would be greatly beneficial in that homeowners may benefit financially as well. Homeowners who do participate in a short sale may not be able to reenter the housing market immediately, but they may have the chance to purchase another home sooner than an individual who strategically defaults due to an underwater home loan situation.

While it’s uncertain as to the future of the housing market since unemployment and negative equity remain a problem, servicers who may broker short sales in the coming year may stand to benefit more so than if widespread foreclosures continue, and obviously, homeowners who are in negative equity situation have been attempting to short sell homes for months, as it can provide a way to alleviate them from the strain associated with paying on a home on which they owe more than it’s worth.