A Strategic Short Sale occurs when a homeowner who purchased their home through no fault of their own has had the value drop to less than what is owed. The Homeowner decides it no longer makes sense to continue making payments on a property (investment), even though they have the financial ability to do so. In essence they have “strategized” their way out of a declining investment. A Strategic Sale is a business decision to try and settle your debt with a creditor.

In a traditional Short Sale an underwater seller must prove some sort of hardship like job loss, death of a spouse, illness or some other unfortunate circumstance to qualify. But those who have no financial hardship and have seen the value of their properties plummet to less than what is owed must utilize a Strategic Short Sale to sell their home. Because they have the financial ability to make the payments it is looked at as a strategic decision not one caused by hardship.

As opposed to a Strategic Default where you just walk away and hope for the best, with a Strategic Short Sale you settle “paid as agreed” for less than original amount. Offering a settlement is the least damaging to credit, the most controlled and decisive, and closes the door on future judgements. You are giving your creditor an option. It’s 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 has lowered credit scores from 5-250 points. The inability to utilize a mortgage for 2 years. In California, SB 931 and SB 458 were written with the specific intention to protect homeowners that opt for a Short Sale against ANY purchase money lender (1st, 2nd, HELOC, or Refinance) from collecting a deficiency once a short sale is closed on their home.

Strategic Default Consequences: Foreclosure hits bureau and stays on 7 years. Major hit on credit 250-350 points depending on missed payments. The inability to utilize a mortgage for 7 years. Fortunately for Strategic Defaulters, California is a non-recourse state on their original loan in 1st position. BUT as many defaulters may be unaware… A lender can foreclose and obtain a judgment for the entire amount of the unpaid 2nd lien, refinanced amount, or HELOC amount. » Read more: Strategic Short Sale