One of the most common misunderstandings among prospective duplex sellers in today’s market is in order to qualify for a short sale, you must be behind on your payments and facing foreclosure.
Nothing is further from the truth.
Being “short” simply means you owe more on your property than it’s worth.
And, while I’ve gone over this before, it’s probably a good idea to look at it again.
In order to qualify for a “short sale”, a duplex seller needs to have one of the following hardships:
- Payment Increase or Mortgage Adjustment- If your adjustable rate mortgage suddenly increases dramatically, it can result in a loss of cash flow, and make mortgage payments difficult to come up with.
- Loss of Job – If a duplex owner is laid off and suddenly finds she must tap into the duplex’s cash flow simply to survive, a short sale is justified.
- Business Failure – In a down economy, many duplex investors find themselves on the hook for expenses associated with that endeavor, and become spread too thin financially to continue owning the property.
- Damage to Property – Contrary to belief, insurance doesn’t cover every disaster or even all of the damage inflicted by the accidents and forces of nature it does. For example, a duplex owner may find the cost to replace his roof that was blown off in a storm is covered, but not the flooding in the basement that resulted from the storm. The out-of-pocket cost to repair this damage can be prohibitive, and until the repair is made, the property may be uninhabitable, causing an additional loss in revenue.
- Death of a Spouse or Family Member- Regardless of whether or not the spouse was the primary wage earner, grief can take enormous financial and emotion tolls on families.
- Severe Illness – Major medical bills and time away from employment can force a duplex owner into a short sale or foreclosure.
- Inheritance – While inheritance is usually a good thing, many heirs discover mom or dad’s property also comes with high property or inheritance taxes that simply cannot be covered with the cash on hand.
- Divorce or Separation – Whether it’s due to the financial and emotional duress or a dissolution of a marriage, or the increased costs of maintaining two households.
- Relocation – If your job transfers you to another city or state, you qualify for a short sale.
- Military Service – It can be difficult to keep up with the bills and maintenance of a duplex investment if military commitment overseas is extended.
- Insurance or Tax Increase – If your property taxes or insurance premiums suddenly leap to the point where you can no longer sustain the financial health of the duplex, you may qualify for a short sale.
- Reduced Income – If you’ve had to take a pay cut to stay employed, or if you’re in a commission based business suffering due to the economy, you may find you can no longer financially sustain the cost of investment property.
- Too Much Debt – In my experience, insolvency, or owing more money to creditors than you can possibly pay back is probably the most common reason duplex owners have for a short sale.
- Incarceration – Needless to say, if you’re in prison, it can be tough to mow the lawn at your duplex, let alone earn enough money to pay for the cost of maintenance!
If you’re struggling with the thought of continued duplex ownership, please feel free to call or email me. I’m confident we can find a way to make the path smoother, whether it be via a short sale, loan modification, or simply having someone to sound out the problem with.
No matter what, you are not alone.