Short Sales aren't for the faint of heart

Short Sales provide an opportunity to get out from underneath a home that is worth less than you owe on it and can be a good deal for a buyer, but beware this is one trip where it is the destination and not the journey that makes the experience worthwhile.

With challenges presented by unresponsive or uncaring banks that oftentimes appear to act completely irrationally, the process is typically not a lot of fun for any of the parties involved.

This New York Times article compares them to a roller coaster ride with lots of uncertainty and many ups and downs.

You need to understand what you are getting into before signing a purchase agreement and appreciate the consequences of getting approved for a short sale. It can help to have a real estate professional assist you through the nuances of the process, but even then buying or selling a house won't be like the boom days of just a few years ago.

Fannie Mae Increases Penalties for Strategic Default

FNMA recently increased to 7 years the length of time a borrower must wait before being considered for a Fannie Mae backed loan after defaulting on a mortgage they could otherwise afford. Apparently a reaction to the widely publicized actions of so called "strategic defaults" by borrowers. These are people who treat their purchase of real estate as an investment and decide to walk away from their homes even though they can afford the payments. Although Fannie Mae mostly holds loans under $500,000 and the above-guidelines only apply to FNMA loans, default rates for mortgages in excess of $1,000,000 are on the rise. It often makes good financial sense to abandon a property that is worth significantly less than the mortgage(s) that are recorded against it.

Strategic defaults aren't a good decision for everyone. As noted above, the consequences of default not only limit your ability to purchase a home in the future, but in Michigan a mortgage lender is able to pursue a deficiency judgment following foreclosure. Before choosing to default on any debt obligation, it is wise to consult with an attorney and a financial advisor.