Short sales have become commonplace for cash-strapped homeowners who are upside-down or “underwater” on their mortgages. To avoid foreclosure, bankruptcy or a severely damaged credit rating, many distressed homeowners opt to keep their heads above water via a short sale, in which the net proceeds from the sale of a property are insufficient to cover the sellers’ mortgage obligations and closing costs (such as property and conveyance taxes, and real estate commissions), yet the sellers’ lender or lenders, agree to accept less than the amount owed and pay customary sellers’ closing costs.
If you think these opportunities only occur in the low- to mid-range market, think again. Luxury homes are not immune to foreclosure, and short sale listings for properties—some in the multimillion-dollar price range—are currently available in sought-after neighborhoods in areas such as Wailea, Mākena, Kapalua and Kula.
I have represented sellers in short sale transactions for several years, and at one point in time, short sales developed a bad rap—the approval process was frequently prolonged to the point of frustration, and lenders would often sidestep short sales, despite the more costly possibility of foreclosure.
Well, I have some good news: this has changed. Across the nation, lenders have grown more receptive to short sales, with many streamlining the process and others offering programs that not only forgive sellers’ debts, but also cover relocation costs. As for the bigger picture—how a short sale will affect you in the long-term—here’s some advice: a “short” payoff of your mortgage loan could very well result in some tax consequences. To determine if (or to what extent) there will be any tax ramifications, you should discuss your situation with a tax professional. Similarly, before making any decisions, sellers should obtain legal advice from a real estate attorney to assess the potential implications of a short sale transaction in Hawai‘i.
Short sales mean different things to buyers and sellers—but it can be a smooth and painless process if it is handled properly. Therefore, I recommend that sellers use a sophisticated realtor and broker with a proven track record of closing luxury short sales.
If you are searching for your dream home, you’re in luck. With a growing inventory of luxury home short sales on Maui, it’s very likely you’ll find some incredible deals. But don’t wait too long.