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What to do about declining home value...Is a short sale a good idea?

I've seen many questions on the subject, (so please excuse if I'm asking a redundant question). I'd like a little advice, so here goes... I purchased a townhome 5 years ago, for $125,000. It was recently appraised for just under $110,000 (which is what I owe the bank), but due to comps. in the area and the declined values of other properties in the neighborhood due to foreclosures, I have been advised to list for $75,000 by my realtor. We've had townhomes in our neighborhood sell in the last 6 months from between $70,000 and $90,000. I have a growing family, and have since run out of space in my small and cramped townhome, that at the time (5 years ago) was a perfect "starter" home. So I literally can't stick it out another 3-5 years to wait for values to rebound. And I was also advised that I should consider renting it out, but have since come to the conclusion that it would be best not to do so for financial reasons - mainly the fact that the rent price we'd be forced to charge comes under the monthly mortgage payments, not including HOA dues. So our only options are to live a drastically uncomfortable lifestyle and stick it out in a place that is too small for us and continue to make mortgage payments on a loan that is no longer feasible (because I could be putting the same money into a bigger and better place), to lease it out to potentially less responsible tenants and risk either damage, or breaking of the lease (where I would be resposible for 2 mortgages/rent), or file for bankruptcy and allow the property to foreclose. But I've been doing some reading about "short sales", where along with our financial situation and hardships with standard of living, the bank would use fair market value and neighborhood comps to decide whether it is better for all concerned to accept whatever sale price my property is able to sell for BEFORE I ever get to a situation where I fall behind on the payments or just walk away. But I've always ever heard that a short sale is something people do when they are in pre-foreclosure - not current in their payments, like I am. My only hardship is that I owe $109,000 on a property that is only worth $75,000, and I can't wait it out. It is my understanding that such a process would leave my family and I dept free after closing - freeing me to persue a larger property to purchase. So my question is, would this be a good idea? What should I do?

Public Comments

1. short sale is good idea but your lender will make sure you have no other money to give them. they also may ask you to sign a note for some of the short fall to repay over several years. most sellers say no to that request but they always ask and trick some people.
2. There's nothing you can do about the declining home value.
3. First of all, you're starting in the wrong month to be getting into this. If I were you, I would wait a year, rent it out if you must but start the selling process next April or May to get a head start on everyone. Talk to a financial and realty professional about the pros and cons of renting. I would also ask your Realtor about how you can improve your home to make it a better buy. Personally, I think you're acting too much from your gut. You CAN wait it out. Waiting less than a year to improve your odds in this housing market would be much better than to go for a short sale. If you take the short sale, I think you'd realize you've made a huge mistake. So, in short, my advice: 1) Put the sale on hold for now 2) Improve your house - get some stagers in when you are closer to May 2010 3) Downsize what you can to make life more comfortable. 4) Put your townhome on the market next spring to get the best shot at the sale
4. I disagree with with everyone... especially fizzzle. Wait a year? for what? a recovery? You must be smoking on something... this is the biggest head fake ever... don't believe the hype... we are about to see another dip when the alt-opn and A+ paper (the good loans) start to adjust in mortgage payments... Japan's housing bubble from top to bottom lost 75%+ in value... they took over 10Years to recover and still they haven't recovered. We are in far worst place than they where... Sorry had to blast these people in optimistic denial... Here's the real deal... 1. If you are going to do a short sale - get a professional. It can either be an investor or a realtor. With the market shift... most realtors and investors will claim they are some type of "short sale specialist" but don't just believe them ask this one question... and you can find out if they are legit or not.... The question: "I heard 1099-C's and IRS Form 982 are bad" If they say YES - they are idiots... if they say no it is the best thing since sliced bread... ask more opened questions... like what is it? You dig? 2. If you are not behind... the likely hood of the lenders who are already over whelemed to accept a short sale is slim to none. You can make a financial decision not to pay so the lender will take you seriously - while you live rent free for probably 6-12 months depending on your state and foreclosure laws. 3. You become the bank and rent it out... as a owner carry back (you need an investor to break this down to you).... With the credit crunch... many people have good income but cannot qualify for a loan... but would like to be a homeowner... if so you become the bank... this means no bank qual... so you can charge these people (tenants who will lease from you and have an option to buy)... a higher rate than regular rents. 4. HOA dues are important... do not get behind on the HOA dues... this can really hurt your. If the HOA puts a lien on your property... the likelihood of a successful short sale will drop drastically. Plus, HOA can go after you... a personal abstract judgment, if you fall behind. You have options... just get creative and talk to real professionals with solutions... not these idiots who say market will recover... get someone who is going to tell you the truth... Jeff Coga