What is best?
SHORT SALE OR FORECLOSURE?
If we could STOP your foreclosure
would you want to know how?
What is a "Short Sale"? With the increase in foreclosures lately you may have heard the term “short sale” and wondered what it was. The term "short" refers to the fact that the "payoff" amount agreed to in the transaction is indeed "shorter" then the mortgage balance on the property. The lender will accept less than the full amount due on a mortgage when a property is sold. Usually, to avoid the time and expense of a foreclosure.
When a borrower is in default on a mortgage they not only owe the back payments but also may owe late fees, property inspection fees, attorney fees, etc. This can add up quickly to eat up all the equity the borrower had in the property. If the borrower is unable to bring the account current the lender will then foreclose on the property.
What is a "Foreclosure"? With a foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property: attorney fees, court costs, lost interest, eviction costs, property maintenance costs, and selling costs. Foreclosing on a property can also take up to two years in some states. Therefore, it is sometimes in the best interest of the lender to accept the short sale.
It also can be in the best interest of the borrower. They will not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure. It is quicker and easier and does not subject the borrower to the embarrassment of a foreclosure.
Consider the following:
Sellers credit is bruised and can be repaired
No attorney fees (if caught in time)
Able to purchase again in 2 years
Your secondary liens are negotiated
Would you prefer to have your settlement negoiated
Seller's Credit ruined for 10 years
Expensive attorney fees
Not able to purchase for 10 years
Civil suit may be issued for collection on secondary loans
Would you prefer the courts to decide your settlement
How does it work?
If you are behind on your payments, contact us immediately. The last thing we want is for your property to go into foreclosure. Your lender doesn't want to foreclose, he wants to sell your property. One of our agents will meet with you to analysis your situation to see if a short sale is right for you. The short sale is a process where a negotiated settlement is made between the lender that holds the mortgage and the seller for a third party buyer usually facilitated by a Realtor or an Attorney, even before the foreclosure process is initiated by the lender. Therefore it is considered a pre-foreclosure sale. If there are too many liens and other issues clouding the title, foreclosure may be the only option as a "cleansing process" to clear the title.
The lender will usually require the borrower to submit important information in order to consider the short sale. Working with your Realtor is serious and cannot be taken lightly.
The information required may include:
• Written authorization must be provided to your Realtor to be able to speak with your lender
• Fully completed financial disclosure worksheet
• Most recent paystubs
• Bank statements to verify the borrowers’ assets
• Last 2 years tax returns signed
• Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should be able to back up the story with any documentation such as medical bills, etc.
• Fair market value for the property – depending on the lender they may require an appraisal or may accept an opinion from your Realtor know as a Comparative Market Analysis (CMA).
• Preliminary proceeds sheet from the sale of the property. This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.
• In order to request a Short Sale from your lender you must have a MLS listing, which is only available through a Realtor.
When the lender reviews all of this they may or may not approve the short sale. If approved your Realtor will have the necessary forms prepared to list your home and price your home at a competitive market value then place it in the MLS. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.
A very important side-note is that a homeowner going through this process is many times bombarded with questionable people who offer this service at a very hefty price to the homeowner. You need to be cognizant of this and protect yourself by making sure that you are dealing with someone who really has your best interests at heart. We recomend that you contact an experienced Realtor that can guide you through this process. We also recommend you consult a tax attorney with questions you may have.