The scenario has become all too common. The home you own is for $300,000 is now worth only $225,000, you are in what professionals in real estate call an “upside-down house” — you owe more on the mortgage than the house Is now worth. If you cannot ride out the current storm financially, you may be considering a short sale to avoid foreclosure. A short sale is the sale of a house at or just below market value that falls short of the balance due on the mortgage. value that falls short of the balance due on the mortgage. The lender takes a loss, but not as much as a foreclosure process. You take a loss as well — you walk away with no money earned from the deal — but you are free of the debt, If you hired an experienced short sale agent A short sale is not always the best course for everyone. You will need expert advice to decide, but here are some basic pros and cons of a short sale.
Short selling on homes is becoming a big business and that’s not necessarily good news. When a homeowner wants to sell a home for less than is owed this is what’s referred to as a “short sale”. Banks don’t like them, current owners need them, and buyers hunt for them, but, are they really any good? In a short sale a homeowner is trying to sell his or her home on the market for less than what is owed, hoping that the bank will accept the sale rather than foreclose on the home. A buyer is naturally looking for a good deal and would LOVE to buy a home at a bargain rate, but, ultimately, the bank must decide whether it’s in their best interest to allow the sale to go through and accept the lesser amount, feeling that something is better than nothing, or choose to become a property owner itself if it has to foreclose.
The largest home lender in the United States, Countrywide Financial, disclosed a 60% increase in transactions from April of this year compared to a year earlier. But, short sales a win/win/win? Not by a long shot. First of all, short sales require a tremendous amount of paperwork for the person attempting to sell the home. Banks have to see a real reason for the sale as requested, not have to see a real reason for the sale as requested, not just that the homeowner decided they wanted to move. Hardship is key and strong documentation is a top priority. And then there’s the chance of a number of bumps And then there’s the chance of a number of bumps along the way, such as if there’s a second mortgage holder involved, or perhaps the lender may change their mind or decide to include some last minute contingency such as requiring the seller to pay an interest free loan to as requiring the seller to pay an interest free loan to cover the difference.
Pros
- You are relieved of paying overblown monthly mortgage payments.
- In some cases, the lender may forgive the difference In debt between what you still owe and the final selling price.
- You are spared the lengthy and traumatic foreclosure proceedings.
- Your credit score could be less damaged than if you had gone through foreclosure — depending on the lender’s actions.
- You can re-qualify for a new mortgage more quickly (about two years) than you would after foreclosure (about three to five years). You are more likely to escape bankruptcy.
- If you are not able to pay your mortgage premiums, or work with the lender to lower monthly payments, a short Rile can be the best case scenario, even though It means losing your home and your Investment.
Cons
- The lender is not obligated to rant a short sale.
- You must show proof that you are no longer able to make your mortgage payments, and the proof must be reasonable. The lender will not approve a short sale if you gambled away your savings. A few examples of hardship that gambled away your savings. A few examples of hardship that a lender will see as legitimate are Illness, divorce, or a job loss.
- The lender will make sure you do not have any recourse — savings accounts or other assets — which may help pay off your debt It’s not fair to walk away from your debt because you don’t like high payments and you don’t want to deplete your nest egg to pay them.
- You don’t have to be In default of your loan to be approved fora short sale, but It helps, If nothing else than to prove you can’t make the payments. If you are In default, you may have less time to jump through all the necessary hoops. A good short sale agent will negotiate for more time, and lenders often relent in hopes of recouping more time, and lenders often relent in hopes of recouping some of the loss.
- A short sale is anything but short, and can be stressful as you wait for weeks for the lender to respond. The response time depends on how quickly you put together the necessary papers, how adequately you provided the right Information, and the lender’s ability to reach your file Information, and the lender’s ability to reach your file — along with a backlog of many others in your situation. You need nerves of steel.
- Lenders are notorious for not communicating enough about the approval process for a short sale. If your home has liens, second mortgages, or a home equity line of credit, each lender will have to be consulted for approval — which takes considerable time.
- Once the lender approves the short sale, a successful transaction depends on a reasonable offer from a buyer, and their readiness with an approved loan. buyer, and their readiness with an approved loan.
- Because the lender is losing money on the deal, they might require that the realtor or broker take a smaller commission. They also will probably not approve payment of closing costs, which might put a deal with a buyer in Jeopardy.
- The lender may require you to sign a promissory note for the debt forgiveness in order to approve a short sale.
- The lender may pursue repayment for the debt forgiveness after the short sale goes through. Your credit score could take just as hard a hit as it would if you went through foreclosure. Consult legal and tax advice if salvaging your credit score is the only reason for a short sale.
- You could be taxed on the debt forgiveness if the property sells for more than 2 million, or Is not your primary residence. Unless a new law for tax relief on debt forgiveness is passed, the debt forgiveness is seen as taxable income and you will have to pay taxes at the normal rates — which could be significant. Consult a tax professional.
A short sale happens when a home owner obtains the consent of his lender to sell his home at a price that is less than the outstanding mortgage loan. The sale proceeds are applied to reduce the loan balance. The lender takes a loss for the unpaid balance. Many home buyers expect to make for the unpaid balance. Many home buyers expect to make bargain purchases through short sales. Here are some facts to consider before you decide to go this route. You can learn about a house being short sold through a seller, real estate agent or county office. A lender will agree to the short sale of a house or “pre-qualify” the home owner to sell only if the present value of the house is significantly less than the loan amount outstanding, the home owner is defaulting on payments or is facing proven home owner is defaulting on payments or is facing proven financial hardship. You should ascertain this fact at the outset. The property will be listed for sale based on an appraised value. The lender will agree to a price that is close to the fair market value. You will get the house “as is”. This means that any repairs or maintenance will be borne by you. Verify and confirm the nature and amount of closing you. Verify and confirm the nature and amount of closing costs. They can be higher than for a normal loan. Good luck selling!