Are you facing foreclosure?
You May Have a Better Way Out!
There are countless hardships that can turn home ownership from a joy into a burden. The loss of a job, medical bills, or an unexpected hike in monthly payments can all make a mortgage unaffordable. But ignoring the bills will not make them go away, it will only make things worse.If you need help, there are approaches that can help, but you may not be familiar with them. In an approved short sale, the lender agrees to accept less than is owed for the property, and the homeowner is relieved of the debt. A lender may be willing to do this because it spares a lot of hassle and expense involved in executing a foreclosure. And typically, a short sale does far less damage to the homeowner's credit than a foreclosure does.If you would like to explore the possibility of a short sale for your property, avoid foreclosure, and potentially save your credit rating, please contact us.
What is a Short Sale? A short sale happens when the lender is shorted on a mortgage, meaning the lender accepts less than the total amount that is due. If your mortgage is $100,000, but your home is worth, say, $90,000, you are $10,000 short, not including costs to close the sale such as real estate commissions, recording fees or title and escrow charges. Sometimes, to avoid going through the costs of foreclosure, a lender will sanction a short sale by letting a buyer purchase the home for less than the mortgage balance while the home is in pre-foreclosure stage. A pre-foreclosure stage is one of the three stages of foreclosures. Here are sample steps of a short sale:
- Seller signs a listing agreement with a real estate agent subject to selling as a short sale with third-party approval.
- The agent finds a buyer who makes an offer for less than the amount of the mortgage.
- Seller accepts the buyer's purchase offer.
- Seller's lender accepts the buyer's purchase offer.
- Transaction closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed.
In fairy-tale land, everybody lives happily ever after. Except the seller. There are consequences. Qualifications for a Short Sale Before you eagerly climb aboard the short sale bandwagon, consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not qualify for a short sale.
- The Home's Market Value Has Dropped.
- Hard comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. This unpaid balance may include a prepayment penalty.
- The Mortgage is in or Near Default Status.
- It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are eager to head off future problems at the pass.
- The Seller Has Fallen on Hard Times.
- The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has or will stop making the monthly payments.
A few examples that do NOT constitute a hardship are:
- Bad purchase decisions. Blowing your paycheck on a home theater system with surround sound does not qualify as a hardship.
- Unhappy with the neighbors. Even if every home on your block has turned into pot growing houses, that will not qualify as a hardship.
- Buying another home. The lender will not care if you have decided the home is no longer suitable for you or your family.
- Pregnancy. Increasing the size of your family or starting a family is not considered a hardship.
- Moving into an apartment. If you decide to move out of your home, that is a lifestyle decision and not a very good reason to abandon your home.
Examples of hardship are:
- Unemployment
- Divorce
- Medical emergency / sudden illness
- Bankruptcy
- Death
The Seller Has No Assets - The lender will probably want to see a copy of the seller's tax returns and / or a financial statement. If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall. For example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even IRA accounts, the lender will most likely determine that the seller has assets. However, the lender might discount the amount the seller is required to pay back. Many entities profit from short sales, but there is no seller short sale profit. 
