Stopping Foreclosure of Property with a Short Sale

Posted in June 18, 2009 ¬ 2:07 pmh.adminNo Comments »

A short sale can be used in stopping foreclosure of property.

A short sale is one of the most misunderstood transactions in real estate and foreclosure. I ask people all the time if they know what a short sale is. Often times, they say yes and when I ask them to describe a short sale to me, their understanding is often quite different from reality.

While banks don’t necessarily like short sales, they don’t like to foreclose even more. When a foreclosure happens, it not only ruins the borrowers credit and it’s a total loss for the bank but it also affects the values of other homes in the block.

For a homeowner, a short sale is a way to avoid foreclosure and reduce the damage to their credit. Repairing credit is much easier after Short Sale than after foreclosure. This is because a short sale generally remains on your credit for 2 years while foreclosures are present for 5-7 years.

Although a short sale is not always the best choice for a lender, it does generally help them collect as much money as possible in a foreclosure situation. Most lenders calculate their loss on a foreclosure as high as 50%. If they can sell a home, using a short sale, for 70% – 80% of its value, this is a 30% – 40% improvement over trying to sell a home after the foreclosure process.

When attempting a short sale, it doesn’t matter what your income level is, or what your home is worth. Almost everyone can apply for a short sale. It’s just a matter of dealing with all the parties involved to arrange the best possible end to a bad situation. Even with multiple mortgages and even if your home is completely upside down, a short sale can help all parties.

You must keep in mind though, there are still options available that may allow you to keep your home with a lower monthly payment. In many foreclosure cases, we are seeing banks agree to mortgage modifications that include lowering the total amount owed on a mortgage. In cases like these, you may be able to keep your home with a more affordable monthly payment. Even in loan mods where the amount owed is unchanged, you may still be able to save your home with a successful modification.
A foreclosure modification is when the bank agrees to modify the old terms of the loan to accommodate your new financial situation. This may mean lowering your interest rate, extending the term of your loan, or even reducing the total amount owed on the mortgage. Essentially, this is like refinancing your home and getting a reduced house payment.

But if you’ve already reviewed all the other stop foreclosure solutions and a short sale is your only solution, then you should at least have an idea of what a short sale is.

Imagine homeowners who finds themselves unable to make their monthly mortgage payments. With the economic downturn, times have gotten tough and house payments are nearly impossible to make for many people in the USA. After around ninety days of missed payments, the lenders will start the process of foreclosure.

An increasing problem is that, oftentimes, neither homeowners nor servicers know what pre-foreclosure options are available. With foreclosure eminent, the homeowner decides it’s in his or her best interest to try to list the property for sale, so they contact a Realtor to put the house on the market.

The only problem is, when the home actually sells, it might not bring enough money to payoff all the mortgages and liens. For example, the mortgage(s) payoff is $250,000, but the home only sells for $190,000, the home owner may be required to pay the remaining $60,000 that is owed. This is where a short sale can be used. The lender has to agree that, based on the provided hardship documentation, they will agree to accept the $190,000 as payment in full and forgive the outstanding $60,000 that is still owed.

In most cases, it’s important to find a short sale expert to make sure the short sale is handled properly. The last thing you need when facing foreclosure is to find out, several months after giving up your home, that you have a deficiency judgment for $60,000. Keep in mind, just because your lender accepts a short sale, doesn’t mean they wont try and collect the balance. This is something that needs to be arranged beforehand and needs to be legally in writing. In general, most people do not have the knowledge or ability to perform a short sale without the help of a foreclosure company. The entire process can also be very time consuming and you’ll quickly find out that the tiny amount charged for this type of help is well worth the price.

But always understand, there are several other options that can prevent the need to sell your home when facing foreclosure. mortgage modifications are becoming much more popular and a foreclosure loan may still be an option for some. Regardless of the situation, it’s always smart to have a back up plan and to speak with an expert to find out all your options to save your home or credit from foreclosure.

Still the best way we find to avoid foreclosure is by getting a loan modification.

By: Nick Adama

Article Directory: http://www.articledashboard.com