Archive | February, 2012

The Short Sale Definition

February 26, 2012

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The term short sale has become common. People are wondering whether to go for a short sale or for a foreclosure. It may be difficult to decide on what to do. However, once you understand the short sale definition then you are at a better position to decide on the course to take. Many complaints have been registered that the blogs and articles posted on the real estate agents’ websites are more technical because the agents present the short sale information exclusively professionally. It is therefore better that we understand it in relatively more simple terms.

This is the short sale definition at a glance: the lender of some property accepts the sale of the property for a total sum relatively lower than the face value or total value of the mortgage loan. Very simple! However, we now have to understand the short sale definition a little more deeply.

There are three important parties in a short sale—the lender, the seller and the buyer. A short sale does not become good news to the seller of the house on a wider scale. It therefore comes to play in times of financial difficulties when you discover that the total amount you have is less than the total mortgage, hence it is impossible for you to repay your mortgage in full.

Let us look at it practically now. You may have a mortgage that is worth $800,000. It then happens that you are facing financial difficulties such that you are unable to repay the mortgage. You can consider a short sale then. First, you must find a buyer who is willing to pay for the house. You can then approach your lender and tell him of your intentions to short sell the house. The lender will then decide if to carry on after searching all the short sell information from brokers and agents. The lender will then assess the value of the house and compare it with the market value of similar properties. If the lender finds it acceptable then he can accept the house to be short sold at a price of say, $650, 000. In this case, you save $150,000 on the mortgage.

The need for short selling may also arise when you have a mortgage of say, $500,000. However, you discover that the real market value of the house at the moment is $400,000. You may then consider a short sell so that you don’t end up paying a total of $500,000 because you can prove the financial difficulties so that your lender can accept a sum of about $400,000. This will enable you save $100,000 on the mortgage amount.

Short selling is very critical. The lender simply forgives the amount by accepting to take an amount relatively lower than the market value of the loan thus giving you a saving. There are many benefits that accrue to the parties in a short sale as well: the buyer obtains the house cheaply, the seller retains a good credit score while the lender sells the house at a reasonable market price without having to undergo the stress of waiting for several months to sell the house.

 

 

 

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Short Sale V Foreclosure

February 20, 2012

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This has become a common topic these days. People are practically wondering whether to go for a short sale or a foreclosure when it comes to the sale of a house. The problem is that this comes when you are in financial difficulty. The process can prove difficult. But you need to understand and give a distinction between the two in order to make a proper decision.

Short selling is a process that involves three major parties: the lender, seller and buyer of the house. A short occurs when the lender of a mortgage sells the house a price relatively lower than the market value of the house at the time of the sale. On the other hand, foreclosure is a legal process where the lender attempts to recover the balance of a loan from a borrower that has stopped making payments by selling the asset of the borrower that was used as collateral for the loan.

In underscoring a short sale v a foreclosure, you need to take the view point of a lender, seller or buyer. However, we shall look at it in more general terms:

Effect On Credit Score- your credit score after a short sale basically depends on the report given to the credit reporting agencies. In most cases, it doesn’t affect your credit score. However, it can be slightly affected by just a few points depending on the report given. On the other hand, a foreclosure affects up to 300 points of your credit score.

Waiting Period Before Taking Another Mortgage- in the case of a short sale, one has to wait for up to just two so that they can apply for another mortgage loan at a very reasonable interest rate. This is not the same case with a foreclosure where one has to wait for a period of between 3 to 7 years in order to apply for another mortgage. The exact period is determined by circumstances such as illness, death, an accident that may result in severe injury or a job transfer.

Payments during the Process- a number of payments take about 3 to 12 months clear. You may cease to make any payments for the house such as rent or mortgage loan during the short sale process as you continue to live in the same house. This can allow you to solve your financial problems in the short run. However, this is not the case with a foreclosure where you have to make all the payments as the process goes on.

Qualification for some Closing Incentives- you may qualify for some incentives from the lenders and the government of up to $35,000 as a closing balance in both a short sale and a foreclosure. This money could help you a lot to move and relocate.

Generally, a short sale has fewer damaging effects than a foreclosure. A short sale also seems to harbor a number of advantages for all the parties involved while it is more disadvantageous to the seller in the case of a foreclosure.

Overall, it is better to find out the agreement of the parties involved. There are other cases where the lender may decide against a foreclosure.

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Advantages and Disadvantages of Short Sales

February 14, 2012

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In a layman’s language, we can describe a short sale as the situation where a home is sold to a new buyer a relatively lower price than the current or face value of the mortgage. This price is still lower than the face value even in addition to other costs such as the real estate agent’s commission, other sales and closing cost items such as the Escrow, title and any other related cost.

There are three parties involved in short sales. They include the seller of the house, the buyer of the house and the bank that had provided the mortgage loan for construction or acquisition of the house. Like any other financial transaction, short sales have advantages and disadvantages. However, the advantages outweigh the disadvantages in gigantic proportions.

The Advantages of Short Sales

  • The buyer of the home obtains a good house at a lower cost than the face value of the house in the market. It would be more expensive if the buyer were to go for a new house without involving short sales.
  • The homeowner enjoys a lot of responsibility and dignity during the short sales because the house is sold legally and they move out in a dignified way, unlike in the case of a property auction where the homeowner is evicted like a wild dog.
  • The bank involved stands to benefit from the short sales in comparison to a foreclosure because they involve the services of a qualified property investor thus saving the bank the time involved in closing the sales and an assurance of the best market price for the house despite the fluctuating prices.
  • The seller of the home also enjoys a good credit rating when compared to a foreclosure because he/she can qualify for another mortgage loan just after two years as compared to a foreclosure where the seller has to wait for seven years in order to qualify for a mortgage. It also improves the credit history when compared to someone who has never had a mortgage before.
  • In case there was a foreclosure notice that was reported, the homeowner has the option of delaying any action that may be brought against them in favor of the short sale. However, approval may take a period of up to three months in most cases.

The Disadvantages of Short Sales

As noted earlier on, the disadvantages of short sales are far much fewer compared to the advantages. We could have ignored them because they have very little weight when you calculate your steps carefully. However, don’t worry because we’ll look at them anyway:

  • It can be difficult to negotiate a short sale because of the number of parties involved from the side of the buyer when compared to the conventional method of selling the house. The parties at a glance are the seller, the seller’s agent, the first lender, the prospective buyer and his agent and loss mitigator of the first lender.
  • There are many hurdles you may meet in a number of States in order to qualify for a tax exemption while carrying out the transaction.
  • Generally, not each seller of the home qualifies for the short sales.
  • At times, some lenders may refuse to accept short sales in favor of foreclosures.

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