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What Is a Short Sale? Knowing The Basics

March 8, 2012

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This is a common term in business. A short sale can be viewed in two aspects; a short sale as used in stocks and a short sale as used in real estate. We shall focus on a short sale in the real estate aspect here.

In the case of a real estate short sale, there are basically three aspects in which you can look at it; the buyer’s perspective, the banker’s perspective and the seller’s perspective. The three parties play a crucial role in the short selling process.

Let us now understand short selling at a glance. As a seller, you can short sale your house if you have difficulties in making payments for your mortgage. If as a homeowner you are facing foreclosure because of difficulties in remitting the payments then the bank may consider short selling your house. In this case, the bank will take less than what is due to them. For instance, in case you owe the bank $ 1m on the house, the bank may take $9.5m and consider that loan fully paid. The other question that may arise, why should the bank consider a short sale and recover less than what is due to them? Well, in case the bank wants to foreclose the house then they will sell the home. This translates to another much involving process where they need to look for a real estate agent who will fix the property and then wait for a long time, numbering months, before it is sold. This is the reason why the bank decides to short sale so that to a property investor so that they can get the cash quickly.

In case you are a buyer who wants to purchase a home at great discounts then you should be timing a foreclosure. Just approach the owner with a well written letter when you note a home in which you are interested, stating your intentions to buy the home. Go ahead to inquire from the owner if their bank is interested in selling the home short. If the owners are solvent then they won’t hesitate to sell the home short. You could also contact a real estate agent and inform them of your intention to buy the home specifically on a short sale.

Short selling has numerous benefits to all the three parties directly involved here:

  • The owner avoids a foreclosure which normally has a greater negative effect on their credit report.
  • In case the lender participates in a short sale program that is supported by the government then they stand to benefit up to $5,000 to enable them complete that short sale.
  • A short sale certainly lessens the possibility of a current debt ensuing on the lender. In other words, a deficiency judgment is avoided.
  • It has a lesser impact on the future housing prospects of the homeowner because the homeowner can easily qualify for another mortgage after two years of the short sale in contrary to a foreclosure where one has to wait for seven years in order to qualify for another mortgage.

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Understanding The Short Sell Process

March 1, 2012

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Short sales were not in the public picture a few years ago when the prices of house were just booming. However, they have become a phenomenon of study, experimentation and practice in this current debacle and upsurge of mortgage delinquencies. Many people are therefore in a state of dilemma as to whether to engage in the short sell process as a possible solution to the deadly foreclosure. That is basically why an understanding on the short sale process is essential.

But what is a short sell in the first place? In real estate, a short sell is the process through which a lender of some property allows the property to be sold for an amount less than the total amount that is due on the mortgage loan. There are three major parties involved in the house short sell process:

  • The lender (bank in most cases)
  • The buyer
  • The seller (homeowner)

This is the short sell process:

(a)   The seller or buyer contacts the lender in order to discuss the possibility of a short sale. The lender then determines the process of the short sale by deciding on the procedure to take.

(b)   The seller or homeowner then writes a letter that authorizes the bank to release facts about the mortgage loan to the agent or the buyer.

(c)    The lender reviews the statement of settlement and proposes a selling price for the house. The lender also indicates and itemizes the remaining expenses that need to be paid on the loan, real estate commissions and any other fees associated with the house short sale.

(d)   The seller then does a letter that explains all the financial difficulties that they are facing. This letter is sometimes called a hardship letter. The lender will then, in an attempt to validate the seller’s financial situation, look at the investment accounts, bank statements and other financial records of the seller at the lender’s disposal.

(e)   The value of the house needs to be correctly established before a short sale. The lender normally hires the services of a real estate broker to provide a possible opinion on the price of the house by looking at the condition of the house and then comparing it with the market value of properties that are comparable to it.

(f)     The lender goes through the purchase agreement in order to find out if the amount stated and the commissions indicated are reasonable. If the lender is satisfied with these details then the house can be short sold.

The short sale process can be lengthy because one has to contact several people here and there before striking the deal. As such, several documents and a virtue of utmost good faith from the seller are required. Nevertheless, if the short sale process is carried out carefully and the steps followed correctly, there are benefits accruing to all the parties involved:

  • The lender sells the house at a fair market price without having to wait for several months.
  • The buyer obtains the house at a relatively lower price than its market price.
  • The seller gets out of the house honorably and doesn’t get their credit report damaged because they can go ahead for another mortgage just after two years.

 

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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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Look Into Loan Modification Before Opting For A Short Sale

October 2, 2011

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Did you know that you can modify your mortgage loan? Many people are looking at loan modification in addition to exploring the short sale option. Being able to afford a mortgage in todays terrible economy is becoming increasingly difficult. Your current mortgage payment may no longer be affordable while at one time it was very affordable to a majority of homeowners. If you are one of the unlucky homeowners who can no longer afford your mortgage then loan modification was created to help you reduce your mortgage payments so they fit into your budget.

The entire idea around loan modification is to reduce your monthly payments by lowering your interest rate. It’s good to keep your monthly payment around 30% of your monthly income and loan modification can help you achieve this goal.

If you are interested in possibly keeping your home then you should take a look at loan modification. Here are some examples of reasons why a loan modification would be good idea for you:

  • Due to the economic downturn, a majority of  businesses have suffered extreme losses while having to layoff employees or cut their salary significantly. If you could once afford your current mortgage but have suffered financial hardships due to the economic troubles  then loan modification is a great idea.
  • If you have high interest rates, you need to look into loan modification to bring those interest rates down.
  • If you have been paying down your mortgage in a timely manner you don’t want to lose your home. Loan modification can reduce your monthly payments, easing the financial stress on your bank account.
  • Through a loan modification you can avoid losing your home to foreclosure or having to sell in a short sale.

One of the downfalls to loan modification is the steep learning curve. The last thing you will want to do is hire someone to help you complete a loan modification when you are already struggling with financial stress. Luckily for those of use who like to do things on our own, a great program is available for purchase.

This program includes a 96 page guide with a fantastic 40 minute DVD that will explain everything you need to know about the loan modification process. It includes sample letters you would need to send to banks, complete checklists for everything involved start to finish, and detailed instructions to get you from the beginning to the end.

It includes explanations of the law for all 50 states. This really is a great program that can save you money and time spent searching all over the interet for the information you need. This is a one stop shop to get your home loan back on track. Avoid foreclosure, avoid a short sale. Check out this home loan modification program now.

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