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Member Value Plus. Good Neighbor. Real Estate Topics. What is a short sale? Major challenges include: Limited experience.
Absence of a uniform process and application. Multiple lenders. When more than one lender is involved, the negotiations are much more difficult.
Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing. What is the fundamental issue? I am a real estate professional. What does this mean for my business? No short sale legislation has been introduced recently. Latest on this topic. Show All Articles. News Releases. Search within this topic. February 25, February 17, December 27, NAR is advocating for the interests of commercial real estate in relief packages and stimulus plans during the COVID coronavirus crisis.
March 20, Education: Short Sales and Foreclosures. March 14, February 5, December 4, This course is designed to show how the real estate professional can be a resource for sellers and buyers in the brokerage of distressed properties. March 1, Learn to help sellers maneuver the complexities of short sales as well as help buyers pursue short sale and foreclosure opportunities. Each state has its own rules and timelines for handling foreclosures, and there may be more than one type of foreclosure even within a single state.
February 20, Freddie Mac is adding more incentives for real estate professionals and buyers of foreclosed homes to kick off the spring-selling season.
February 19, Reports of Mortgage-Servicing Errors on Rise. Nearly half of complaints recently filed with the Consumer Financial Protection Bureau were about mortgages, loan modifications, and Investors Getting Back Into the Game. New surveys show that investors are not fading away as the number of distressed properties dry up.
Instead, they are shifting their focus February 18, Short sales tend to be lengthy and paperwork-intensive transactions, sometimes taking up to a full year to process. A real estate short sale is unlike a short sale in investing.
An investing short sale is a transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future. Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take.
Any type of property sale that is denoted by a credit company as not paid as agreed is a ding on a credit score. This is because there are two parts to all mortgages.
The first is the lien against the property that is used to secure the loan. It gives the lending institution the right to sell the property for repayment. This part of the mortgage is waived in a short sale. The second part of the mortgage is the promise to repay. Lenders can still enforce this portion either through a new note or the collection of the deficiency. Whatever happens, lenders must approve the short sale, which means borrowers are sometimes at their whim.
Short sales and foreclosures are two financial options available to homeowners who are behind on their mortgage payments, who have a home that is underwater , or both. In both cases, the owner is forced to part with the home, but the timeline and consequences are different.
A foreclosure is the act of the lender seizing the home after the borrower fails to make payments. Foreclosure is the last option for the lender.
Unlike a short sale, foreclosures are only initiated by lenders. The lender moves against the delinquent borrower to force the sale of a home, hoping to make good on its initial investment of the mortgage.
Also, unlike most short sales, many foreclosures take place after the homeowner abandons the home. If the occupants are still in the home, they are evicted by the lender. Once the lender has access to the home, it orders an appraisal and proceeds with trying to sell it. Foreclosures do not normally take as long to complete as a short sale, because the lender wants to liquidate the asset quickly. Foreclosed homes may also be auctioned off at a trustee sale, where buyers bid on homes in a public process.
A homeowner who has gone through a short sale may, with certain restrictions, be eligible to purchase another home immediately. Depending on the circumstances, homeowners who experience foreclosure can expect to wait two to seven years to purchase another home. While a foreclosure essentially lets you walk away from your home—albeit with grave consequences for your financial future, such as having to declare bankruptcy and destroying your credit—completing a short sale is labor-intensive.
However, the payoff for the extra work involved in a short sale may be worth it. Less disruptive alternatives to a short sale include loan modification and utilizing private mortgage insurance. Before resigning yourself to a short sale, talk to your lender about the possibility of a revised payment plan or loan modification. One of these options might allow you to stay in your home and get back on your feet. Another possible option for staying in your home arises if you have private mortgage insurance PMI.
If the PMI company thinks you have a chance at recovering from your current financial situation, it may advance funds to your lender to bring your payments up to date. The source of the financial trouble should be new, such as a health problem, the loss of a job, or a divorce, rather than something that was not disclosed when the homebuyer originally applied for the loan.
However, if you feel you were a victim of predatory lending practices, you may be able to talk the lender into a short sale even if you have not had any major financial catastrophes since purchasing the home. To put yourself in a more convincing position to complete a short sale, stop purchasing non-necessities. Be aware of other circumstances that may prevent the approval of a short sale.
If the lender thinks it can get more money from foreclosing on your home than from allowing a short sale, it may not allow one. If someone cosigned the mortgage, the lender may hold that person responsible for payment rather than doing a short sale.
If you think your situation is ripe for a short sale, talk to a decision-maker at the bank about the possibility of engaging in this type of transaction.
At this point, you should consult an attorney, a tax professional, and a real estate agent. While these are high-priced professional services, if you make a mistake by trying to handle a complex short-sale transaction yourself, you may find yourself in even bigger financial trouble. You may be able to pay for these service fees out of the sale proceeds from your home.
Professionals accustomed to dealing with short-sale transactions will be able to give you guidance on how to pay them. When setting an asking price, make sure to factor the cost of selling the property into the total amount of money you need to get out of the situation. Of course, you want to sell the home for as close to the value of your mortgage as possible, but in a down market, there is bound to be a shortfall. In some states, even after a short sale, the bank will expect you to pay back all or part of that shortfall.
These may include bank statements , medical bills, pay stubs, a termination notice from your former job, or a divorce decree. It is up to you to come up with a proposal.
Be aware that the lender ultimately must approve a short sale after receiving all the details because the lender is the recipient of the proceeds. Your job is to find a buyer for your home. Along with the documentation of your distressed financial status, your proposal should include a hardship letter explaining the circumstances that are preventing you from making your mortgage payments.
You want to make it as convincing as possible and protect your interests while also appealing to the bank. Be careful about submitting your financial information to a lender because, if it does not approve the short sale, it may use your financial information to try to get money out of you in foreclosure proceedings.
If you still have cash assets , you may be expected to use them to continue making mortgage payments or to make up some of the shortfalls between the sale price and the mortgage amount. An attorney experienced in completing short sales can help you navigate the details.
Because short sales can take longer than regular home sales due to the need for lender approval, they often fall through. The buyer may find another property while waiting for an answer from you. Be prepared for this possibility. If the short-sale transaction goes through, consult with the Internal Revenue Service IRS to see if you will have to pay taxes on the shortfall. Also, be aware that a short sale can still affect your credit score in the sense that the months of mortgage payments you missed prior to the short sale can show up as delinquent payments on your credit report.
Your bank may be more likely to be generous in this regard if you brought up your hardship before you were significantly behind. For credit purposes, while this is somewhat damaging, it is certainly less damaging than a foreclosure. Short sales can also provide excellent opportunities for buyers to get into houses at a reduced price.
Here are a couple of tips to help you make smart decisions when considering the purchase of a short-sale property. Though the entire process often turns out to be a long and frustrating ordeal, short sales typically end up resulting in a win-win for all parties involved, as the seller no longer bears a debt, the buyer purchases the property at a substantially discounted price, and the bank also benefits in the long run.
Whether you are the buyer or the seller, there are many factors to keep in mind when it comes to short sales. Here are some important notes for all consumers to keep in mind:. There are several requirements that need to be met in order to avoid foreclosure through a short sale, including the ability to prove financial hardship, such as job loss, divorce, or medical bills. Most banks require paperwork to approve and some homeowners might need to show why it is that they can no longer afford their monthly payments i.
The documents necessary to process a short sale typically depends on the particular lender. Most, however, will at least require a hardship letter detailing the circumstances behind the short sale, as well as a signed, valid purchase and sales contract, a preliminary HUD-1 settlement statement, and a preliminary estimate of proceeds to the lender.
There may be additional requests for more detailed information on the financial condition of the seller, such as bank statements, paycheck stubs, personal financial statements, and monthly budget assessment, amongst other things.
Time is of the essence during any short sale, so finding an agent is necessary. Because of the complex nature of any short sale transaction, it is strongly recommended that both buyer and seller work with a real estate professional who has a track record in successful short sales.
The seller often ends up coming up short on the loan payoff, most short sales can take from four to nine months to close, and sometimes even longer. Furthermore, difficult negotiations that take place between the parties involved, such as junior-lien holders and the seller, often delay the process.
Who benefits from a short sale and how do each of the different parties benefit? Buyers will get to purchase a property at a fair market value and avoid having to deal with the risks of buying a foreclosed property. With benefits also come pitfalls. With short sale properties, there is, of course the long sales process that usually ends up being difficult to pin down with a firm closing date.
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