I have been asked by many people over the course of the last few months about Sort Sales. Here’s some information any home owner thinking about doing a short sale on their home should know.
Short Sales Explained:
As many as 25 percent of homeowners nationally owe more on their mortgages than what their property is worth. The Mortgage Bankers Association reports that approximately 4.2 million homeowners missed at least one month’s payment during the second quarter of 2010, and more than two million were in foreclosure by the end of the quarter.
Between four and five million mortgages are in difficulty, with the prospect of foreclosure filings reaching three million in 2010. Short sales are a growing trend among lenders and homeowners seeking to avoid foreclosure.
In a short sale, the lender agrees to accept the sale’s net proceeds as complete payment for the existing debt, even if it is “short” of the full amount.
Short Sale Basics
A short sale, also known as a pre-foreclosure sale, is a transaction in which the lender (or lenders) agrees to accept the proceeds of the sale in lieu of the total debt owed by the current homeowner. By definition, the net sale price in a short sale will be less than the total debt balance and the lender(s) may or may not forgive the difference. The current owner/seller receives none of the proceeds of a short sale, which go entirely to pay off the debt(s) on the property. Owners may favor a short sale rather than a foreclosure because of the potentially reduced impact on their credit ratings and their personal financial conditions. A short sale can be initiated even after posting of a Notice of Trustee Sale but before the actual foreclosure sale.
Short sales are a viable option when the current homeowner cannot qualify for a loan modification or refinance, if the property will not sell for enough to cover the existing loan and if there are no other prospects to pay the mortgage. In such cases, foreclosure is highly probable or imminent.
A “strategic” short sale, that is, if the owner has the capacity to make the mortgage payments but chooses not to because the loan is greater than the current value, is not really an option.
The lender would expect the borrower to keep the loan current and would pursue a deficiency if the borrower did not. Getting a lender to approve a short sale is primarily a matter of economics. Lenders increasingly favor short sales to avoid the more costly and time-consuming process of foreclosure and sale. One survey found that short sales may reduce loss severity by 13 percent, and in states where the foreclosure process is particularly lengthy, losses may be as much as 26 percent less.
For the past couple of years, lenders have hesitated to pursue many troubled home loans and underwater borrowers, thus prolonging the soft housing market and further eroding property values. The lenders simply could not afford the losses or lacked sufficient administrative capacity to process the volume of problem loans. The government provided numerous forbearance options, from mark-to-market accounting changes to foreclosure moratorium and loan modification programs, to help forestall the swell of home evictions.
But many lenders, especially the larger banks and Freddie and Fannie, now recognize that loan modifications and refinancing is not going to solve the majority of problem home loans. Alternative exit strategies are needed.
Fueled by the severity of the housing bust, HAFA and general market acceptance, there is a growing movement toward proactive short selling rather than the reactive approach most lenders historically followed. Lenders are much more receptive to a cooperative approach involving the homeowner, the loan servicers and the real estate agent moving the property through the process as quickly and profitably as possible. Lender acceptance of short sales is greater in judicial foreclosure states with lengthier, more costly foreclosure processes than in non-judicial foreclosure states, like Texas, where foreclosures are less time-consuming and less costly.
Every short sale differs depending on the local market, the lender, the property, the seller, the buyer and the degree of pre-sale work done. Sellers benefit from engaging an experienced real estate agent to assist them through the process.
Doing so avoids costly delays and mistakes. Agents with prior short selling experience know what lenders are looking for, how to collect the necessary documentation and data, and who to approach to get the sale accepted. The seller may also seek out specific legal and tax advice for protection, as the consequences of a short sale can be complicated.
As a Certified Distressed property Expert (CDPE) I understand the complicated process of navigating through a Short Sale. If you have recently found yourself in a hardship situation and need help. Call or email me today for a discreet free consultation. My services to Distressed homeowners choosing to do a short sale on their home is free (commissions are paid by the lender) so call (832-576-4902) or email today Kim@kimberlywhaley.com