Whatever it is called, there seems to be a vicious cycle spiraling down to disaster. Homeowners have given up, and some foreclosed homes are on the market at prices that would have been a great bargain five years ago. Individuals in dire straits cannot sell their homes and face foreclosure if they cannot unload the property in a market filled with homes that have been placed on the market by lenders that want to unload them. Unfortunately, other homeowners who might buy these bargains cannot sell their homes because it is suddenly difficult to get a mortgage. Homeowners also have trouble selling their homes unless they agree to bargain basement prices. Other homeowners find themselves living in homes that are not worth the mortgage that secures them.
Help is available for those caught in parts of the vicious cycle, and a short sale is a possibility for some homeowners looking to avoid disaster. Lenders are a diverse group so anyone looking for hardship assistance should immediately contact their lender to ask for help. A short sale might be a good option for the lender and the homeowner. The lenders have already foreclosed on many properties. Most of these companies do not want more foreclosures, and they do not really want to deal with selling the property.
In general, the basic process for a short sale works like this. The lender agrees to accept the fair market value of the property rather than the amount owed on the loan as a settlement. The homeowner sells the property at the agreed price. The homeowner provides the proceeds to the lender as the settlement. The credit rating of the homeowner will not be affected by the short sale.
A short sale deal usually takes about sixty days from start to finish depending on the local market. The appraisal process often takes about two weeks to determine and agree on the fair market value. The approval of this amount by all the parties involved takes approximately two to five days. Closing escrow usually takes from two to four weeks and the deal is done.
The homeowner should avoid a negative impact on their credit rating by the short sale, but there may be tax implications. All homeowners should discuss the entire process and agreement with a tax professional before initiating short sale negotiations.
The predominance of sub-prime loans has added greatly to the foreclosure rate. Sub-prime lending is the practice of granting loans to home buyers at a rate several points lower than the prime rate. This sub-prime rate is variable, meaning that after a set period of time the interest rate increases to a higher level. This causes a homeowner’s payment to escalate, often to the point that they can no longer make the payment. The sheer numbers of these loans granted, and the resulting foreclosures, have caused more homes than normal to flood the market. This glut of houses has caused real estate prices in general to fall.
The phenomenon of falling prices and increased payments places the homeowner in a terrible situation. The value of their property has fallen. The payments are more than they can afford to pay. They now owe more than the property is worth. Payments are missed, and the lender is threatening foreclosure. What is the solution to what is a very desperate situation?
The solution may lie in a procedure called a short sale. What is a short sale? Quite simply, the short sale is a process in which the sale of a property occurs, with the lenders permission, for less than the outstanding loan obligations on the property. This allows the homeowner to avoid foreclosure and the dark stain this can leave on a credit report. The short sale will still be a negative entry on the credit report, but not nearly as bad as a foreclosure.
If you already have your home on the market and are utilizing a realtor, you should inform the agent as soon as possible that the property is scheduled for foreclosure. The agent can take steps to guide you through the short sale process, help you work with your lender and possibly accelerate the home selling process. It is important in this situation to not procrastinate. Call your realtor and your banker, as both are willing to help you.
The first thing you will need to do if faced with foreclosure is to determine your property’s market value. This value is based upon what someone will currently pay for it, not what you paid for it or what you need to satisfy the mortgage. A realtor can help you immensely here. A realtor will perform a Comparative Market Analysis (CMA) on the property. This is not the same as an appraisal, which can only be done by a licensed appraiser. A CMA is a comparison of similar properties in the neighborhood which have recently sold, and real estate currently for sale. The average sale price of these properties will give a realtor some idea of what your home will sell for. If you need to sell quickly, you will need to sell your property for less than all of the similar homes currently on the market.
There will be some costs associated with selling your property and these may vary from state to state. These can include title insurance, closing costs and home inspection. A realtor, title company or real estate attorney can help guide you in determining these costs.
Now you need to find out how much is owed on the property via mortgage loans, home equity loans, business loans in which the property is the collateral, and any other liens against the property. You must also figure in the realtor’s fee in the cost of the sale if you are utilizing a realtor. There is also the matter of real estate taxes. You will probably have to pay a portion of the current year’s taxes. The county assessor will help you here. Now you know how much you need to settle all the financial claims against the property and may proceed with the next step in the short sale.
Total up the outstanding obligations. Now you must subtract this number from the estimated sale price. This will in all likelihood be a negative number. Now you need to call your lender to explain your situation. Most banks have a foreclosure department, and a person wi