Thursday, February 4, 2010

All You Need To Know About Short Sales

I fell this is a good topic to cover since I recently have decided to short sale my current home. I have wrestled with the idea for a while now and I have finally decided to go ahead with the program. I purchased my home in August 2007 right when the market was turning. At the time I was under the assumption that I would relocate but it never happened. Two years later I am a landlord by default which is the worst kind to be.

Considering all the changes fell into my lap, I have done well over the 2 years managing the property and picking fairly good candidates as renters. I started thinking what It would be like to be completely debt free and not have to keep this house as a rental for the next 5-7 years until its paid off. I love the house but I do not like being a long distance landlord at all. Nor do I like having to discount the rent and take a loss to cover the mortgage. So I am meeting with a Realtor on Sunday to discuss the matter. I may get lucky and not need a short sale, or it may be funds I could come up with. Point is im ready to get out and start fresh.

Now there are ramifications on doing short sales which is while I am posting this article. While its not as bad as a foreclosure it still does damage to your credit. Lets take a look....

What is a Real Estate Short Sale?

Short sales are when a seller is behind in payments and instead of going through with a foreclosure, the lender accepts a lesser amount for the home. This allows the seller to avoid a completed foreclosure, the bank to cut their losses quickly, and the investor to buy a property for less than retail. Short sale negotiation of a home mortgage is something that can be made easier if you get a short sale negotiator involved. This allows you to continue to invest and not have to go through the hassle of the banks.

Short Sale Negotiation Saves Those Who May Otherwise Foreclose

A short sale in real estate is a way out of filing bankruptcy or foreclosing on a property a homeowner can no longer afford. Enter the process of short sale negotiation, in which a homeowner is able to sell the house at a lower price and pay off a smaller loan balance. This results in huge discounts on mortgages for real estate investors. When a lender forgives some portion of the debt left on a mortgage, you can hack that amount off the total cost of a home. Short sale negotiation of a home is tricky, but if you know the facts it is a whole new possibility that can be explored. It's probably not as hard as you think.

Short sale negotiation of a home mortgage is an alternative to foreclosure or bankruptcy used by those who have reached a point where they can no longer make monthly mortgage payments. Maybe the reason is job loss, loss of income, or increasing bills. The lender is then put into in a place where he can accept less than the total amount due on the mortgage, likely because the local real estate market is less than healthy. A market with falling home prices will be ripe for the short sales of homes.A lender who accepts a short sale is liable to pursue the borrower for the difference. That's where the lawyer comes in; only the lawyer can determine whether that difference can be treated as a claim or a deficiency judgment.

Another key thing to remember in short sale negotiation is that you're going to need some patience. Negotiating with the banks can take four to eight months. There are a few variables a short sale in real estate depends on:- The current real estate market- The financial situation of the individual borrowerLook for a negotiating firm to negotiate your short sale with the bank. You don't have to do it yourself.

There are negotiators who specialize in this so that you're spending your time investing and running your properties. The short sale negotiation process is much easier when experienced negotiators work with the banks for you.Opportunity exists for lenders because of the current economic downturn. People who can't afford their homes don't want to lower their credit scores by filing bankruptcy or having a foreclosure on their credit report. Lenders don't want to have to deal with delinquent borrowers. Investors want to buy a house through a discount, fix it up, and resell it for a profit. This can be done most efficiently through a short sale conducted by an experienced negotiator.

Will a short sale affect my credit score?
Yes, since it shows that you were unable to pay a mortgage according to the agreement you signed. It might take around 3 years to re-establish good credit. It will generally have far less negative effect on your credit than a foreclosure or a bankruptcy, which are last-resort measures if you cannot do a short sale. Check with your tax specialist or financial planner to be sure of the impact on you personally.

If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?
Guess what - the mortgage insurance protects the lender, not you, the borrower!

How do I get my lender to approve of my Short Sale? I called and they didn’t return my calls .
This is not unusual. You need to notify your lender of your problem, but the approval process does not begin until after you receive an offer. You need to contact your Realtor ASAP. There are steps that I can help you take right now to speed up the process. I know how to approach the lender and I know what they need to make it happen.

I just missed a payment and I know I will miss more. Is there time to do a short sale so that I can avoid foreclosure? The foreclosure process can take up to a year. Generally speaking, a well-priced short sale by an educated short sale Realtor will sell within about 4-5 months provided the seller and lender cooperate. Complications can and do arise which can delay things, as always.

Will I still have to pay property taxes if I do a short sale?
Property taxes will always have to be paid as part of any accepted short sale. Whether it’s you or the lender depends on their policies and the specific agreement you reach while negotiating the short

My home needs repairs and upgrading. Am I expected to take care of these items out-of-pocket before selling?
Short Sales are “As-Is” sales. In exchange for a low price, buyers will be asked to perform their own repairs after the purchase, and may also be expected to cover the cost of termite inspections, surveys, and association documents to name a few, which would otherwise be paid for by the seller. Bottom line: don’t spend your scarce funds, but any do-it-yourself painting, clean up and organization to make your property look better will help in the long run.

Do I have to pay income taxes as a result of the short sale?
This was once true. Very recently the tax law was modified and this may no longer be the case for some people. Always consult your Tax Attorney, CPA, or EA to find out what applies.

Who pays the real estate commissions and other selling expenses?
When a short sale is approved, your mortgage lender will add the real estate commissions along with all the other usual closing costs to the amount they will have to pay to close the sale.

Do I have to miss a payment to do a Short Sale?
No. Late in 2008 most major lenders started accepting short sale offers from sellers who have never missed a payment if they see a future hardship. New legislation is pending that could make things easier- only time will tell.

I want to do a short sale but I also have a 2nd mortgage. Does this make me ineligible?
No. Both of your lenders will need to be satisfied in some way to complete the short sale. After your first lender is paid off or settled by the sale, then payment terms with the second lender must be handled. Many short sales do involve 1st and 2nd mortgage holders and will naturally take a bit more time and effort.

Why would my bank agree to accepting less than they are owed?
It's not because they want to make nice. Foreclosing on a homeowner is costly, time consuming, and they end up owning a property they don't want - and then having to hire someone to sell it. It is cheaper for them to accept a loss up front in most cases.

As a buyer, are short sales a good way for me to get a below-market price for a home?
Short sales offer good values for buyers who are willing to wait! Many homes sold through a Short Sale sell for around 90% more or less than other similar homes. Make sure your expectations are realistic. It is nearly impossible to close in the usual 30 – 60 days so. Also, remember that your purchase must be approved by the lender, and they will not agree to performing repairs or paying for some of the closing costs that sellers pay in a typical home sale. Make sure you are using an experienced Buyers Agent who understands the short sale process.

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