How a Short Sale Can Prevent a Foreclosure
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Foreclosure vs Short Sale
Lenders are now offering Homeowners an option to short sale their home versus going into foreclosure. A short sale is a transaction where the lender agrees to accept less than what the homeowner currently owes on their home. In most cases, the difference is forgiven by the lender, but in other cases the homeowners must make arrangements with the lender to settle the debt. What this means is the lender is approving the short sale but they may ask the homeowner to take out a loan for a small amount to satisfy the conditions. The amount is very minimal and lenders assess the homeowners hardship before this option is executed.
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Short Sales Rising
Due to our economic conditions, which include rising unemployment and house prices upside down, the number of foreclosures vs shorts sales is on the rise. Short sales cost the lender less than a foreclosure and it allows the lender to minimize their losses. A short sale does not hurt the homeowners credit history as much as a foreclosure. A short sale negotiated for a homeowner will only affect their credit based upon there financial history but they can usually qualify for another mortgage sooner. Whereas, if they foreclose on there home, their credit history is affected for a minimum of 3 years.
There are many individuals who claim they have the experience and knowledge to negotiate your short sale – Please be aware. I am not discounting there are many companies who do an excellent job, but you need to know what to look for when selecting a reputable firm. Below are list of items to keep in mind when you select your company.
- There should be ‘NO” upfront cost to the homeowner. I will repeat this – “There should be “NO” upfront cost to the homeowner”. If they have the experience and are confident they can negotiate your short sale why would they be charging you? Once they negotiate the terms, the short sale company is paid by the lender.
- Make sure the short sale company has an attorney on staff. Many times they need to get involved in the mitigation with the lender which brings credibility for the homeowner and the short sale organization.
- A short sale negotiation takes anywhere from 90 – 120 days. If it is negotiated sooner, fantastic! Be patient and know a reputable company will keep in contact with your Listing Agent which, in turn, will notify the homeowner of the status.
- Make sure you have a buyer and they have signed a Purchase Agreement (PA). A short sale company cannot begin negotiating with your lender until a PA has been signed.
- The homeowner must have a Hardship before the lender will consider a short sale. An example of a hardship would be a financial crisis, loss of a job or there house is "upside down".
- The homeowner will be required to submit documents to the short sale organization before they can talk on your behalf. An example of a few documents that will be required are: Tax forms, Power of Attorney, Bank Statements, Social Security Number, Drivers License, a hardship letter.
Short sales are a definite option for homeowners versus foreclosures. This is not a short or easy process and you want a qualified organization representing your best interests during the mitigation process.
More information about Short Sales
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That is interesting. I didn't know what a short sale was until I read this piece. It sounds like it could save a lot of trouble for both bank and borrower. I am an accountant in Spain and the banks need to start showing this sort of flexibility.
Advoco - Here in the states they are transferring employees from the Foreclosure dept to the Short Sale dept. The banks have to come realize they already made a ton of interest on the home and to prevent them from having more bad debt on their books - why not short sale and at least get some money instead of the real estate - which they are not in the business of having - they are in the business of loaning money
We still don't have this kind of facility in Malaysia, maybe later on the Banks will implement here.
I have been researching the American real estate markets for a blog I write on mortgage refinancing so I was aware of short sales but I think you have provided a really clear and comprehensive explanation of what it does, how it works and what to do. I would quite like to post this on my blog, let me know if you are OK with that. Great Hub.
BrianS - Please have your blog link to my Hub site - I would be honored to have you do that!
I never knew. I hope I never need it, but one never knows. things are bleak, thanks for sharing this Cheri dear. CC
Thank your Ralwus - There are so many people impacted by this situation that it breaks my heart when I hear there stories. I would like to do everything in my power to help them out.
This is a great hub and series you have on short sales. A very good friend recently had to do this with his house this summer, and the process just wrapped up a couple of months ago. It's unfortunate, but will put him on better footing going forward, so I guess all's well that ends well. Enjoyed reading these hubs.
Very useful information, I hope this helps people to avoid a foreclosure. Us consumers need all the advice we can get.
Jeff and Joe - I am educating the consumer and real estate agents on the alternatives to Foreclosures. The regular consumer does not fully understand the ramifications of a foreclosure. The Note you sign at closing follows you after a foreclosure and the bank can eventually garnish someone's wages to collect the amt owed. It is best to do a short sale where your Note is forgiven
The title insurance won't be issued to the buyer or the buyer's lender if Countrywide can say after the close of escrow that the funds is still due. Due to this issue, & the fact that there is no workaround to this provision, someone who receives this approval letter from Countrywide will require to advise them that the condition must be remove, in writing, or the short sale cannot close.
gyurk 2 years ago
Thank you Cheri for this useful information!