By Jocelyn P. Porteria
“The best solution for an individual wanting to sell a property is to seek the guidance, counsel, services and expertise of an Educated, Licensed Real Estate Agentâ€
Many homeowners who are in financial distress do not want to talk about it, in denial, filed bankruptcy and just wait until foreclosure. This is the worst thing to do. There are other options available out there especially in this economic downturns. The most popular choice is a short sale after loan modification or refinance is no longer an option.
What is a short sale?
When a borrower owes more than the value of his property and the lender/ Mortgage Company agrees to accept less than the full balance of the loan at closing when the house is sold. The property is sold short. For example, you owe $300,000 but the current market value in your neighborhood is only $200,000, the lender might accept the $200,000 as payment in full.
Two criteria for the lenders to agree in short sales:
1) Hardship such as loss of job, cut working hours, divorce, increase in monthly mortgage etc. Something that you will not be able to come up with the monthly mortgage anymore.
2) You owe more than what you have including assets that can be used to pay off the mortgage.
A short sale is not a way to get out of mortgage; it is a tool for the borrower to use if they truly canâ€™t pay their mortgage.
Mortgage Companies do not want foreclosures. It is expensive for them carrying all the cost and losses. It is a Win-Win situation where the house is sold in fair market value through borrowersâ€™ cooperation in selling the property. The borrowers leave their house in dignity and avoid credit report damage associated with foreclosures. Get the services of an educated Real Estate Agent on short sales. This requires tedious work, patience, good communication skills, organization and professionalism. You do not want to deal with any additional stress. Some agents require just minimal retainer fee to cover advertising cost. The commission is covered into the cost to sell the home including any closing costs that buyer requests. The bank will approve these costs to be included.
Lenders require documentations to support your claims: Authorization Letter for the Real Estate Agent to negotiate on your behalf. Hardship Letter to explain your situation, Financial Statements including credit card debts and household expenses. This is backed up by your Income Tax Return for the last two years, two recent pay stubs and bank statements. They may require additional information or documentation. Some lenders want these in advance before you put the house in the market. Some requires all documentations once you have an offer. Everything is subject to third party approval.
Remember that you want to sell your home as soon as possible. Some lenders suspend collection and/or foreclosure process up to a certain extent. It maybe three to six months or more than that before they take the house from you. Cooperate in selling the house by keeping it clean and appealing to potential buyers. Although this will be sold as is, you may want to do minor repairs not to discouraged buyers; however but do not spend too much as you need all your resources when you move out.
Once you get an offer, your Real Estate Agent will facilitate the negotiations among you, the buyer and the lender until it is approved. It is in your best interest to stay current on Homeowners and Condo fees. They can put a lien on your home that might delay the settlement.
You will be permitted to stay in your home during the short sale process. In most cases, an occupied house is much better with all utilities on and appliances working for potential buyers.
Mortgage Forgiveness Debt Relief Act of 2007.
States that from January 1, 2007 until January 1, 2013, homeowners whose debt will be forgiven due to short sale or foreclosure with certain restrictions. Consult with a tax advisor, real estate lawyer, or an accountant for details and how it may affect your own case.
A short sale is typically reported as a settled loan on your credit report. This will cause an effect on your credit score but not even close as severe damage in foreclosure. I will discuss the effects of short sale versus foreclosure next issue.
(Note: Jocelyn Porteria is a RealtorÂ® licensed in VA. She earned a designation of ABR, Accredited Buyerâ€™s Specialist and a CDPE Certified Distressed Property and Short Sale Expert. For more info, call her at 571-432-8335 or email at firstname.lastname@example.org)