The term “short sales” is used to describe a situation in which a homeowner is at risk of defaulting on their loan, and the lender agrees to sell the property below the original appraisal price in order to avoid foreclosure. Most lenders do not readily agree to short sales, although exceptional circumstances such as a homeowner losing his/her job or the death of a wage-earning spouse may make some of them more open to doing so.
If a property is sold as a short sale, the lender recoups at least a portion of the original loan amount, the homeowner avoids the stress and stigma of foreclosure, and the new homebuyer gets a property below its original appraised price. If a short sale doesn’t work, then the property usually goes into foreclosure.
Short sales may be an emerging trend as the rate of foreclosure is rising dramatically across the nation.
The credit of homeowners may be impacted after a short sale, but it all depends on how the lender reports the outcome. Some lenders report a partial loan repayment as full payment of the debt due, which does not adversely impact the credit of the borrowers. Other lenders report the sale as “settled,” which adversely and significantly impacts the borrower’s credit. The other problem is that the portion of the loan amount forgiven by the lender may actually count as taxable income by the IRS.
In summary, a successful short sale has some potential positive benefits (e.g., homeowners avoid foreclosure, lenders recoup at least a portion of the loan amount, new homebuyers gets a property at below the original appraisal price, etc), but there are also many negative consequences.
Some of these potential negative consequences include: the negative impact on borrower’s credit, negative impact on the value of other similar homes in the neighborhood, and that the amount forgiven by the lender may be taxable event.
Homeowners having difficulty making their monthly mortgage payment may benefit from talking to a real estate agent who is experienced in short sales.
There are several differences between a short sale and a foreclosure. Homeowners who find they are having difficulty meeting their monthly mortgage payments should be careful to understand these differences before taking action. Discussing the options with their mortgage company, scheduling a meeting with a real estate consultant, and learning what potential taxable and credit report consequences may be, are all important facets to understand before making a decision. Let’s first look at the definition of these terms:
Short Sale – when a lender agrees to accept less than what a homeowner owes on a mortgage. In a short sale the home is listed by the owner and sold.
Foreclosure – when the homeowner stops making monthly mortgage payments and the bank takes legal action against the homeowner and the deed of the home returns to the lender. In a foreclosure, the deed is transferred to the bank in a legal action.
Now that we know the difference, let’s take a look at the specifics of the short sale and a foreclosure:
A short sale provides the home owner the opportunity to put the home on the market at or near market value even if more than the market value is owed on the property. When the home is offered for sale, it must be advertised and marketed with verbiage such as “short sale” and “all contracts must be approved by bank.” This informs potential buyers that the seller cannot accept any offer without approval from the mortgage holder. In some cases, the bank will wait until several offers have been received before making a decision as to which one, if any, to accept. The reason for this is so the bank can be sure to accept the highest offer, thereby receiving the most money back on their initial investment.
The reason a bank will even consider a short sale is because often times they will retain more of the money owed them as opposed to going through a costly foreclosure. The foreclosure procedure is expensive for banks as they include attorney fees, court fees, realtor fees, and tax expenses. Often it is simply more cost effective for them to accept the short sale.
Homeowners who are considering either of these options should also consult a real estate professional, a tax specialist, and perhaps a tax attorney. There are real estate professionals who specialize in short sales. They can provide additional information, such as the current market value of the home, the potential for it to sell at a specific price, and how long it will take to receive an offer. They will also be able to manage the short sale transaction, assisting the homeowner with forms, communication and anything else required of the bank. In addition, a tax specialist or tax attorney will be able to provide advice on any potential taxable consequences the homeowner may be responsible for in either a short sale or a foreclosure.
When determining what is best for a particular situation, short sale vs foreclosure, consult the professionals, discuss options with the mortgage holder, and understand what it will take to be successful in either case.
One of the reasons banks favor short sales over foreclosures is that lenders are taking too long to repossess a home.
According to RealtyTrac, a firm that monitors the foreclosure market, homes in the U.S. spent an average of 318 days in some stage of foreclosure before a bank formally regained ownership during the second quarter of 2011. This marks an increase over last year when foreclosures were processed on average in 277 days.
To put this in context, RealtyTrac’s data from the second quarter of 2007—the year preceding the housing crisis—indicate that back then, a foreclosure was completed 154 days after the initial notice was filed by a lender.
So what has doubled the time it takes for a foreclosure to be processed?
The sheer volume of properties entering foreclosure is a huge factor, according to Daren Blomquist, marketing communications manager at RealtyTrac. But the process is also impeded by changes to many states’ laws.
“There are many programs being instituted by state and local governments that help the homeowner prevent foreclosure,” Blomquist says. He explains that many municipalities require lenders to provide mediation before they can repossess the home, which “adds 30, 60, even 90 days to the process.”
Also throwing a wrench into the procedure is the Home Affordability Modification Program, which doesn’t require lenders to let a homeowner refinance his or her mortgage on a distressed property, but gives financial institutions monetary incentives to do so. Such incentives lead many banks and lenders to try to work out a loan modification for the home before it’s repossessed, Blomquist says.
Finally, you can’t talk about the foreclosure market without addressing the robo-signing controversy which led to a temporary halt to foreclosures in October 2010, when lawmakers asserted banks were not following proper protocol before signing off on a foreclosed home. While proceedings resumed about a month after the initial outcry, the scrutiny did not die down. Just this month, county officials in three states called for for hearings and further investigation after alleging lenders were still illegally signing off on homes they did not legally have claim to.
Blomquist explains that while the controversy did not significantly change the legal proceedings involved in the foreclosure process, it did make banks slam the brakes.
“They’re scrambling to make sure that the paperwork is completed correctly because they are under such scrutiny,” he says.
Record volumes of home foreclosures in The united states are producing challenging instances for property owners. Obtaining a loan modification could be the smartest thing you ever do. Homeowners all across America are finding it difficult to repay loans due to layoffs and adaptable rate mortgages. Foreclosure solutions are being searched for by these home owners.
People from all walks of life are using loan modifications to maintain and keep their properties. The process in which you are able to renegotiate your home loan with the mortgage company or bank who holds the loan is known as loan modification. You’ll be able to modify your mortgage which has a set rate with a competitive interest rate, generate a more secure 30-year mortgage, in addition to reduced monthly payments.
By making use of a loan modification, you may be able to eliminate foreclosure on your home.
Find possible resolutions to your financial hardship with the aid of a consultant who offers specific resolutions. Prevent foreclosure and keep your house by carrying out knowledgeable choices and modifying your loan. It’s possible to find a loan modification company that satisfies the needs of your specific situation by looking into and analyzing loan modification agencies alongside one another.
Talking to a dependable and reliable loan modification consultant is encouraged well before any selections are made. It is best to obtain hints and tips from a seasoned loan modification counsellor to help you obtain satisfactory results, while saving you money at the same time. Implementing a loan modification, through the help of experts, can help you secure your property from a foreclosure.
Fewer Americans had their homes repossessed by banks or were put on notice for being behind on their mortgage payments in April compared to a year ago.
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