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.
As new indicators on the languishing national housing market continue to stream in it remains apparent that the crisis brought about by the bursting of the housing bubble is far from over. Newly released figures reveal that the prices of houses declined with greater speed during the opening quarter of this year than at any point since the most severe consequences of the crisis became evident. This is based on information released in the Real Estate Market Report which has been made available by Zillow.
It has been predicted that the lowest point in the housing market decline will not be reached until 2012 at the earliest. If that’s the case, the process of full recovery will take a period of quite a few years. Zillow’s Home Value Index decreased to just under $170K, a drop of 3% compared to the 4th quarter of 2009. The company’s index explains the average valuation for a designated geographic location on a designated day. It incorporates the value of all condominiums, cooperatives and single-family homes. Information relevant to mortgages and home loans are generally noted in each county and is publicly accessible via a county recorder’s office.
To better understand the magnitude of the decline in the housing market, consider this: The prices of homes have, on average, decreased by just slightly less than 30 percent from the height of the peak in June 2006. That figure represents a massive hit for most homeowners in America.
Given the fact that the decline has shown no signs of slowing down during the first quarter of the year, it is overly optimistic to expect any stabilization in home prices by the end of this year. Only a small number of markets did not experience home value decreases this past quarter. The overwhelming majority of housing markets in the study (ninety-seven percent) faced decreasing values.
In light of this kind of news, it becomes increasingly clear that many Americans will require honest and authoritative assistance with loan modifications in the next few years. The burden that many are under in the present economic climate makes it simply impossible to meet existing mortgage obligations.
Home values are way down since the housing market hit its peak in 2006. The S&P/Case-Shiller Price Index, which is a measure of the home values in 20 metropolitan statistical areas is down by nearly a third since the market peaked. Although home prices were briefly buoyed by the 2009 and 2010 home buyer tax credits, they have now hit double dip territory, at least according to Case-Shiller. Different measures of home prices have yet to show a double dip, but they are all trending downward.
Since 2001, the average home equity has declined from 61 percent to 38 percent as of the first quarter of 2011. A recent report from Harvard showed that home equity went from $14.9 trillion in the first quarter of 2006 to $6.3 trillion in the fourth quarter of 2010. Home equity is now at the lowest level since World War II according to a new study from the Federal Reserve. By any measurement, this is pretty much an utter disaster.
A CoreLogic report released recently showed that 10.9 million American homeowners with mortgages are underwater (owe more on their mortgage than their home is worth). This accounts for 22.7 percent of all residential homes with mortgages. An additional 2.4 million more borrowers had less than five percent home equity.
Although price declines are not evenly spread, many people won’t recover their home equity for years, if at all. This problem is especially acute for many baby boomers who are approaching retirement age. Some people planned to fund their retirement with home equity and may have to delay those plans due to declining home values.
We’d love to hear your feedback on this situation. Will declining home values delay or change any retirement plans you had made? Are you, or someone you know, currently dealing with an underwater mortgage? Use the comment link below to sound off about the housing situation and how it’s affected you or your family. Your email address will never appear on our site along with your comments.
The housing slump has sent home values plummeting, and it has left an ever-growing number of homeowners upside down in their mortgage loans: They now owe more on their mortgage than what their homes are worth. This unfortunate economic reality has led a growing number of consumers to debt consolidation loans to help reduce the amount of credit debt they are carrying.
The National Association of Realtors reported recently that the median home sales price across the nation in December stood at $168,800. That’s down 1 percent from a year earlier, and significantly from the highs in home values the country saw in 2005 and early 2006.
In better times for the housing market, homeowners would have simply taken out low-interest-rate home equity loans to pay down their high-interest-rate credit card debt. That strategy to eliminate debt, though, is becoming rarer today. Far too many homeowners don’t have any equity in their homes, making home equity loans an impossibility. These homeowners, then, have few other choices but to turn to debt consolidators to help them gain a handle on their rising credit card debt.
Consumers who turn to this method will take out a loan with a debt consolidation company. Debt consolidators will then use the loan payments to pay down consumers’ outstanding debt. Often, debt consolidation firms will negotiate with creditors to reduce the amount of debt their clients owe. The negatives with debt consolidation loans, though, are significant: These loans often come with high interest rates and fees. Consumers often end up paying more in total by taking out a debt consolidation loan than they would have had they simply paid off their debt on their own. Debt consolidation loans also harm consumers’ three-digit credit scores – a big problem in today’s financial world.
However, with housing values continuing to take a beating, many consumers have no other choice for bad debt consolidation. Consumers in such a situation should be careful, though, to do their research before taking out a debt consolidation loan. They should ask their debt consolidators exactly how much they’ll have to pay in fees and how high their interest rate will be. They should also ask exactly how long it will take them to pay off their existing debt. By asking the right questions, consumers dramatically improve their odds of taking out a debt consolidation loan that will provide them with real financial relief.
The drop in home values caused by the mortgage crisis has resulted in at least one positive outcome: Prices have fallen so far and so fast that home affordability is back to pre-housing boom levels, according to a new report.
After reaching a peak in late 2005, the ratio of home prices to annual income fell to its lowest levels in 35 years last September, according to data compiled by Moody’s Analytics, which tracked median home prices and annual incomes in 74 markets.
By that measure, housing affordability at the end of September had returned to or surpassed the average reached between 1989-2003 in 47 of those markets, The Wall Street Journal reported, noting that most economists believe the housing boom took off in 2003.
“Based on incomes, this is as affordable as it gets,” said Mark Zandi, chief economist at Moody’s Analytics. “If you can get a loan, these are pretty good times to buy.”
Though homes have become affordable, an increasing number of people who bought as the market was rising toward its peak are finding their homes are now worth less than the amount owed on them, also known as being “underwater.”
More than a quarter of households with a mortgage were underwater at the end of December, up from 23% in the third quarter, the Journal reported, citing data compiled by real estate website Zillow.com. The increase was attributable to a further decline in home prices and the temporary cessation of foreclosures by banks, which had halted the practice to correct errors in document handling.