Facing Foreclosure? Try a Short Sale!

OK. Over the past couple of weeks the amount of press on foreclosures has been overwhelming. With good reason. The amount of foreclosures has risen dramatically across the nation. There are ways of avoiding this devastating event without falling prey to "white night investors" which I call equity thieves. I will discuss them in a another post later. But believe me...they do not care about your financial situation. Borrowers can choose to explore the opportunity to sell their home short. What does this mean? Well I am glad you asked!

A "Short Sale" is when a homes value and or sale price does not cover the principle balance of the primary or secondary loan amount. Basically the homeowner is upside down in the house. Many people believe that the only option in this scenario is foreclosure. Especially if the homeowner is suffering from financial hardship and has fallen behind in their mortgage payments. In a short sale the lender agrees to accept less than the principle amount of the loan as repayment. This allows the homeowner to avoid having a foreclosure show up on their credit report.

How does this work? There are several things that a homeowner needs to have available in order to pursue this option. A letter of hardship indicating why the short sale needs to take place. Several months worth of bank statements and the ability to show financial resources to the lender. If a homeowner has the ability to come to the closing table with cash the lender will not allow a short sale to take place. The lender will seek an appraisal of the home and may even conduct a standard home inspection to determine the condition of the property. If the lender agrees to allow a short sale they will stipulate the minimum sales price which is usually much lower than the principle balance of the loan. I have seen lenders accept considerably less than the principle balance. $30 - $50 thousand dollars or more. A lender is not in the business of selling homes and having homes on the market is very expensive and they will usually work to avoid foreclosure if at all possible.

This is great news for those homeowners who wish to avoid foreclosure. Even better news is that congress recently rescinded the law that required homeowners from paying taxes on the forgiven debt! In any case this is much better than the damage a foreclosure will have on ones credit.
Unfortunately the homeowner will still need to find the buyer. This is where I can assist you. Or rather a knowledgeable REALTOR can assist you. Ask your broker if they are familiar with short sales. If not find someone who is. Selling a home short requires patience and a willingness to work with the lender. The process is different than a standard real estate transaction. Lenders understand the current market and are usually willing to pay for the brokers expenses and commission.