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How To Avoid Foreclosure though A Short Sale
By Michael Webster
First, lets define what a "Short Sale" is.
I believe the definition varies from institution to institution as well as from region to region across the land. I'm going to share my knowledge and experience with you in hopes to help you avoid foreclosure, put a little money in your pocket and perhaps save your credit from further disaster. This is the way I know it to be as I write this. It really boils down to the point that the bank or note holder does not want to take a property back that is in default but would rather sell it for less than what is owed on it.
This is where the short sale comes into play in order for a ‘short sale' to take place there are two very important factors that have to take place. First, the homeowner - or borrower has to be in default on their real estate loan. A lender under normal circumstances would not likely agree to sell property that the borrower is current on.
The second requirement is that the homeowner MUST be willing to make a deal with the bank/lender. It sounds so basic but be careful it is like a doctor or attorney representing themselves it often is not a good idea they are to close to the client or defendant (themselves). As with a homeowner in default they are often to close to the deal and are many times too ashamed to pick up the phone and humble themselves and ask for help much less do it with any real knowledge or experience and can wind up worse off. It really is a shame.
Let's look at the first requirement - default and what causes it. Typically there is drama in the borrower's life. It may be a loss of job, a divorce or even a death in the family. Perhaps more than one event has compounded itself and put the homeowner in a bad way.
The other cause is debt. Perhaps it is too much consumer debt or "keeping up with the Jones's" or more than likely it is an adjustable loan increased its interest rate and payment dramatically. It is not uncommon today for monthly payments to increase $600 or even $1,500 or more - per month!
No matter the reason, we have to agree that bad things do happen to good people.
The second requirement to initiate a ‘short sale' is there has to be contact made with the lender and open communications to negotiate the short sale.
This is very important that you as the homeowner start this process as early in the process as you can. Look at me as a type of firemen call me as at the first sign of smoke or at least as you see flames. Don’t wait to call me until the house is fully involved in flames. If a short sale agreement cannot be arranged the homeowner will be foreclosed on and the Real Estate will be lost.
The alternative is that though your representative (me or my assignee) the lender can be persuaded to help the borrower sell the home for what they can, and although there are no clear winners, everyone has lost the least possible. This is as close to a win-win situation anyone is likely to see.
Some reasons a Lender would Consider a ‘Short Sale.
When the property is upside down or it is worth less than the balance of the loan and the seller can no longer make the payment one of two things will happen. Either the lender will accept a ‘short sale' or they will foreclose.
If the lender forecloses on a home everyone loses. Lets assume there is a $750,000 mortgage on a home that is only worth $600,000 in today's Real Estate market - not an uncommon occurrence. Lets' assume that the Hemet homeowner is plugging along making a $3,200 payment and since they have bought their home a year ago they have gone out and bought 2 new cars and ran up their credit cards fixing up their dream home.
Now a year passes and their low introductory rate adjusts to market value and increases the monthly payment by $1,000 - not at all uncommon. The problem is they are strapped for cash. They start making minimum monthly payments, then they start robbing Peter to pay Paul and then in the course of just a few short months they have delinquencies reported on their credit report from most of their lenders and their 700+ FICO score that they were so proud of has slipped to the low 600's and going down fast. They wake up one day and wonder what has happened to them.
Before long our homeowners are missing payments all together and now they are delinquent on their mortgage. Well the lender never wants to be the last to be paid, so they file a Notice of Default or NOD which officially starts the foreclosure process. Now it is only a matter of a few short months before our once proud homeowners find themselves looking for rental property again, Financial stress is causing stress within their once strong marriage and they just don't know what to do - so they become paralyzed by the fear of what is going on around them and do nothing.
No one wins in this situation - no one.
Take the same scenario and once the problem becomes apparent and they have missed a payment or two, they call my company and are forthright and explain in detail what is going on. I’ll get to them a packet to complete, so their financial situation can be evaluated and with the facts I’ll present your position to the lender who hopefully decides to offer you the Homeowner a way out with a "short sale". The deal is packaged by the listing agent and the lender accepts the offer. Escrow opens and closes and the new owners move into their home and the sellers move out protecting what they have less of their credit and pride.
The lender is happy because although they did not get their full $750,000 they did get close to the $600,000 that was paid. They can now put that money back to work and generating positive cash flow as opposed to going through the expensive foreclosure process. The lender does not have to re-hab the home with needed repairs. The lender does not have to make tax payments or pay off delinquent taxes. The lender does not have to worry about securing the home and preserving it's current condition through the lengthy process. The lender is not worried about the market slipping further and losing additional value and the lender does not have to go through the extra time period necessary to market and sell the home - all of which takes time and in this case time is very definitely money!
Well, I hope this will help someone avoid what can be a very negative situation and experience. If you find yourself in this situation and you do not want to talk directly to your lender then perhaps working with me might prove to be the best scenario for you - allow us to do what we do best and that is to negotiate a deal on your behalf.
Michael Webster's Other Writings.
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