©Orange County Short Sale - flickr

©Orange County Short Sale – flickr

A short sale is a greatly misunderstood transactions in real estate and foreclosure. I ask people all the time if they know what a short sale is. Many times, they say yes and when I ask them to describe a short sale to me, their understanding is often quite different from reality.

While lenders don’t necessarily promote short sales, they don’t like to foreclose even more. A home foreclosure not only ruins the borrowers credit and it’s a total loss for the bank but it also affects the values of other homes in the block.

For a homeowner, a short sale is a way to stop the foreclosure process and limit the damages to their credit. Credit repair will be much easier after Short Sale than if you lose your home to foreclosure. This is because a short sale generally remains on your credit for 2 years while foreclosures are present for 5-7 years.

Although a short sale is not the first choice for a lender, it does generally help them collect as much money as possible when a home goes into foreclosure. Most lenders calculate their loss on a foreclosure as high as 50%. If they can sell a home, using a short sale, for 70% – 80% of its value, this is a 30% – 40% improvement over taking it through the entire foreclosure process.

When you are requesting a short sale, it doesn’t matter what your income level is, or what your home is worth. Nearly everyone can attempt a short sale. It’s just a matter of working with all the parties involved to arrange the best possible solution to a bad situation. Even with more than one mortgage and even if your home is completely upside down, a short sale can help all parties.

You must keep in mind though, there are still options available that may allow you to keep your home with a lower monthly payment. In an increasing number of cases, we are seeing servicers agree to a modification that include lowering the total amount owed on a mortgage. In cases like these, you may be able to keep your home with a reduced monthly payment. Even in loan mods where the amount owed is untouched, you may still be able to keep your home with a smart modification.
A mortgage modification is when the lender agrees to modify the old terms of the loan to accommodate your new financial situation. This may mean lowering your interest rate, extending the term of your loan, or even reducing the total amount owed on the mortgage. For most, this is like refinancing your home and getting a affordable new mortgage payment.

But if you’ve already reviewed all the other foreclosure options and a short sale is your only answer, then you should at least understand what a short sale is.

Imagine homeowners who finds themselves unable to make their monthly mortgage payments. With the economic downturn, times have gotten tough and note payments are nearly impossible to make for many people nationwide. After {{{about 90|90|around ninety days of non-payment, the lenders will start the process of foreclosure.

One of the biggest issues is that, oftentimes, neither homeowners nor agents know what foreclosure options are available. With foreclosure eminent, the homeowner decides it’s in his or her best interest to try to sell the property, so they contact a Realtor to put the house on the market.

The only obstacle is, when the home eventually sells, it might not bring enough money to payoff all the mortgages and liens. For example, the mortgage(s) payoff is $250,000, but the home only sells for $190,000, the home owner may be forced to pay the remaining $60,000 that is owed. This is where a short sale can be very effective. The lender has to agree that, based on the homeowners hardship proof, they will agree to accept the $190,000 as payment in full and forgive the outstanding $60,000 balance.

In most cases, it’s important to seek help from a professional to make sure the short sale is handled correctly. The last thing you need when facing foreclosure is to find out, several months after losing your home, that you are being sued for $60,000. Keep in mind, just because your lender accepts a short sale, doesn’t mean they wont try and collect the balance. This is something that needs to be negotiated beforehand and needs to be documented in writing. In general, most people do not have the knowledge or ability to complete a short sale without the help of a professional. The entire process can also be very time consuming and you’ll quickly understand that the small amount charged for such a transaction is well worth the price.

But always understand, there are a lot of other options that can prevent foreclosure when facing foreclosure. Loan modifications are gaining popularity and a foreclosure loan may still stop foreclosure for some. Regardless of the situation, it’s always best to have a back up plan and to speak with an expert to find out all your options to save your home or credit from foreclosure.

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