What is a pre-foreclosure sale or a short-sale? A short sale occurs when a homeowner owes more on their home mortgage than the property is actually worth, but the bank agrees to accept less than what is owed as "payment-in-full", in an effort to avoid the foreclosure process. In other words, if the Seller meets the lender's criteria, the lender agrees to write off the portion of a mortgage that is higher than the value of a home.
How is credit effected by a foreclosure? If a home-owner is foreclosed upon, their credit score could be reduced anywhere from 250 - 280 points. If the homeowner sells their property in a short-sale, their credit may only be effected by an average 80 point drop, and usually with a history of a few late payments. Which situation do you think is easier and faster to overcome, to get your credit back in good standing?
Can I sell my own home as a short sale? No. A third party must negotiate a short sale. It is important to have an experienced Real Estate Agent Represent you in a short-sale or pre-foreclosure sale of your home.
Why would a mortgage lender accept a Short-Sale rather than foreclose? Real estate law and foreclosure processes are very different from state to state, and lenders do not want to tie up their financial and legal resources trying to keep up with all of the idiosyncrasies of state-specific law. The foreclosure process is too time-intensive, too costly, and too state-to state specific...banks would rather just "cut their losses" and move on to replace "bad loans" with "good loans". For the most part, mortgage companies do not want to be in the real estate business. Most lending institutions are required to hold 5-6 times the value of their bank-owned re-po homes in reserves, and cannot lend on those reserved funds. Mortgage lenders make money by lending money. Re-possessing homes ties their money up, so they want to keep foreclosures and the properties that they take back, at a minimum.
What qualifies a homeowner for a pre-foreclosure sale or a short-sale? Behind on payments, Legitimate hardship, Little to no equity in a home, If a Seller would need to bring money to the table at close of escrow, in order to complete the transaction.
What forms and documentation are usually required by the lender for a Short-Sale to be considered? Each lender will have their own requirements. However, usually the following is needed: Authorization to Release Information, Hardship Letter, Financial Worksheet, Listing Agreement with a Real Estate Agent/Broker with short-sale provisions stated, Tax Returns (last 2 years), Bank Statements (last 2 months for all accounts for all borrowers), Application for a Pre-foreclosure Sale Program. Homeowner Counseling may also be required.
more information coming soon. In the meantime, if you have a question that is not answered here, please contact me. I'll be happy to get the answers for you.
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