Can a Short Sale Help Me?
It's a tarnished silver lining for people at risk of losing their houses and homeowners in neighborhoods blighted by bank-owned properties, but the robosigning scandal that slowed the foreclosure process to a crawl appears to have increased lender interest in short sales.
"Foreclosure sales are pretty devastating," said Faith Schwartz, executive director of Hope Now, a resource for homeowners facing foreclosure. "We'd much prefer a modification, but if [homeowners] don't quality, then the next best alternative is deed-in-lieu or short sales."
Short sales, in which the lender agrees to let the owner sell the home for less than the amount owed on the mortgage, and foreclosures both climbed in 2010, but while short sales rose by 26,000 this year, the number of foreclosures fell by 255,000, according to Hope Now. Short sales, along with deed-in-lieu of foreclosure deals in which the lender takes the deed essentially as payment for the mortgage, still upend families, torch credit ratings and hurt neighboring property values, but they're far less toxic than foreclosures.
Short sales are better for homeowners. They can stay in their homes, and the
quicker process means they can begin rebuilding their credit sooner. Credit scoring
firm Fair Isaac Co., which developed the FICO score, says foreclosures and short
sales slash the same number of points from a homeowner's credit score.
Homeowners with short sales may be able to obtain a loan sooner than foreclosed
homeowners, though, which can improve their credit.
Increase in short sale gives the market breathing room
Deed in Lieu of Foreclosure
With a deed in lieu of foreclosure, you give your home to the lender (the "deed") in exchange for the lender canceling the loan. The lender promises not to initiate foreclosure proceedings, and to terminate any existing foreclosure proceedings. Be sure that the lender agrees, in writing, to forgive any deficiency (the amount of the loan that isn't covered by the sale proceeds) that remains after the house is sold.
Before the lender will accept a deed in lieu of foreclosure, it will probably require you to put your home on the market for a period of time (three months is typical). Banks would rather have you sell the house than have to sell it themselves.
Benefits to a deed in lieu. Many believe that a deed in lieu of foreclosure looks better on your credit report than does a foreclosure or bankruptcy. In addition, unlike in the short sale situation, you do not necessarily have to take responsibility for selling your house (you may end up simply handing over title and then letting the lender sell the house).
Disadvantages to a deed in lieu. There are several downfalls to a deed in lieu. As with short sales, you probably cannot get a deed in lieu if you have second or third mortgages, home equity loans, or tax liens against your property.
In addition, getting a lender to accept a deed in lieu of foreclosure is difficult these days. Many lenders want cash, not real estate -- especially if they own hundreds of other foreclosed properties. On the other hand, the bank might think it better to accept a deed in lieu rather than incur foreclosure expenses.
Beware of tax consequences. As with short sales, a deed in lieu may generate unwelcome taxable income based on the amount of your "forgiven debt." To learn more, see Nolo's article Canceled Mortgage Debt: What Happens at Tax Time?
http://www.nolo.com/legal-encyclopedia/short-sales-deeds-lieu-foreclosure-30016.html
OUR THOUGHTS AND COMMENTS
Short sales help homeowners not default on their mortgage and prevents foreclosure. A short sale can give you the opportunity to get your credit going again, you can purchase a home after 2 years. We met some wonderful people who purchased our clients' home after they had sold their home as a short sale. There is light at the end of the tunnel.
In the Commonwealth of Virginia, lenders cannot go after the homeowner if their home sold for less than their mortgage loan. If there is a difference between the amount of the mortgage loan and what your home actually sold for, that difference is in a sense is forgiven or dropped by the lenders.
Categories: Stafford, Housing Market
Tags: Real Estate buyers sellers short sales lenders mortgage single family house town homes
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