Short Sales & Foreclosure

It is the dream of many all around the world to become a home-owner. You work hard, you find your perfect home and you finally get the house you’ve always wanted. So what happens if you find yourself in financial distress that turns your dream into a nightmare? You may have lost your main income, taken on more financial debt or even experienced a rise in interest rates. No matter the reason, as a home-owner in this situation you have two options, a short sale or a foreclosure, which will allow you to take action when or if needed.

What Is A Short Sale?

A short sale is when a lender agrees to accept a mortgage payoff amount that is less than what is owed to them in order to facilitate a property sale by an owner who is financially struggling. In the case of a short sale, the lender forgives the balance of the loan that is remaining.

Before the process of a short sale there are a few things that are needed to qualify:

  • Seller must be experiencing financial hardship
  • There isn’t enough equity in home to pay off mortgage and costs
  • Seller must prepare a financial package for review at a short sale bank which should consist of items such as:
    • Two months of bank statements
    • Past two years W-2’s
    • Last 30 days of payroll stubs
    • Hardship letter from the seller
    • A preliminary closing statement

The Process

Once the financial package has been received by the bank it can take anywhere from approximately 10 days to a month to acknowledge the file where you will then receive an assigned negotiator. A broker price opinion (BPO), an evaluation of your property completed by a real estate broker, is then ordered. Your file will be then sent for review based on the services agreement which may take up to 30 days. It is possible in the final steps to be asked to sign an “arms length” affidavit, which is a document that all parties must sign in order to ensure that the buyer nor the seller knows one another. Once all is approved the bank will issue a short sale letter of approval.

What Are The Benefits Of Short Selling?

There are a few benefits to be noted about the short sale of a home. Homeowners who go through the short sale process are usually able to move forward and buy another house right away being that the Federal Housing Administration (FHA) allows you to apply immediately for a new mortgage as long as you are up to date with your payments leading up to the short sale. Another benefit of short selling is being able to avoid the move-out rush. With pursuing a short sale you will likely be able to continue living in your home up until the house is sold. In addition, when selling your house on the market you would normally incur closing costs and fees. In the case of a short sale you are not responsible for these charges as they are paid off by the lender.

What Are The Drawbacks Of Short Selling?

While there are benefits, there will always be drawbacks of short selling your home. These drawbacks include slight credit score damage which can knock a decent chunk of your credit score off and hinder any credit or loan applications in the near future. Another drawback of this type of sale is that while normally selling a home, homeowners will walk away with proceeds from the sale, and in the case of a short sale the homeowners will walk away with nothing as the money goes directly to the lender to cover the debt.

Buying A Short Sale Home

Before jumping in to buy a short sale home there are a few things that you need to become aware of if you are not already. When buying a short sale home be sure to do your research before making your offer. Your real estate agent will be able to find out more information about any foreclosure filings and how much is owed to the lenders which will then help you curate your offer. A crucial difference from buying a regular listing and short sale listing is that the lender must also agree to the sale. This is because the lender is agreeing to be shorted the amount that is fully owed to them. Be prepared that the short sale process may take more time than it would normally for buying a home. 

What Is A Foreclosure?

A foreclosure is the legal process of which a lender or a mortgage investor will take back unpaid property. Foreclosure happens when the financially distressed borrower fails to pay their mortgage payments and the home must be repossessed. Mortgagors who fall behind in their payments between three to six months may be subject to foreclosure unless they can bring their loans up to date. It is also possible that foreclosure can occur if the homeowner does not pay their homeowners association (HOA) fees or property taxes. 

Top Causes Of Foreclosure

  • Unemployment
  • Divorce
  • Unforseen credit card debt
  • Sudden Illness, medical bills or death
  • Sudden relocation

Tips On How To Avoid Foreclosure

  • Do not ignore the issue- waiting until it’s too late will make it harder if not impossible to reinstate your loan and keep your house. Contact your lender once you see a problem occurring.
  • Check notifications from your lender- keeping on track of emails and notifications from your lender may give you preventative options that can help guide you through financial issues. The mail from your lender may also later include pending legal action which should not go ignored.
  • Know your mortgage rights- Read over your mortgage rights so you are aware of what to do if you cannot make your payments.
  • Prioritize your spending- One of your top priorities should be keeping your house. Creating a plan where you can cut unnecessary costs will help you better allocate your funds to your mortgage payments.

Short Sale Vs. Foreclosure

Short sales and foreclosures differ in the way that the bank reacts. Short sales are quite lengthy in process, while a foreclosure tends to be very quick. These processes both also differ in the way that they affect a homeowners credit rating. Foreclosures can be detrimental to the homeowners credit while a short sale is not. In foreclosure the bank repossesses the property and goes forth to sell it in hopes to recoup the costs while in a short sale the bank takes a loss and accepts that it will not recover the full amount owed. While very different, the one similarity that both foreclosures and short sales have in common is that they both require the homeowner to lose their home likely before they are truly ready.

How Shamika Can Help

Not only am I able to further assist you with your questions about either the foreclosure or short sale process online at my contact page, you can reach me by email at info@shamikasaves.com

or via phone at  254-702-5426. As a top real estate agent in Melbourne Beach, FL I can work hands on with you during the short sale process of selling or buying as it is greatly beneficial to work with an agent who has short sale experience. To reach me about becoming your agent, please visit Shamika Sells.