The recent economic recession that lasted from 2007-09, saw many lay-offs bankruptcies, foreclosures and insolvency. A sharp rise in the amount of short sales was also observed. Short sale is an alternative to foreclosure (though the after effects are not exactly very different) and bankruptcy. The procedure is simple. When a person realizes that he/she is falling behind the installment schedule of loan repayment, he may approach the lender with a financial hardship letter. In such a situation, the lender may or may not give his consent for a short sale. The loss is incurred by the lender and is written-off (forgiven).
As the cost of sale of a short sale property is quite easy and profitable. In fact, you will end up saving a lot of money if you are able to purchase the short sale estate without a mortgage loan. The costs that you would not have to bear include, excessive inflated profits, real estate appraisal, profit margin of the seller and interest amount of a mortgage loan (if you choose to avail one). The process of short sale purchase is quite a tedious one and you may require as good as 2 months to complete the proceedings after you have found the appropriate seller and property.
In order to find a property that is being sold on a short sale, you would need to approach a real estate brokers. There is also a possibility that you might have to approach more than one broker. The real estate broker will inform you about the availability of the short sale real estates. This might take more than a few days. Even if the broker finds you a property, it is advisable to have a look at more than one properties as you might find a better choice by waiting a bit longer. The next step is the crucial one.
Have a look at the property, 1099-C Tax Form and all the lien documents of the property. It must be noted that the property was once upon a time, a collateral pledged to a lender who held the lien or rather the right to ownership of the house. Hence one must make sure that the property has been discharged and the lender no longer holds a right over it. You also have to deal with problems such as two mortgages on a single real estate or home equity loans. Your next step should be to consult your attorney.
When buying a real estate by short sale, the transfer of lien and all ownership rights are transferred from the seller and the lender to the buyer. Hence, unlike an ordinary sale of property you will have to undertake the filing of may documents and closing rights. It must be noted that the closing costs that you will incur during these proceedings is quite substantial. Last but not the least, you will have to file some documents with your local governing body and also pay some property taxes. Getting the acknowledgment or change in registers and property tax forms from the government will eventually complete the entire process.
This process might sound quite simple before you can actually go through it. However, in reality it is long and tedious. In order to have a completely error free, legal and swift purchase, you can consult your own attorney or a real estate attorney and your local governing body, even before buying a property bu short sale. With the help of your lawyer, make a list of the forms, filings, taxes and compliance that you will have to complete. Oftentimes, since risk and loss of capital are quite common phenomenon in their line of work, the lenders will probably understand your situation and will be prepared to be accommodating.
It will help your case immensely if you are able to furnish sufficiently good reasons – economic conditions, conflicts, natural disasters, ill health, accidents, and other unforeseen circumstances – for your current financial difficulties, can provide concrete proof of your inability to meet the m
ortgage payments or any restructured loan payments, are not likely to get the required price for your property on the real estate market, and especially if the short sale is the only way to avoid or mitigate a total financial loss. Remember though that you will have to pay them a commission for handling your affairs.
Ask them to give you an estimated current market value of your property and keep the Comparative Market Analysis at hand. You will need to give them a written letter of authorization on your behalf. Without this, the lenders are not likely to discuss your financial information with them. In your letter of authorization, state your name and contact, the address of the property, the loan reference number, the date, and your agent’s name and contact information. The difficulty in procuring and refinancing a mortgage can be attributed to two factors. The erstwhile home owner’s credit score declines by 350-400 points as a result of the proceedings.
The homeowner finds it difficult to procure both installments and revolving credit. Since these are necessary for improving credit scores, the consumer faces the seemingly insurmountable task of building credit scores and convincing the lenders of the prudence of allowing mortgage financing after foreclosure. Although, the recent sub-prime crisis has made it difficult for people to buy a home after foreclosure, people may still be able to procure mortgage loans meant for bad credit consumers and then refinance to a lower or a more favorable rate of interest. The Federal Housing Administration (FHA) is willing to provide home loans to people who have a foreclosure on their record.
Since the 1980s, the FHA also allows streamline refinancing option for FHA mortgage holders. The term ‘streamline’ refers to refinancing without the usual paperwork hassles. An FHA-insured mortgage can be used to purchase or refinance a new or an existing one-to-four unit home, a condominium, a manufactured home or a mobile home. The borrower can opt for an FHA insured loan provided 3 years have elapsed from the date of the foreclosure sale. These loans carry a government guarantee that protects the lender in the event of default. A credit score in the range of 580-620 is sufficient for availing an FHA insured mortgage.
The borrower is expected to pay a premium for the guarantee provided by the government. This premium is paid in two installments. The first installment is paid at settlement and is equal to 1.75 percent of the loan while the remaining is paid along with the monthly mortgage payments till such time the loan-to-value of the mortgage reaches 78 percent of the initial sales price or the appraised value of your home, whichever is less. People, who do not pay the first installment of the premium at settlement, are forced to pay a higher premium that stays in place throughout the term of the loan.
An FHA insured mortgage can be refinanced in the following manner. People, who have an FHA insured mortgage, can refinance their mortgage without having to undergo any credit checks provided they are current on their mortgage payments and their annual mortgage payment history is satisfactory. Approval is not contingent on the income, the asset or the borrower’s employment history. Property appraisal is a must if the homeowner desires cash out refinancing. If the consumer just wants to refinance to a lower rate of interest, there is no need for property appraisal. The amount of refund may be applied towards the upfront premium required for the new mortgage.
The process of refinancing an FHA mortgage is streamlined which is the same as saying that the process does not involve heavy paperwork.Home loans are always associated with a security interest in the property, which gives the lender a right to proceed with foreclosure, if the borrower fails to repay the mortgage payments. A foreclosure can tarnish the home owner’s credit for a long time and so, those who struggle to repay the loan, desperately search for ways to prevent fo
reclosure. Even some of the lenders avoid the proceedings of foreclosure and try to settle the matter with the homeowner, without indulging in the processes and expenses of foreclosure.
Short sale is one of those options, that can be resorted to for preventing a foreclosure. With the steady rise in the rate of foreclosures, more and more homeowners are turning to short sale, so that foreclosure can be prevented. However, doubts regarding short sale a still remain. What is a Short Sale. We all know that the recent financial crisis led to a rise in home loan rates. The home prices too declined as a result of the real estate market crash. The homeowners found it difficult to sell off their house for a profit and repay the mortgage.
All these factors resulted in a rise in the number of defaults, thereby leading to a simultaneous rise in the number of foreclosures. In such circumstances, short sale proved to be beneficial for them, so as to prevent foreclosure. A short sale can be defined as a sale of real estate by the owner, with the consent of the lender, wherein the sale proceeds fall short of what is owed on the mortgage. Example, if the borrower (home owner) has to pay an amount ‘X’ as the remaining loan amount, but, he is unable to pay it, he can sell the home and repay the loan amount.