Is Short Sale an Option for Me?
What is a Short Sale?
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.
Why a Short Sale?
A short sale can also be the best option for homeowners who are “upside down or underwater” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.
Key advantages of a short sale include:
- Avoids the lengthy and often embarrassing legal process involved in foreclosure
- Generally is less damaging to the seller’s credit rating than a foreclosure or a deed in lieu of foreclosure
- Reduces the amount of potential loss to the investor
- Gives the seller some degree of control over his/her situation
Do you qualify for a short sale?
The homeowner must have an involuntary hardship. Examples are divorce, illness, unemployment, under-employment, death, military deployment, and disaster. The hardship can be temporary or permanent. The homeowner does not have to be in default on their mortgage; however, the circumstances of the hardship make a default eminent at some point in the future.
The short sale must be an “arms length” transaction. The property may not be sold to any one the seller has a close personal or business relationship with, including family, friends or neighbors.
HAMP and HAFA Programs
Your lender may be participating in the government’s Home Affordable Foreclosure Alternatives program, or HAFA (which is a part of the Home Affordable Modification Program or HAMP). This program provides financial incentives to servicers and borrowers who utilize short sale or a deed in lieu (DIL) to avoid foreclosure on a HAMP-eligible loan. You can look up whether your lender/servicer is participating in the government programs by following this link: Lenders Participating in HAFA.
Although the HAFA process may be complex, it may provide benefits to you that were not available previously. To participate in HAFA, you must utilize a licensed real estate agent. For your own benefit, make sure that you select an experienced short sale agent/negotiator.
Are You Eligible to do a Short Sale???
Although you may feel like you are the only person with their house underwater, there are literally hundreds of thousands of people with the same circumstances across the country. That being said, the squeaky wheel gets the grease when dealing with the banks. The reality is banks are overwhelmed with homeowners that are underwater. Some banks are better than others when dealing with short sales. It is very rare that ANY bank will be easy to work with. Be persistent and get as much information as you can.
If you are not sure what to do, contact Scott. He is willing to help give you some guidance in the process. A short sale is usually a much better alternative than a foreclosure. Scott and his team of lawyers can guide you down the right path. A short sale may not be a viable option, however you will not know unless you ask. You will not be charged anything up front to find out if you are eligible to pursue a short sale.