Foreclosure / Short Sale Information
SHORT SALES
With the number of distressed properties on the rise, short sales are becoming more and more common. Before you can consider a short sale, it's important to understand what it is and how to negotiate one.
A short sale involves a lender agreeing to accept less than is actually owed on a property as a full payoff. For example, if the seller owes $100,000 and the lender agrees to accept $90,000 as full satisfaction of the debt, it's considered a short sale.Lenders agree to short sales because it allows them to avoid going through the costly foreclosure process and prevents them from having to show a property as an asset on their books.
A lender will only consider a short sale if the property owner has defaulted on the mortgage payments.So, if you are a homeowner who is anticipating a default because, for instance, you were laid off and your severance pay will run out in a few months, your lender will not approve a short sale until the payments become delinquent.
It's much easier to negotiate a short sale on an FHA loan than on a conventional loan because the lender on an FHA loan must follow the FHA short sale guidelines.Negotiating a short sale with a conventional lender is more difficult because each lender does things a little differently.Some conventional lenders will not even consider a short sale until the property is under contract.Others will agree to postpone a foreclosure to give the seller a chance to find a buyer as long as the seller agrees to pay any attorney's fees incurred by the lender to date and the property has been listed by a real estate agent.
Nevertheless, if you think your property will become eligible for a short sale, here are some things to keep in mind. First, make sure the agent you hire is a Certified Short Sale Specialist (CSP) so you don't waste valuable time. When you do get a contract, make sure its contingent upon the lender approving the short sale. Next, let the buyer know that he will be required to provide a copy of his loan approval to the short sale approving lender in order for the short sale to be considered. Finally, in anticipation of receiving and accepting an offer, gather the following information to provide to the lender:
- The name and phone number of the homeowners lender and the loan number
- A hardship letter written and signed by the homeowner explaining why he's fallen behind on this payments and requesting the approval of a short sale
- The homeowners three most recent pay stubs
- The homeowners three most recent bank statements, both savings and checking
- A breakdown of the homeowners monthly expenses
- A written statement from the homeowner authorizing your agent to speak with the mortgage company
- The listing agreement
The homeowners lender will need all of these documents, in addition to the purchase and sale agreement, in order to consider a short sale.Before you submit the above information to the mortgage company, have your CSP Agent call the loss mitigation department and find out if they require any other documents to consider a short sale. Make sure to get the name and direct dial phone number of the loss mitigation agent handling your file and stay in frequent contact with them.
If the homeowner has a second mortgage, it is not impossible to negotiate a short sale on the first.Second mortgage holders understand that they get nothing if the first mortgage holder forecloses.Therefore, they may be willing to accept as much as 50% less than they are owed.Usually, in exchange for releasing their mortgage, security deed, or deed of trust in order to expedite the closing, the second mortgage holder will expect the homeowner to sign a note promising to pay the lessened amount.So, if the second mortgage payoff is $25,000, the second mortgage holder may agree to accept $13,000 and the homeowner would have to sign a promissory note in that amount.
The short sale approval process can take anywhere from 30-45 days or more.But if you have done your homework and gathered all the necessary information in advance, it may help move the process along.
Information provided by Cindy Bishop, Foreclosure and Investment Specialist
What is a Foreclosure?
Most arrangements for property owners involves a bank or mortgage loan
to buy a property, whether it is a home or a commercial property,
entail a promise to pay a stream of money (mortgage or note) over time
in order to access the total amount in the present. The actual
collateral on the loan is the property itself. As a payment to the
lender for the use of the money upfront, the borrower pledges to pay a
certain percentage of the loan as interest. All this is Mortgage 101,
but the sticky part comes when the borrower is unable to make the
promised payments in a timely fashion. After a specified number of
attempts by the lender to get the borrower to pay, the lender assumes
the rights to the property and endeavors to recoup its costs. This
legal action is undertaken only after a waiting period that allows the
borrower a reasonable chance to catch up on payments. Some lenders wait
for up to a year, giving the borrower every opportunity to repay. Most
only wait 3-4 months before they take the property back.
What are the specific foreclosure types?
HUD
HUD stands for the Department of Housing & Urbn Development.
They promote home ownership and one tool they use is to insure low down
payment loans to borrowers through their FHA program. This loan is
great for lenders because they are attractive to owner occupant buyers
with a low down payment and the loan is payment guaranteed. HUD will
insure the lender against any loss due to the borrower defaulting.
As an example, if a lender gives a borrower an FHA loan and the borrower defaults, the lender will foreclose on the property.The home will be sold at public auction and if the home does not sell at the public auction, the lender will be the new owner.The lender has the option of going to HUD with a claim to recoup the lenders loss and HUD receives title to the home.HUD will then turn around and sell the home through its contracted management company.
VA
VA stands for the Department of Veterans Affairs.
So, let's get started by first finding out how a home becomes a VA owned home.Well everyone probably is aware that The Department of Veterans Affairs (VA) provides loan benefits to qualified veterans by guaranteeing loans to lenders that make these loans.The loan is a zero down payment loan with a competitive interest rate.Of course, if the borrower defaults on the loan, the lenders will foreclosure.VA acquires these homes from lenders under the guarantee program.So in essence all the homes for sale by VA were recently foreclosed on by the lender.
Information provided by Cindy Bishop, Foreclosure and Investment Specialist
