Tuesday, July 20, 2010

What is a Short Sale?

This past April the government began to offer financial incentives to Lenders to push short sales through a program called Home Affordable Foreclosure Alternatives ‘HAFA’. The program is designed to stimulate home sales. The program imposes specific requirements on the Lenders/Servicers participating in HAMP that in order to continue they must participate in HAFA. (To find your servicer you can check this link: http://www.makinghomeaffordable.com/contact_servicer.html ). Other requirements can include requiring certain debt forgiveness, an abbreviated time frame to respond to short sale offers, and provides government payments to homeowners (for moving and/or relocation expenses), servicers, and lien holders.

What is a Short Sale?

A short sale is a pre-foreclosure residential real estate transaction wherein the owner of the mortgage (Investor or Lien holder ‘Lender’) agrees to allow the home owner to sell their property for less than … or short of … the outstanding balance owed on the mortgage loan, and agrees to release the property from the mortgage clearing the title for the Buyer.

Homeowners who are in default or behind on their payments desire to sell their homes "short" to avoid a foreclosure action and to reduce the hit to their credit or reduction to their credit score as a result of a foreclosure. Because of the "shortage", the transaction may involve "debt forgiveness" by the Lender (This could involve a taxable event at Federal and/or State levels which is why you are advised to seek both legal and tax counsel). Lenders would prefer a short sale compared to a foreclosure as they generally garner approximately 12% higher net than if they are required to foreclose plus with foreclosure there is potential for increased costs and risks for the Lender in terms of carrying costs…. eviction, property maintenance, insurance, taxes, homeowners association dues, municipal fees, and the like -- or a loan modification, with the associated lack of certainty; in addition, a short sale gets the non-performing mortgage loan asset off of the Lender’s financial books.

Now that you know what a ‘Short Sale’ is, we will investigate who can assist you.

Stay tuned and keep the faith…..


ShortSaleSully

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