Sometimes YES, and sometimes NO.
Lets start with the Short Sale. The term "Short Sale" is used to describe a sale of a home that is in a situation where there is more owning on the home than the property's market value. Depending on the circumstances of the homeowner (borrower) , a lender may be willing to agree to allow the property to be sold for less than the loan amount, or what is owed on the property. The homeowner may or may not however, be in a position of default with the lender, but there isn't any equity in the home.
A Foreclosure on the other hand is when the homeowner falls behind on their mortgage payments. After 30 days late, the home owner will receive a letter from the lender saying that they are in default of the terms of the loan and the payment with late fees are due now. If that payment is not made, then in 60 days, the home owner will receive a notice of Trustee Sale of the property if the back payments and late fees are not brought current and a Public Notice is issued and a Auction Date to sell the property is set, usually 120 days from the first notice of default.
People get into these situations for a variety of reasons and things just happen. People loose their jobs, they get sick, they got mortgage loans with adjustable rates that have gone up so high that they can't make the payments. All this, coupled with the fact that we are seeing property values drop and mortgage loan programs requirements tighten up, it's put some people in a very difficult situation and it's not always the persons fault, stuff just happens in life. But there are some good options out there.
Here are some Frequently Asked Questions about the Short Sale Process:
How Long Does a Short Sale Take? The process can take time. It can be several weeks or several months to get a short sale approved. Most lenders have several layers of management, insurers, and investors that will have to be dealt with in order to get a short sale approved. It can be a very time consuming and complicated process, especially if you don't do it a lot.
Is There Enough Time to Do This Before A Foreclosure? Maybe and maybe not. Just starting a Short Sale will not automatically stop the foreclosure, sometimes you can get postponements of the auction date however, to give you time to get the property sold.
Does This Always Work? It doesn't. No promises or guarantees can be made that it will work all the time. Once you fall behind on your loan the lender can proceed to foreclosure if they want to. But Lenders usually don't want to foreclose and , if effectively presented with smart, complete paperwork and good alternatives, Lenders will often agree to a Short Sale rather than foreclosure.
Will I Get Any Money From the Short Sale? NO! When a Lender agrees to a short sale, they require that the Borrower (home owner/seller) not receive any money from the sale of the propety as the Lender is going to take a loss on the loan.
What Is A "RELEASE?" A Lender may offer to "release" its security interest against the property in exchange for less than the total amount of the loan. A release will allow the home to be sold without paying off the obligations of the note. However, the note is not Satisfied. Advantages: This successful Short Sale will allow the home to be sold and thus avoid foreclosure. Disadvantages: The remaining debt on the property (usually called a "Deficiency") still exists. The homeowner is still liable for the note and still owes the money. Reality: It is not likely that the Lender will pursue to get a "Deficiency Judgment" against the seller unless they have other significant assets. And if you don't try a Short Sale and the property goes to foreclosure, you are likely to have a "deficiency" on any junior (2nd) mortgages you may have anyway.
Are There Any Tax Consequences? There may be if its an Investment Property, but most principal residence homes, with a mortgage under 2 million, may not have any tax consequences. You should always consult your tax professional on tax matters however. In December of 2007 the US Congress passed the Mortgage Forgiveness Debt Relief Act of 2007. Here is a link to the act: Mortgage Forgiveness Debt Relief Act of 2007
In closing today, Short Sales can work and work well if you know what you are doing, and you should alway seek professional advise to make sure you do. You also need to be aware that there are some people out there looking to take advantage of this bad situation...so do your homework! More to come on Short Sales and Foreclosures.
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