Shortsale Sell Your House For Less Than You Owe
Shortsale: Sell Your House for Less than You Owe
Shortsale is a technique used by lenders that allows borrowers to sell their home for less than is owed on the mortgage note. Banks approve selling properties short of what is owed based on several factors. The prevailing factor is if selling short is less costly than allowing the house to fall into foreclosure.
Most shortsale homes are priced 7- to 10-percent below market value. When borrowers hold a second mortgage or owe considerably more than the appraised property value, it can sometimes be less costly for banks to foreclose.
According to mortgage financier, Freddie Mac, the average cost of foreclosure costs $60,000 to $80,000. The process of foreclosing on real estate generally takes one and a half years to complete. On average, it takes between six and twelve months before lenders repossess the home. It is then placed for sale through public auction. If no one places a bid, the property is returned to the bank and the lender is responsible for taking care of the home until it sells.
Short sale transactions usually take between four and six months to complete. Once lenders grant short sale approval, the property is sold to another buyer and the borrower is released from the debt. Although banks incur a loss on the property, they save considerable time and money compared to foreclosure.
Mortgage lenders are limited to the number of foreclosure properties they can own. Due to the increasing number of foreclosures, many banks are quickly reaching their quota. Most lenders will short sell real estate owned (REO) properties requiring extensive repairs and hold onto well-maintained homes in popular communities.
The shortsale process is time-consuming and tedious. However, it can be a blessing to borrowers unable to cure mortgage arrearages or afford making future payments.
Borrowers must submit a short sale packet to their lender which includes a list of income and expenses, tax returns, banking records, short sale hardship letter and various other documents. The majority of lenders require borrowers to have a buyer in place before granting approval to sell the property short of what is owed. Other lenders will grant borrowers' time to list their home through a realtor.
Mortgage lenders offer two types of short sale agreements. The first is Payment in Full without Pursuit of Deficiency Judgment. With this type of arrangement, banks accept the sale price as payment in full toward the mortgage loan. This type of short sale is reflected on the borrower's credit report for up to seven years. However, debtor's can apply for another mortgage loan within two years if they are able to overcome financial challenges.
The second shortsale agreement is a Deficiency Judgment. The bank holds the borrower responsible for any deficiency between the sale price and loan balance. If the borrower is unable to pay the balance in full, lenders issue a deficiency judgment which remains on credit reports until the debt is satisfied. Shortsale deficiencies can amount to thousands of dollars and take a lifetime to repay. In some cases, it is a better financial decision to allow the property to fall into foreclosure.
It is important to understand the pros and cons of short sale transactions. The best defense is to become educated about the process of short sales and understand what is involved, what to expect, and the long-term financial effects.
Real estate investor and author of "Short Sale Hardship Letter eBook Course", Simon Volkov specializes in helping borrowers obtain short sale approval. Simon is currently accepting a limited number of borrowers into a unique shortsale program. If you need to sell your house quickly, visit www.SimonVolkov.com for details.
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