If you are a homeowner facing foreclosure, a short sale may be an answer for you.

 

Here is a brief excerpt from a recent short sale seminar given by Patrick Ritchie:

 

What is a short sale?

 

A short sale, also known as a short pay or short payoff, allows a homeowner to sell their property for less than the amount owed to the bank.  When the market value of the property is less than the amount owed the owner is considered upside down.  The proceeds from the sale are used to pay off the outstanding amount of the mortgage although the proceeds will be “short” the amount actually owed on the mortgage.  It allows a homeowner the opportunity to avoid foreclosure.  Ultimately it may put their credit standing in a better position than if an actual foreclosure were to take place.  The entire process hinges on the approval of the lender to accept less than the amount due.

 

Generally the homeowner circumstances are:

 

Loss of job or reduction of income

Adjustable rate mortgages that are increasing

Death of the homeowner, spouse or family member

Illness or disability of homeowner or family member

Divorce or separation

Civil or criminal litigation

Forced job relocation by employer

Catastrophe of nature such as earthquake, hurricane, tornado, etc…

 

Why would a lender accept less than what is owed?

 

Lenders do not make money on foreclosures.  Lenders typically can lose $50,000 or more on one foreclosure.

 

What are the financial and credit considerations for a short sale?

 

Credit scores are going to suffer; there is no way of getting around that.

 

Industry ‘experts’ have said a foreclosure will drop a credit score 250 points, while a short sale will drop the score only 100 or less.  This cannot truly be gauged unless it is based on a perfect score.  Someone who is having difficulty making their mortgage payment most likely has derogatory credit of some sort already.

 

The loan will show on the credit report as ‘paid’, however, in most cases it will also note ‘settled for less than amount owed’.

 

Depending on how far behind on payments a borrower gets, it may also reflect as a ‘Pre-Foreclosure’ on the credit report.

 

The borrower may receive a 1099.  If the current loan amount is $250,000 and after all costs the proceeds to the lender equal $225,000 then the forgiven debt is $25,000.  The borrower may receive a 1099 for the amount of forgiven debt.

 

There are of course countless possible circumstances for each individual, so a short sale may or may not be the answer for you.  If you have questions, please post a comment, and I will answer as quickly as possible.  For more immediate assistance on selling your home short, please contact Nathan@ezlistaz.com or call 480-529-6329.