Many in the real estate industry, as well as homeowners struggling with mortgage payments, know that the housing market is taking a significant amount time to recover, much like other factors of the American economy. With unemployment still at staggering rates, many find difficulty affording their homes and are worried about the possibility of foreclosure.
Though foreclosure is a reality to many homeowners, it is important to remember that there are options to alleviate the financial burden. Bankruptcy, loan modifications and short sales are all options to consider when trying to avoid foreclosure and start fresh financially. Short sales are especially helpful for borrowers whose homes are underwater - that is, they owe more on the property than the house is worth. By lenders giving these borrowers the opportunity to sell the home below the amount they owe, homeowners have a better chance of selling their properties in a market that's slow to recover and can get back on their feet financially without the burden of overwhelming mortgage payments.
A short sale is a transaction in which the lender agrees to accept less than the borrower owes because the homeowner is experiencing a financial hardship. By showing proof of this hardship, the lender will agree to take a lower payoff for the home, with the idea that the alternative is letting the home slip into foreclosure if the homeowner defaults on the mortgage. This way, the lender can recover more than it would after a foreclosure.
Short sales have been a popular foreclosure prevention method in recent years for many homeowners struggling financially, but the process is not always as easy and simple as it may appear. Though the experience of short selling one's home is different for every borrower, there are some common factors that can affect the amount of time the process takes. These include whether there is a second mortgage on the home, especially if it is through a different lender than the first, whether the homeowner is experiencing a hardship, if there is mortgage insurance attached or ultimately, whether the buyer has the patience to complete the transaction, which can take up to six months or more.
Homes that have more than one mortgage as well as mortgage insurance tend to take the longest to process. This is because the mortgage insurance is sometimes purchased after the deal on the first mortgage is reached and the loan is sold to investors or other lenders. These investors or lenders pay a premium that the homeowner isn't aware of it, so when the loan defaults, such as in a short sale, the mortgage company may demand that the seller pay part of what is owed to minimize losses on the loan. This is just one example of miscommunication that can take place between the first and second mortgage lenders, which further delays a short sale if one isn't diligent.
The actual financial forms and applications that a borrower needs to complete to apply for a short sale vary by lender, but experts agree that there are a few factors that will ultimately affect the outcome of the process. First, the homeowner must show a financial hardship that explains the inability to make mortgage payments they had agreed to previously. Secondly, monthly income shortfall is critical to show lenders that the homeowner can either not afford currently or will soon not be able to afford the mortgage payments. Lastly, the lender needs to see insolvency, or proof that the borrower does not have liquid assets that would allow him or her to pay down on the mortgage.
The short sale process can be a long and complicated one, but these understanding the major factors can help, along with the guidance of an experienced real estate attorney. Whether preparing your financial statements to reflect financial hardship, monthly income shortfall or insolvency or working with your realtor or lender to ensure that all steps of the process go smoothly, the attorneys at P&P Law can assist you with all of your short sale needs. Contact us today to schedule a free initial consultation and see if a short sale is right for you.
