Will Short Selling Save My Credit?
Is your mortgage worth more than your home?
With the increased rate of foreclosures over the past year or so, lenders and home owners are forced to consider other options in order to save their future, time and most importantly, money. One of those options to avoid foreclosure and one that is becoming more and more appealing to both homeowners and lenders, is doing a short sale.
Short sales are an incentive and make more economical sense for mortgage lenders. Sometimes they much rather cut their losses than going through a foreclosure which will potentially cost thousands of additional dollars.
So what is a short sale?
A Short sale in real estate means that the
lender will agree to sell the property for less
than what is owed. Because of the variation
in qualifications and requirements, not all
properties will meet the short sale profile.
Here are some qualifications that may need to
be met in order to do a short sale.
* You have to prove that you can’t afford your
payment
* The lender has to see that the seller will not
make any money from the sale
* The lender must be willing to either cut
their losses or make a deal on the difference
that will be owed
Short sales can be extremely tedious, frustrating and time consuming if done individually or without using a real estate professional that specializes in short sales. Using a specialist for these types of sales is in your best interest because of their knowledge in documentation and can ensure the process will go as smooth as possible.
Here is a list of some of the documentation that you will be required to present.
* Letter of Authorization or LOA.
You will simply state that you’re giving the person who is negotiating your sale permission to speak with your lender during the sale process. Make sure you include in your letter the property address, loan reference number, your name/s (whoever is on the loan), the date and your agent-s contact information.
* Hardship Letter
Write an explanation as to why you are in your current financial situation and why they should consider doing a short sale. Lenders understand reasonable explanations, but will not tolerate dishonesty or find criminal behavior a good excuse.
* Proof of Income and Assets
Truth and honesty! Make sure you disclose all income and assets to your lender. They will want to know if you have any savings and/or checking accounts, money market account, stocks or bonds, negotiable instruments, cash or other real estate or anything else that may be a tangible asset. Also be expected to provide at least two years of tax returns.
* Listing Agreement
Provide a fully executed listing agreement with dates and commission information.
* Price History
As stated earlier in this article, one of the qualifications to a short sale is to prove that you listed your home on the market for at least what is owed on the loan. Lenders want to make sure that you have made every effort to recover as much capital as possible. Some lenders are going as far as requiring you to provide a price history chart. Keep track of the following:
* List date and dates prices were changed
* Number of days at each price
* Each price at which the property was offered
* The number of showings at each price
* The number of offers at each price
* The amount of each offer
* Comparative Market Analysis
The lender will want to see the market conditions that are contributing to your difficulty to sell your home. They want to see what is for sale, what is under contract and what has sold in your neighborhood.
What are the Results of A Short Sale?
Again, a short sale means the lender is agreeing to accept less than what you owe. Now, that is not to say that the lender who agrees to the short sale will not make you pay the difference in a lump sum or sign a promissory note that requires you to pay back the difference in monthly installments.
They could also sue you for that difference and file a deficiency judgment, which becomes public record, and will potentially cause additional disruption to your credit report and quality of life. Even though a short sale may affect your credit(approximately 80 – 100 point decrease) it will not be as bad as a foreclosure or a deed-in-lieu of Foreclosure (approximately 250 – 280 decrease).
In the past, the difference between the sale amount and the amount owed was taxable which made a bad situation even worse for those completing the short sale process. Lately, there was a new bill that was passed by President Bush on December 20, 2007 called the ‘Mortgage Forgiveness Debt Relief’. Homeowners can now be ensured that any debt forgiven on a mortgage will not be taxed.
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