Should I consider doing a Short Sale?
Last week we discussed what a short sale was and how the process works. This week I want to tell you about other parties involved in a short sale and what the possible ramifications are.
Creditors holding liens against real estate can include primary mortgages, junior lien holders—such as second mortgages, home equity lines of credit (HELOC) lenders and home owners association HOA (special assessment liens)—all of whom will need to approve individual applications for a short sale, should they be asked to take less than what is owed. This is what makes the process even more time consuming. It can frustrate sellers if they’re asked to submit the same information over and over again, but it is very necessary.
Some junior lien holders and others with an interest in the property may object to the amounts other lien holders are receiving. It is absolutely possible for any one lien holder to prevent a short sale by refusing to agree to negotiate a reduction in their payoff to release their lien. I’ve seen this happen before & it can be very discouraging. If a creditor has mortgage insurance on their loan, the insurer will likely also become a third party to these negotiations as the insurance policy may be asked to pay out a claim to offset the creditor’s loss. The wide array of parties, parameters and processes involved in a short sale can make it a complex and highly specialized form of debt renegotiation. Short sales have a risk of failure from inability to obtain agreement from all parties or they might not be approved in time to prevent a scheduled foreclosure date. However, in my opinion, the risk is worth it if you are able to avoid foreclosure.
A short sale negotiation resulting in a reduction of the amount a borrower owes towards a debt acts as a type of settlement or renegotiation of a borrower’s debt. Should the creditor report the debt reduction to credit reporting agencies, it can adversely affect a person’s credit report. After a short sale, borrowers may find it difficult to obtain a new mortgage as lender’s underwriting guidelines might reject lending to a borrower who has obtained a short sale in the past. As of 2011, national and state laws and industry standards for both real estate sales and lending are in an ongoing and rapid state of change. Borrowers interested in pursuing a short sale should consult first with a HUD-approved mortgage counselor for up-to-date and specific advice as it applies to their situation. Bottom line, borrowers need to obtain up to date information from multiple professionals, including an accountant, an attorney, and a real estate agent—all of whom are licensed and specialize in loss mitigation.
I am highly experienced with Short Sales and would love to answer any questions you may have. You can also see a current list of all short sales and foreclosures on the market!
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Realtor® | SWFL Region
Treeline Realty Corp.
239.292.9404 (c) | 239.989.0138 (f)
“Buy or Sell…Think Pell!” ™
Posted on June 7, 2012, in Real Estate and tagged Attorney, Buy a Home, Credit Implications, Creditor, Debt Negotiation, Foreclosure, HELOC, HOA, Home Equity Line, HUD, Junior Lien Holder, Kristen Pell, Lawyer, Lender, Lien, Lien Holder, Loan, Mortgage, Mortgage Insurance, Property Guiding, Real Estate Biz, Realtor, Seller, Short Sale, Short Sale Application, Special Assessment, SWFL Real Estate. Bookmark the permalink. 1 Comment.