What is a Short Sale?
Published on Sunday, 26 June 2011 04:28 Written by Lawrence D. Brudy & Associates, Inc.
A short sale occurs when a seller sells a home for less than what is owed on their mortgages. When a seller accepts an offer which is less than enough to pay all existing encumbrances, an option may be to negotiate a short sale with the bank.
A common misconception homeowner’s believe is that by negotiating a short sale when selling their home will enable them to payoff their debt for less than agreed upon with the note holder WITHOUT damaging their credit rating. This however, is typically not the case. A short sale results in a derogatory mark on your credit report having much the same effect as delinquencies and/or collections.
However, there are many benefits to the homeowner when comparing a short sale versus home foreclosure. A successful short sale will allow a homeowner the possibility of qualifying for a mortgage and credit in the nearer future. Research indicates that an individual will be eligible to purchase another home on average in just two (2) years after the completion of a short sale. Furthermore, if an individual’s credit report does not reflect any 60 day+ late pay, they may be eligible to purchase another home almost immediately.
Should you be considering a short sale you should always seek the advice of an accountant as there could be tax ramifications due to debt forgiveness.
A short sale can accomplish the end to a debt without causing the homeowner to need money at the sale of the home, known as a deficit. The economic benefit to a short sale effects all parties involved, the homeowner does not suffer the consequences of foreclosure; the realtor will still receive a commission, although typically limited to 5 percent (5%) of the sales price; the lender will not have to bear the expense of filing a foreclosure nor have to carry the property in inventory thereby liquidating their assets sooner enabling them to free up new money for lending.
What is a Mortgage Modification?
The current mortgage crisis has created a situation for many people where the amount they owe on their loan exceeds the value of their home. Mortgage companies are also feeling the effects of the rising foreclosure rates and in general cannot afford to hold properties in inventory nor to sell at a significant loss. If the home is not being sold, a short sale payoff of the existing mortgage is not an option. However a distressed homeowner finding it difficult to meet their current mortgage payment may explore the possibilities of negotiating a mortgage modification. Of course this option should only be considered if the homeowner is unable to refinance a new mortgage due to varying factors such as credit rating, loss of employment or a substantial decrease in income.
Homeowners who find themselves facing uncertain terms may be able to obtain concessions from their lender to make their mortgage payments more viable by reducing interest or extending terms to lower payments. Homeowners interested in modifying their current mortgage should review the Housing and Urban Development Department’s Hope for Homeowners Program. Under this program, homeowners may be able to extend the term of the loan to as much as forty (40) years and subject to income and spending restrictions, homeowners will not have to spend more than 31% of their monthly income on their house payment. Utilizing the loan modification option, the homeowner would be able to capitalize legal fees and costs of foreclosure into the modified principal balance thus bringing the home asset current with the lender.
Contact any associate at (724) 935-1400 for more information or use our contact form to send us a message.