An Alternative to Foreclosure

By
Real Estate Broker/Owner with Coldwell Banker Sky Ridge Realty

Lenders in the current evironment in most instances are approving "Short Sales."  A "Short Sale" is when the lender allows a homeowner to sell a property for less than the existing values of the loans against it, forgiving the difference.

As the number of homeowners in default on their mortgages began to rise over the last few years, troubled homeowners are now resorting to negotiating with lenders to take less than full payoff on their mortgage at closing.... and are getting the banks to go along with them.

The problem with "Short Sales" is that often they take significantly longer than a standard transaction an there is no assurance or guarantee that after the wait, the lender will approve the reduction in the payoff.  This can leave buyers out in the cold after a long wait and potential expenditure of costs.  

If done correctly, some of the concerns can be mitigated.  There is a process that must be followed to effectively close a short sale transaction.  Unfortunately, most real estat agents are not equipped with an understanding of the process which puts both buyers and sellers in jeopardy.  My advice to anyone on either end of a short sale transaction is to ask the question of the broker involved... have you sucessfully closed a short sale and what is the process you follow.  In a separate blog posting later today or tomorrow, I will provide a suggested process that will work.  If your agent isn't following something similar, beware.

Under the short sale process lenders that have borrowers that are in default are ahead of the game because they do not have to take possession of the property and in turn go out and find a buyer.  Industry averages show that lenders that accept a short sale are taking losses in the 19 to 20% range where homes that go through the foreclosure process yield 40% or more losses.

Mortgage companies are attempting to retool their loss mitigation departments to increase the efficiency of the process due to the anticipated numbers of short sale transactions.  In many markets, homeowners owe more on their mortgages than the homes are worth.  When this happens, often the only alternative available to sell the property is the short sale.  

For additional information on the short sale process, or if you have questions, email me at steve@cbskyridge.com or contact me at my office.

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