FORECLOSURE AVOIDANCE! at Real Estate Resource

I now have an agent working with me who is familiar with “Short Sales” or “Foreclosure Avoidance”.If you know someone who might need this help, please call or write!! To begin with, let’s define a “short-sale.” In today’s volatile mortgage market, you might be hearing the term “short sale” tossed around. A short sale is a real estate transaction where the borrower is “short” the required funds to close on their home sale. For example, let’s say a borrower owes $250,000 on their present home mortgage, unfortunately market values have declined in their area and most homes similar to theirs are only selling for $230,000. As you can see, there’s a $20,000 deficit (shortage) between value and mortgage. In some instances lenders are willing to forego the difference to help close the loan and get the bad debt off of their books

To effectively work short sales, agents & sellers need to be familiar in three areas:

•	The subject property
•	The borrower
•	The existing lender(s)

The subject property

The first step in working a short sale is to know something about the existing property being marketed. Does it qualify for a short sale? Most lenders will only allow short sales if certain circumstances exist. For example, will the subject property only bring a certain amount of money based on the local market area? Of course the value will need to be less than the current mortgage amount owed. To determine this, the lender will require a bare minimum of a Competitive Market Analysis (CMA) from the real estate professional. In many cases the lender may require a fully fledged appraisal; however you still need an agent to be familiar and competent on what the values are in your area.

The borrower

The Realtor (and, ultimately the lender) will need to know what are the circumstances and why is there a need to do a short sale? These questions and many more will need to be answered and submitted to the lender for consideration. Understand that most lenders will not allow a short sale to someone who has made poor decisions and is just looking for relief from their home loan. Generally there should be some crisis situation or extenuating circumstance that has put the borrower in a compromised financial state with his/her mortgage.

The existing lender(s)

Finally, you will have to find out if there is qualification for a short sale, and what documentation the lender will require to make this transaction possible. The Realtor and homeowner will have to find out if the lender will require a pay-back, or, if the short sale will go against the borrower’s credit report. Many lenders will have a checklist of the necessary items required to make a short sale possible. Don’t quit on one call, many times you’ll need to ask and ask until you find the right person who can authorize a short sale.

In Closing

A homeowner who might need a short sale should absolutely speak to legal counsel before proceeding with a short sale. That homeowner should consult with a tax attorney or CPA as a prudent step. Many short sales result in a 1099 being issued for the shortage the lender writes off on the transaction. Good advice from the proper channels in advance can save everyone future headaches and additional problems.

Your Realtor should prepare a checklist of items that you should consider regarding a short sale. This will help to determine your eligibility. A little preparation in advance and valuable insight into new solutions for paying off a mortgage in a market where property values are down are the least you should expect from your Realtor. After all, no one wants to lose a home in foreclosure, and if the lender provides an alternative for relief to the seller, it might be an option to consider.

Note that there are many more details and issues to explore and investigate prior to doing a short sale. This article is only a brief explanation of some of the issues and areas to consider regarding short sales.

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