Real Estate Forms For Selling
Legal transactions always involve the use of forms and contracts to make the deal enforceable. These include selling a residential property such as a home. Apart from legal part of this issue you should also learn why staging your home is an essential investment if you wish to sell fast.
Selling real estate properties require the use of specific forms. These can be the standard ones or the state specific forms. The reason is that some states have their own set of laws when it comes to buying and selling homes which homeowners and real estate agents should follow. You can easily get additional info on them.
Whether you’re selling your home on your own or are using a real estate agent, here are some of the most important forms that you should prepare.
Home disclosure form.
This particular document is required from sellers. As per its name, it aims to disclose the physical condition of the property at the time of sale. To gain the trust of potential buyers and agents, home sellers needs to be as honest as they can in providing information about the real state of the property such as repairs made and other existing physical defects. Read more
Pioneer Title launches new tracking tool
Pioneer Title Co. is launching its own PTC Index. It is a monthly measurement of the Treasure Valley real estate market. The index combines nine critical measurements of the real estate market into a single number. Those figures are based on a custom-weighted algorithm.
The goal of the index, according to Pioneer Title, is to give industry professionals, media, and the public a sense of the market’s vitality at any given time. By measuring current data over time and against historical averages, the company hopes to provide context to the recent turbulent real estate market.
“We’ve spent more than six months creating and calibrating the PTC index,” said Tim Bundgard, president of Pioneer Title.
Culled from various private and public sources, it takes into account variables such as new home sales, days on the market and notices of default, and building permits.
“If it were human, it’d show we are having a heart attack,” Bundgard said as he pointed to the chart comparing 2005 to 2010.
The PTC Index and corresponding analysis will be published monthly on Pioneer Title’s corporate Web site, as well as PTCindex.com.
“Our hope is that real estate agents, developers, and others will find it a useful tool to add to their decision-making process,” Bundgard said.
Additionally, it will also be published in Idaho Economic Indicators, a quarterly publication of the Idaho Business Review.
Source: IBR
ADA COUNTY MARKET UPDATE
The expiration of the home buyer tax credit generated the most sales in a single month for Ada County since July of ’07.
April ’10 sales were 667 houses; 58% more than April ’09 and 56% more than April ’08. We have now experienced eleven consecutive months of year-over-year increases. I’m going out on a limb and calling this a real recovery!
Pending Sales at the end of April suggest we are not done yet…remembering that we had to get buyers into a binding contract by April 30 and closed by June 30. There were 1162 sales pending at the end of April compared to 1072 at the end of March…an 8% increase.
Median price dropped in April to $150,000. This is down 12% from January ’10 and down 15% from April ’09. Part of this number is likely from the crush of first time buyers wanting to get in before the tax credit expired (and who typically are buying in the <$120,000 price range.
Unfortunately, the other key driver is that 50% of all sales in April were distressed.
Interestingly…as median for existing home stock dropped almost 5% from March to April…new home’s median price increased 3% for the same period.
Inventory at the end of April was 3,567…pretty close to June 2006 levels.
Buyers of homes $250,000 exceeding 10% of total sales for the first time in a long time.
Numerous news sources commented on our distressed properties in April. According to the numbers that I have…we continue to see slight improvement… At the end of April 47% of all listed properties were distressed. BUT…only 39% of all pending sales are in the same condition.
So, what’s next? May and June should see continued strong sales as we try to close everything that had to be under contract by the end of April.
Source: ACAR
Buyers and Sellers Resource Guide
There has been a lot of recent banter that the housing market is rebounding. Others have said that while that may be true there is still a looming 2nd wave of foreclosures. The second wave of home foreclosures that is potentially coming down the pipe has experts suggesting that even more borrowers could be affected. Luckily we’re better armed with information to make this second wave a bit less crushing. This resource guide should help both buyers and sellers during the possible 2nd wave of bank foreclosures.
The 2010 Foreclosure Problem
The first round of repossessed homes was in large part borrowers with adjustable rate mortgages, subprime mortgages, and investors who purchased too many homes at once. This second round of home foreclosures is expected to affect borrowers who might have decent interest rates and loan terms, but just simply cannot afford to pay their mortgage. Homeowners who have been in their homes for 10+ years but who are now struggling to pay for them due to unemployment are one subset of this expected group of the affected. The good news is that we’re better prepared for it now. There are resources that can help you during this time whether you need to sell a foreclosed property or want to take advantage of the option to purchase one.
Resources for Sellers
If your home is nearing foreclosure and you want to try to sell it, you need to fully understand the process of selling a foreclosing property. These resources can help.
- How to Sell Your Home Fast When Foreclosure Looms. This post provides great tips for sellers who may face foreclosure in the months to come. It describes how to understand the true value of your home at this time as well as who you should align yourself with.
- Our very own site can provide resources for borrowers looking to sell their home before it goes into foreclosure.
- Selling your House in a Sea of Foreclosures. The authors of this article understand that you are not the only person selling your home right now. With so many other people in the same boat, you need to make your home sale stand out.
- How to Sell Your House Before Foreclosure. This basic how-to article provides a simple set of six steps that will allow you to get a great overview of the process of selling a home.
- Pre-Sale Foreclosure FAQ. What are the questions that you might have before you sell your home which may be nearing foreclosure? This article anticipates those questions and answers them for you.
- Avoiding Foreclosure. You might not have to sell your home after all. You may be able to avoid foreclosure altogether. This page from HUD.gov educates you about how to do that.
Resources for Buyers
Buying a foreclosed home can be a terrific investment. However, you need to know what you’re getting into. These resources found below should assist you:
- The Safest Ways to Buy Foreclosures. You don’t want to take any risks when buying a foreclosed home. This article provides information that will keep you safe.
- How to Buy a HUD Home. This article anticipates the questions that new buyers might have about purchasing a government-owned foreclosed home. The answers are contained within the site.
- How to Buy Foreclosures. RealtyTrac offers a great five-step plan to buying foreclosed homes. Their article provides an overview of the process as well as detailed information about what each of the five steps will involve.
- How to Buy Foreclosures at an Auction. There are several different approaches to buying a foreclosed home. Auction sales are one option. If that option appeals to you as a buyer then this article is a great resource.
General Resources
Whether you are selling or buying a foreclosed home, there are some basic things that are worth learning. Take a look:
- How You Can Take Advantage of Strategic Foreclosures. Our recent blog post discusses strategic foreclosures, and how you can take advantage of others home losses, and gain a beautiful home.
- RealtyTrac Foreclosure Guide. This website has a terrific overview of what foreclosure really is and what it means for everyone involved. It defines terms, provides helpful links and really assists you in staying educated through the whole foreclosure process.
- FTC Facts for Consumers. Both buyers and sellers should fully understand foreclosure and the steps involved leading up to foreclosure. The FTC provides comprehensive information for consumers about this topic.
- Foreclosure Databank. This website has loads of information and listings about current foreclosed homes for sale. This is great for buyers who want to see what is out there but is also useful for sellers who want to gain information about real life foreclosures.
- Short Sales and Foreclosures. About.com has a great Home Buying/ Selling portal. Within that portal is loads of information about foreclosures. This information is helpful for both buyers of bank owned homes and sellers at all stages of foreclosure.
- Aftershock: Second Wave of Foreclosures Coming. This article will assist you in better understanding what is happening with the current wave of foreclosures. The more you understand this, the better off you’ll be during this tough time.
These resources are all terrific places to start to gain information about buying and selling foreclosures. However, don’t limit yourself to online information. Foreclosures have already affected a lot of people including people who you already know. Speak to the folks in your social network as well as to professionals, such as myself, in the local real estate and mortgage industries to gain additional one-on-one advice about coping with this new wave of foreclosures.
source: gohoming.com
Questions & Answers: Short Sales
Q: What is a Short Sale?
Answer: A short sale is when the lender agrees to settle the debt owed on the property for less than the amount currently owed. “Settled” means that the bank is writing off the debt (which is why you get a 1099 after a short sale for the debt forgiven) and that they are not going to go after you for the money they lost by filing a deficiency judgment in the future.
Q: How will I know if I will qualify for a short sale?
Answer: Simply click here to provide your contact information and we will immediately begin the qualification process. I have a very high success rate when helping homeowners avoid foreclosure by pursuing a short sale.
Q: How will a short sale affect my credit?
Answer: Great question! There is currently a lot of misinformation on the internet about this topic. A short sale is recorded on your credit report as “debt settled for less than the amount owed”. This usually will result in a relatively minor hit on your credit compared to a foreclosure or late payments on your mortgage. The word ‘”usually” is used because it affects each person’s credit differently. The more established your credit, the less of an impact a short sale will have on your credit score.
The main reason you often hear and/or read that a short sale will reduce yoru credit rating 100 points or more is that many homeowners persuing a short sale stop making their mortgage payments. If you stop making your mortgage payments for 4 months, regardless of whether you do a short sale or not, four months of missed mortgage payments will have a significant negative impact on your credit. The missed mortgage payments have the big impact on your credit, not the short sale itself.
With that being said, if you are already behind on your payments then you have already incurred the majority of the hit that a short sale will have on your credit rating. Conductiong a successful short sale at this point will insure that your debt is settled with your lender. If you are current on your payments and can stay current throughout the short sale process, you will save your credit to a large extent. If you do stop making your mortgage payments, there are various credit repair agencies that can repair your credit by removing late payments from your credit report after a short sale.
Q: Will I have to pay federal taxes on the money my lender loses in the short sale?
Answer: There are several different scenarios regarding whether or not you will owe federal income taxes on the loss that the bank takes in a short sale.
When you proceed with a short sale your lender is agreeing to settle the debt on the property for less than the amount they are owed. The IRS therefore allows them to write off this loss, which is why your lender will send you a 1099-C upon the successful closing of your home.
The IRS considers “debt relief” to be income for tax purposes. In other words, if your bank writes off $50,000 on your short sale, they will send you a 1099-C for that amount. You would include that when you file your income taxes. The “C” stands for “Cancellation of Debt” and the law says cancelled debt is taxable as income. There are, however, a few exceptions that most people who conduct a short sale qualify for that exclude them from having to pay taxes on their short sale.
Thanks to the Mortgage Tax Debt Relief Act that George W. Bush signed into law in January of 2008, homeowners who proceed with a short sale on their primary residence and have a purchase money loan (in other words, they have not pulled cash out of their home with a cash-out refinance) pay no taxes on the loss that their lender incurs in a short sale.
Homeowners who have pulled out cash from their home but have put that money back into their home to “substantially improve” their home are also excluded from having to pay taxes on the loss incurred by the bank.
All other short sale scenarios – if you pulled cash out on your primary residence but spent it something other than upgrading your home or if you are doing a short sale on a second home or investment property – result in a taxable event unless you qualify for the “Insolvency” exclusion.
The IRS will not require taxes to be paid on the loss the lender takes in a short sale if at the time of the short sale you are insolvent. Insolvency means your debt–including your mortgage–exceed the value of all your assets. In other words, if at the time of the short sale you have more debt than you do money or assets you are considered insolvent.
Many people who find themselves facing a short sale scenario are in exactly this situation and are excluded from paying taxes on a short sale. It is highly recommend you check with your CPA or accountant or go to the IRS website and look up IRS Form 982, which is the IRS form for debt relief and short sales. The IRS gives an explanation of the term “Insolvency” at this website location.
Finally, the time period for The Mortgage Tax Debt Relief Act was originally slated to go through the end of 2008. However it has now been extended to the end of 2012.
Q: Can my lender go after me for the money it loses in the short sale?
Answer: The main purpose of a short sale is to get out from under the debt of the mortgage. This is why your lender will send you a 1099-C after the short sale. The “C” in “1099-C” stands for Cancellation of Debt. Your lender cannot write off their loss on their corporate taxes, send you a 1099-C so you have to pay taxes on the loss, report the short sale as a “settled debt” on your credit and then turn around and go after you for the money.
If you hire and inexperienced short sale agent or negotiator who does not negotiate a full release from your lender then you may be liable for the money the bank loses in a short sale or end up being forced to sign a promissory at the table. It is never recommended that our clients sign a promissory note or close escrow without a full written release from their lender(s).
Q: What if I have a first and a second loan on my property with 2 different lenders (or the same lender)?
Answer: Most homeowners that I help with a short sale have a first and a second loan–often with 2 different lenders. For the short sale to successfully close both lbanks must approve the short sale in writing and agree to settle the debt. It is important to note that both lenders have a vested interest in doing this. The lender with the first loan does not want to foreclose and therefore is willing to give a little money to the second in order to get them to agree to the short sale.
The second lender will get nothing if the first forecloses. So, with the attitude that something is better than nothing they will agree to take a fraction of what they are owed in order to avoid getting absolutely zero capital.
Q: What is the difference between a recourse and a non recourse loan?
Answer: In general, a purchase money loan is considered to be a “non recourse” loan, while a “cash out” loan is considered to be a “recourse” loan. The difference between these two types of loans is that in a “recourse loan” the lender technically has recourse to go after the borrower for the money they lose in a foreclosure. I say “technically” because for this to happen the lender has to file a judicial foreclosure.
Q: How will I know that I am being released from the debt?
Answer: It will be stated on the bank’s short sale approval letter. Your lender will state in plain English (though in different verbiage depending on the bank) that they are “releasing the lien”, “reporting the sale as a settled debt to the reporting agencies”, “accepting a short payoff to satisfy the lien”, “issuing a full satisfaction of the mortgage”, “not pursuing a deficiency judgment”, or some other variation that states they are settling the debt for less than what they were owed.
Further, your bank will issue a 1099-C to you, the borrower, after the short sale confirming that the debt has been written off and is settled. Again, your mortgage holder cannot write off the debt, issue you a 1099-C & then go after you for the deficiency.
Q: What are the advantages of a short sale vs. letting my home go to foreclosure?
Answer: The primary advantage to doing a short sale vs. walking away and letting your home go to foreclosure is that in a short sale the debt is settled and you no longer owe the bank any money. If your home goes to foreclosure you may still be liable for the deficiency in the event that the bank files a judicial foreclosure.
A secondary yet important advantage is that in a short sale is that your credit takes much less of a hit compared to a foreclosure. As mentioned above, the impact on your credit will vary depending on how established your credit is at the time of the short sale or foreclosure.
Freddie Mac & Fannie Mae have revised their guidelines in August of 2008 with regard to how they view borrowers who have filed bankruptcy, gone through foreclosure or done a short sale. Through these updated guidelines they are in effect severely penalizing those who go the route of foreclosure or bankruptcy and rewarding or encouraging those who do short sales, which they view as the borrower doing the responsible thing in light of the circumstances. Per recent Fannie Mae / Freddie Mac guidelines, borrowers who file bankruptcy or go through foreclosure have to wait up to 7 years to buy another home. By contrast, the new guidelines stipulate only a 24 month waiting period after a short sale so borrowers who do a short sale can buy again in just 2 short years.
Q: Are there any advantages to letting my home go to foreclosure vs. doing a short sale?
Answer: I have yet to hear a coherent argument for letting your home go to foreclosure vs. doing a successful short sale. Depending on whether you have a recourse or non-recourse loan, when you let your home go to foreclosure you either run the risk of being liable for the deficiency amount or liable for the income taxes on that loss. Secondly, your credit will drop up to 400 points and you will not be able to buy a home or get any decent credit for up to 7 years.
Compare this with a short sale, in which the lender agrees to SETTLE the debt for less than the amount owed. If you have recourse loan, you may be liable for income taxes on the lender’s loss (just as in a foreclosure) but you will not be liable for the deficiency (and if you qualify for the “Insolvency” exclusion, you will avoid the income taxes as well).
Further, the loss that the lender takes in a short sale will be MUCH LESS than the loss the lender takes at the end of the foreclosure process. The foreclosure process takes months & months, at the end of which the lender has to process the property through its overwhelmed system (another 3 -5 months) and then put the property back on the market–all while the market continues to drop.
Q: How much will a short sale cost me?
Answer: A short sale costs the seller nothing – the lender pays all closing costs, escrow fees, commissions etc. The lender may also pay any outstanding property taxes.
Q: How long will a short sale take?
Answer: The short sale process typically takes about 4 months–start to finish. It can take longer depending on how backlogged your mortgage holder is. You can live in the property for the entire duration of the short sale or you can move out whenever you wish.
Q: Do I need to be behind on my payments to do a short sale?
Answer: No. This is a common misconception. You do not need to be behind on your payments or have been late on a payment to do a short sale although the lenders tend to be more motivated to do the short sale if you are not making payments.
Q: Should I file bankruptcy? Will it allow me to keep my home? I’ve heard the lender cannot foreclose if I file bankruptcy.
Answer: There are 2 types of bankruptcy commonly used by individuals – Chapter 7 (“Fresh Start”) and Chapter 13 (“Wage Earner”). Chapter 7 enables individual filers to wipe away debts such as credit card and medical bills so they can continue to make their mortgage payments. Chapter 13 involves setting up a 3-5 year repayment plan to repay your debts. Chapter 13 requires that you are earning a steady income, as you will be repaying all of your debt. Both have a very negative impact on your credit and remain on your credit report for 10 years.
Because of the new 2005 bankruptcy law, which raised the bar for people to qualify for Chapter 7 “fresh start” bankruptcy proceedings, fewer and fewer people pass the “means” test to qualify for Chapter 7 and for this reason can only qualify for Chapter 13 bankruptcy (a 3-5 year repayment plan). While both Chapter 7 and Chapter 13 can temporarily delay foreclosure proceedings, neither will allow you to keep your home unless you can bring your mortgage current.
In a nut shell (I know this was a long article), it is worthwhile to pursue any alternative besides foreclosure. I am available to chat at anytime so give me a call or shoot me an email (which is confidential) if you need questions answered or are intersted in pursuing a short sale rather then letting your home go into foreclosure.
OVER 406 BANK OWNED HOMES FOR SALE IN ADA COUNTY
As you probably know, there is a plethora of bank owned homes for sale in Boise, Meridian, Eagle, Kuna and Star. Banks are motivated to sell and will typically price these distressed homes 10-30 percent under current market values. Granted, most do need cosmetic work done prior to move-in such as new carpet (or the old one with some help from Carpet Cleaning Greenville), paint, lawn maintenance and other misc items. However, there are some bank owned property which the previous homeowner has taken it upon themselves to leave the residence in nasty shape by taking a sledge hammer to walls, doors, messing up drawer slides along with pulling all appliances like the range, dishwasher, disposal and microwave (sometimes water heaters and furnaces, too). Unless you would like to take on the costs, I suggest bypassing some of the bank owned homes on the market.
It is also important to not look for only bank owned homes. There are numerous non-distressed homes on the market (fair market sellers) that must sell. These homes are priced competitively and do not need the improvements that a foreclosed upon home typically does. With that, it is important to consider the costs of repairs when deciding whether to purchase a home which needs some love (yet is priced lower than the home down the street) or one that is turn key and ready to be moved into.
Bank owned homes will be prevelant in our market through 2010 and part of 2011. Would you like a list of bank owned homes forwarded to you? If so, read this article or send me an email with your contact info and I will provide a list of bank owned property currently on the market.
The 7 Short Sale Myths
1) Short sales rarely get approved. FALSE
TRUTH: Although short sales are difficult, acquiring or selling a home as a short sale is not impossible. More and more short sales are being approved on a monthly basis and the new HAFA guidelines should help making short sales easier to facilitate. Most importantly, it is essential to acquire the services of a short sale specialist who is experienced and knows the “ins and outs” of short sales along with systems used to make the sale a success.
2) Banks are waiting for a bailout. Thus, making it difficult to purchase a short sale or sell your home as a short sale. FALSE
TRUTH: Banks have already been bailed out and seem to be doing everything possible to avoid another foreclosure. More and more banks are pursuing short sales and agents who understand how to process the transaction. In most cases, it costs that bank 30% more to let the home go into foreclosure rather than approving a short sale.
3) You must be behind on your mortgage in order to be eligible for a short sale. FALSE
TRUTH: In the past it was very difficult to obtain a short sale approval from the bank. However, the financial institutions mindset has reversed. Today lenders are looking for verifiable hardship, monthly cash flow shortfall or pending shortfall insolvency. If you meet any of the mentioned requirements then you are eligible to sell your home as a short sale without being delinquent on your home loan.
4) Buyer are not interested in short sales and tend to avoid them like the plague. FALSE (for the most part)
TRUTH: Some buyers are not interested in short sales due to the lengthy waiting periods–especially when there are time constraints associated with the purchase similar to the First Time Home Buyer Tax Credit or Move-Up Credit. On the other hand, those that can be patient tend to obtain some very good buys–some which are sold for over 30% under current market values.
5) Selling your home as a short sale is an embarrassment. FALSE
TRUST: Most sellers would prefer that the community wasn’t aware of the financial hardships at hand. However, 1 in 5 homeowners within the United States owe more on their home then what it can be sold for. Even wealthy owners must stop the bleeding at some point. Those who sell their home as a short sale rather then letting it go into foreclosure should be congratulated. Check out my recent post which discusses this by clicking here.
6) The bank would much rather foreclose than bother with a short sale. FALSE!!!
TRUTH: The myth began in part to collection representatives working for the lender which would often state this myth in an attempt to collect the debt using companies like Bristow and Sutor (find out about Bristow and Sutor here). The realty is that banks do not want to foreclose on homes–it costs way too much. An average foreclosure costs the bank 30% more to foreclose than to facilitate a short sale due to the holding costs, insurance, realtor fees and other miscelaneus fees needed to care for and sell the home.
7) There is not enough time to negotiate a short sale before the home is foreclosed upon. FALSE
TRUTH: This myth hurts homeowners the most. The foreclosure process is lengthy. It can take up to a year (or more) for the home to be foreclosed upon by the bank. Nearly all banks will postpone a foreclosure with a legitimate contract for a short sale. A postponement can be obtained within days of foreclosure.
Rental income—a good indicator for real estate stabilization:
Most of my buyers and sellers are concerned about where home prices are headed and want to know whether or not it is a good time to either buy or sell. I, along with most which have an interest to buy commercial property, wish we had a crystal ball. If we were so lucky. Possibly the next best thing is to follow the rental income to establish current market conditions. Setting up your property as a rental could be a very viable option for a stable income. People are always looking for a short term vacation rental to stay at while traveling after all.
“If you look at the trend in rents to see where housing prices are headed, you’re looking at the right measure.” Says Yale economist Robert Shiller who is the co-developer of the S&P Case/Shiller Home Price Indices that monthly track residential real estate values nationally and in 20 metro areas.
In the past, people have been willing to pay a modest premium to own rather than rent a home with recent studies reporting that in 1999 rental income averaged 87% of the after-tax mortgage payment for dwellings of similar size in the same neighborhood. This percentage changed when home prices skyrocketed. By mid-2006, rental income had fallen to less than 60% of after-tax mortgage payments with investors banking on appreciation. Naturally, this will be impacting Canadian teens in the next 50 years, and naturally, noone cared at the time. In some markets, owners of property were paying twice as much as renters for a similar property in the same neighborhood and in select pockets, owner monthly payments were three times more than the average of rental income. Wow!
The 87% ratio of rental income to ownership cost for 1999 is a very good benchmark since it stayed around that level throughout the 1990’—prior to the steep rise in home pricing. With that as our guide, one can conclude that the stabilization of home pricing is on the horizon. By the end of 2009, rental income on average was up to 83% of ownership costs!
Conditions vary from market to market so check with me on current market pricing in our area. With historically low mortgage rates plus the homebuyer tax credits, this is a great time to be buying. Call me today for a no-obligation consultation!
*The idea for this particular post along with some misc statistics were used from an email sent from Guild Mortgage.
Don’t Be Ashamed. . . Seems like everyone’s doing it
Lack of jobs, divorce, injury and death of a loved one often forces hard working folks into default on their home loans. Without help, foreclosure looms. Don’t be ashamed to save your home and the opportunities for homeownership in the future. There is hope.
Three options that a homeowner in or nearing default has are 1) Deed in lieu of foreclosure, 2) Loan Modification, and 3) Short Sale. From experience, the first two options have had a low success rate with the third having the highest. It’s a mystery as to why this is the case yet feel the banks are a step behind and lack the work force to service those in need within a timely manner.
You will need the services of an experienced short sale specialist upon deciding that a short sale is needed. I specialize helping homeowners in need of alternatives to foreclosure. Call me for no obligation consultation at anytime—869-3469.
1) A Deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts their credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of a repossession, lower risk of borrower revenge (metal theft and vandalism of the property before sheriff eviction), and additional advantages if the borrower subsequently files for bankruptcy.
Neither the borrower nor the lender is obliged to proceeed with the deed in lieu of foreclosure until a final agreement is reached.
2) Loan or Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e mortgagor and mortgagee). In general, any loan can be modified.
In the normal progression of a mortgage, payments of interest and principal are made until the mortgage is paid in full (or paid-off). Typically, until the mortgage is paid, the lender holds a lien on the property and if the borrower sells the property before the mortgage is paid-off, the unpaid balance of the mortgage is remitted to the lender to release the lien. Generally speaking, any change to the mortgage terms is a modification, but as the term is used it refers to a change in terms based upon either the specific inability of the borrower to remain current on payments as stated in the mortgage, or more generally government mandate to lenders
Mortgages are modified to the benefit of the borrower in one or more of the following ways: 1)Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed, 2) Reduction in principal, 3) Reduction in late fees or other penalties, 4) Lengthening of the loan term, 5) Capping the monthly payment to a percentage of household income./
The borrower can be current, late, in default, in bankruptcy, or in foreclosure at the time the application for modification is made. The programs available will vary accordingly.
3) A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.
In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is “doing the other a favor;” a short sale is simply the most economical solution to a problem. Banks will incur a smaller financial loss than foreclosure or continued non-payment would entail. Borrowers are able to mitigate damage to their credit history, and partially control the debt. A short sale is typically faster and less expensive than a foreclosure. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.
Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority have pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from an appraisal or Broker Price Opinion (abbreviated BPO or BOV).
Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued or recorded with the locality where the property is located. Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the 2009 foreclosure crisis, they are now more willing to accept short sales than ever before. This presents an opportunity for “under-water” borrowers who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure as a result.