The term Short Sale is a term that had become commonplace a few years back with large amounts of borrowers falling behind on mortgage payments. Overall short sales have decreased year over year since 2011.
Home prices, in general, had a substantial decrease in the late 2000’s, and many people bought these homes with heavy amounts of leverage leaving them with no equity. The short sale is not a highly complex process, but it can be time-consuming and very frustrating especially when dealing with large banks.
What is a short sale in Raleigh NC?
A short sale is when a lien holder accepts less than the full payoff of the debt to release its lien on the property thus allowing it to sell.
For example, a borrower mortgaged a home for $200,000, but that house is now worth only $170,000. In order for this sale to close, either the borrower has to come to the closing table with a big check, or the lien holder will have to agree to accept $170,000 minus closing costs.
Some lien holders will accept this loss and still hold the borrower liable for the difference. The only way to avoid paying this debt would be to file for chapter 7 bankruptcy and have this debt discharged by a court.
Why would a lender agree to a short sale?
Usually, because the borrower is already behind on payments and the property does not have any equity. Most banks will offer other alternatives before the short sale; however, a lot of homeowners simply cannot afford to keep making payments on their homes. If the lender forecloses on this property it will incur additional fees for the cost of the foreclosure process and not be able to sell the property to recover the principal balance.
Lenders also face holding costs when they take title to a property; Locks must be changed and maintenance, such as lawn care, must be done because most cities will impose fines if the grass is allowed to become overgrown or if the property falls into excessive disrepair.
It is important to note that the lender is never under any obligation to accept a short sale. It is an economic decision that a lender will make if it believes it to be in its own best interest. To approve a short sale most lenders require a short sale package to be submitted. This package is a series of documents that contain items such as tax returns, pay stubs, a hardship letter (explaining why payments can’t be made), purchase contract, and preliminary settlement statement. The borrower can not profit from the transaction at all. The lender wants evidence that the lien should be released to avoid incurring further losses.
Subordinate lien holders, better known as second mortgages and equity lines, are involved in this process as well. If a borrower is foreclosed upon by the first lien holder the foreclosure will extinguish the subordinate lien. More often than not there is not enough equity to satisfy the first lien, minus fees, let alone any subordinate liens. This usually, but not always, gives the borrower more leverage when negotiating with the second lien holder.
A short sale is one alternative to foreclosure
Choosing between being foreclosed and initiating a short sale (or a 3rd option… selling your Raleigh house fast )is an easy choice for a borrower having troubles paying their mortgage on time.
Sometimes, lenders will work with borrowers to complete a short sale, to avoid the foreclosing on the property. You will be required to list the home with an agent, preferably one who specializes in short sales, and there will be lots of paperwork.
Here are some suggestions.
- Talk with your lender and discuss ways that they can work with you on your loan. The key here is not to ignore the bank when they call. You must stay in regular communication with them if you want to avoid a foreclosure proceeding… if you would like to skip this process and sell the house quickly for cash, go to our Contact page and we’ll discuss your situation.
- Speak with the loss mitigation department and find your options. There may be some options to lower your interest rate and make your payments more affordable.
- If the bank isn’t willing to work with you… your best option may be to sell your house. Work with a local real estate house buyer service like Otranto Real Estate Co - Mike Buys Houses to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. Last resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options, you may be able to avoid the devastation to your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.