Short Sales Help Troubled Borrowers

If you're reading anything lately about the rise in foreclosures, changing ARM rates, or the depressed real estate market - then you've most likely heard about short sales. Simply put a short sale is when the lender agrees to sell the property for the new appraised value even if you owe more on your mortgage. It helps the lender out by eliminating the need for the expense of foreclosure (about $4,000), maintaining the upkeep on the property, and paying the bills for on-going taxes and insurance to protect their investment.

Additionally, it helps a borrower leave with his financial credit history relatively intact. The number one issue is not to ignore your lender - once you are in trouble on the mortgage, the first place you need to go is to your lender and ask them what type of help they can give you. They may first waive any late charges and set up a payment plan that could allow you to keep the home if your situation is temporary, e.g., loss of a job. If this is not possible, and there's just no way you can pay, then the lender may suggest a short sale to you. If they don't, ASK them.

Lenders will have to justify a short sale to their regulators so you may have to prove that you don't have the assets to pay by providing financial statements, and a new formal appraisal would have to show what the current market value would be, in order for the lender to justify selling at a price lower than what is currently owed.

Short sales also work well for investors in real estate - typically they are buying the home for less than what is owed on the chance that property values will rise again in the future.

As an aside, be sure to verify with your lender that there will be no summary judgment filed against you for any "shortfall" in funds when the process is consummated. And be aware, you will not be receiving any excess funds should a buyer pay more than what the appraised value is if the mortgage balance is higher than the sales price.

For more information on short sales, contact us at Metro Mortgage Company, we'll be glad to assist with any questions you may have.

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