The financing vehicles have been in place for several years now for a borrower using some creativity with a seller to make 100% financing possible. However, the real estate market had been so hot in many areas in the U.S. the sellers did not have to even entertain anything resembling creative financing. With a softening market, creative financing is back as a helpful tool to allow sellers to unload their properties as long as an over supply of inventory exists.

Harold and Laura had been renting a home in a suburban area for three years. They had been digging out from under a heavy debt load of medical collections. Laura was leaving work one day and a truck had crossed the line and pinned her in her small car for a half an hour until the jaws-of-life was used to extract her out from her crushed vehicle. With a broken hip, ankle, eye socket and fibula a long recovery ensured and Laura was not able to work for two years. The other driver was at fault, but any financial recovery was years down the road as the other insurance company was playing hardball. In the meantime, with constant harassment for the out standing medical bills and the weight of credit card and installment debt that existed prior to the accident was just overwhelming. Harold had been working two jobs just to meet the basic family needs. Family help was limited and really wasn’t expected. Laura’s therapy had been going on for a year now and real progress was being made. Her employer had kept her job open as a customer service representative ironically at a credit card service center. The benefits were limited and very little of the medical bills and rehab had been covered. Harold and Laura had been seeking some financial advice from a local bankruptcy attorney. It was decided that with their level of income and huge medical bills that filing a Chapter 7 Bankruptcy action might be the best thing to do for mental sanity and cash flow. A Chapter 13-payback plan would be crippling for many years to come. As the bankruptcy attorney explained to Harold and Laura that in his practice example after example comes before him where just bad things happen to good people and that there was no shame in taking care of their financial affairs in this manner. The rationalization process followed.

Two months before filing the bankruptcy, the insurance company was offering a small settlement based on an allegation that Laura may have temporarily been distracted by talking on her cell phone and thus reduced her reaction time. Rather than put up a long protracted fight Harold and Laura, for better or worse settled for an amount that just covered her payoff on her totaled car. They were relieved of that installment. Their attorney for the accident urged them not to settle, but with Laura’s eminent recovery and the stress of the whole ordeal, they grabbed what they could at the time.

Harold and Laura received their notice of the Final Discharge of their Chapter 7 Bankruptcy. All the collections for medical bills, non-secured credit cards and one major medical bill that had resulted in a judgement being awarded for the first responding hospital had all been wiped out. They excluded their family car from the Bankruptcy matrix (which names all the debtors), which still had a $6,850 balance with a $295/month payment remaining. They also excluded a credit card that they had for years and had a low balance and a low monthly payment. This allowed Harold and Laura to maintain two trade lines and their on time rental payment of some $1,250/month outside the Bankruptcy action. Laura had now been back to work at her old job for two weeks. She was fortunate to take advantage of a car pool with a fellow worker who lived a half mile away.

It was like the world had been lifted off their shoulders. Now Harold and Laura had their rent, one car payment and a small credit card and their home utilities. The cell phone service had gone by the way side many months before.

Even through the most brutal times and the lowest of the low, Harold and Laura, as their custom, visited Open Houses after church every Sunday. It was always in the neighborhood and never more than two home visitations. It was Harold and Laura’s way to cope with the dark cloud that had beset them. During this process, they became familiar with a local Realtor who took a very personal interest in their situation. The Realtor, named Betty, knew they were not ready to do anything until some things had been handled. At the most recent Open House visit, Harold and Laura shared that they had put their financial challenges behind them. Laura was feeling great and off all her pain medication. Betty raised the prospect and questioned them if she could figure out a way to get them into a home at a little more than they were paying in rent with little or no money out of pocket, would they have an interest at least in hearing more about it. Harold raised his hands with palms up and a shrug of the shoulders, and shared that it wouldn’t hurt to listen to some possibilities. The accident had caused a detour in the quest to own a home, but it had not killed their dream.

Betty set up a meeting with the Realtor’s in-house mortgage broker to discuss their options. A joint credit report was pulled and as Harold at the time made the most money his middle score was utilized to qualify for a mortgage. His middle credit score was right at 500. The mortgage broker went on to explain that they would qualify for an 85% Loan To Value mortgage. Due to their lack of a cash down payment, it was added, that the only way that they could use this loan option would be with a seller held second of 15% loan to value with the seller also paying up to 6% of the contract selling price. This would then give them a 100% Combined Loan To Value (CLTV). The loan would need to be a Fully Documented loan with verification for employment and income. The mortgage broker felt like he could present Laura’s employment gap due to the accident and use her current income for qualifying purposes. Totaling up the income versus the debts, it was determined that Harold and Laura could buy a home in the $175,000 range IF the seller would offer reasonable terms on the 2nd mortgage. Betty piped in that she had been sitting on a listing for six months and the owner now may have an interest in holding some paper versus renting the property again and deal with the tenant challenges on repairs and upkeep. The home was close to their current residence.

Betty was able to work out the deal with reasonable terms on the second mortgage that would keep the overall monthly payment down at least for the first three years. As the mortgage broker explained, that should be plenty of time to establish a better credit history and qualify for a lower interest rate loan in two years. As an added bonus, the seller agreed to pay all the closing costs and prepaid expenses such as annual hazard insurance and tax escrows plus replacing a leaky roof. Harold and Laura moved into their newly purchased home putting all the travails of the past in the rear view mirror.

Sometimes bad things happen to good people. In this current real estate market, there are creative possibilities. It won’t last forever; the time is at hand for seller help and creative financing.

Dale Rogers

www.sellerhelpsbuyer.com

www.brokencredit.com

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Homeowners that are facing a foreclosure have a number of options available to stop the foreclosure process. One of the options available on is a “short sale”; this is where the lender will allow you to sell the home for less then what the current amount owed is. Many homeowners simply let their home go into foreclosure because they are not sure about the options, or just give up. Before giving up and letting your home go into foreclosure keep in mind that you do have options, and depending on which one you choose, there are a number of pros and cons for each.

Short sales can help lenders avoid the costly and sometimes lengthy process of a foreclosure. One of the key benefits to a short sales is the long term affect on your credit score, a foreclosure is much worse then a short sale with regards to your credit score and ability to recover from your hardship quickly.

Short sales are a simple concept; lenders agree to allow you to sell your home for less then what the current mortgage is on the property. Many lenders will accept a short sale and relief you of the balance of the mortgage, this is good news for homeowners facing foreclosure. Most states allow the lender to attempt to collect the shortfall after a foreclosure is processed; a short sale may relieve you of this additional burden.

Bear in mind that not all lenders will agree to short sales, if the circumstances are right, some lenders will not do short sales at all. If you are current on your mortgage payments, you have very little chance to have a short sale approved. In most cases, you will need to be several payments in the rears in order to have a lender consider a short sale.

Foreclosures will have a greater impact on your credit score. You can typically expect your credit score to sink at least 200-300 points. The long-term affect of a foreclosure on your credit may hinder your ability to make purchases with credit for up to 10 years. Lenders may not offer competitive rates on a new mortgage loan for three to five years, after a foreclosure.

Doing a short sell will have far less repercussions on your credit report; generally your score will fall between 75-100 points. With a short sale, lenders will typically offer reasonable interest rates on a new mortgage after about 18 months.

During a foreclosure you credit should be your primary concern. Repairing bad credit and getting back on your feet is much easier if with choices that offer the least amount of impact on your credit score. The savings on interest alone with credit cards, auto loan and mortgage loans in the future should be enough to convince you, if not think about the strength of your buying power in the future.

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With how the economy is going today, there are a number of people who are having a problem facing their financial obligations.  These financial obligations are not only apparent on daily bills but also for mortgages and other loans.  And if you are having some problems in sustaining your mortgage or your property, you might want to try short sale instead of having it on foreclosure.  This is perhaps the best way for you to face lesser credit standing issues.

However, what is a short sale and how will it have an effect on your credit score?  Short sale is the instance where you are going to sell your property, with the approval of your bank of course, at a discounted price compared to its original price.  In this way, you can pay the amount that you owed the bank.

If short sale was done properly, there is a great chance that your credit standing is not going to be affected.  How can you execute this properly?  You should be able to put your house on sale with very few expenses.  If it is possible, convince the lender to get the full amount of sales in order to cover for the whole amount loaned.  At the same time, if you will be getting help from an agent, find someone that will ask for smaller commissions.

However, if the amount of sales is not enough to settle the debt, you can pay the remaining amount in terms.  This is called loan for deficiency that will allow you to pay at the most affordable price and flexible terms that you can keep up with.  You just have to be aware that it will definitely reflect to your credit record.  But granting that you can pay them properly, the effects will not be that detrimental to your credit record.

Another option in order to get the remaining amount owed is a suit.  However, doing this option is going to give a negative judgment to you.  And thus, will result to a much greater credit report issue.

So basically, the effects of short sale on your credit record are based on how you settle the remaining amounts after the sale.  Be sure to be committed in paying the remaining amount if there are any.  If you will not be paying it properly then you are just putting your credit score to a big problem.

So if you want to settle the amount that you owe through short sale, it is important for you to ask your bank for these and other options that might have lesser effects on your credit score.  In this way, you can avoid future problems in terms of finances as low credit records will make your charges much expensive than it should be.