In real estate, a short sale means that the outstanding loan obligations against a home or property are greater than the selling price of the property. A possible foreclosure can be avoided through a short sale and the homeowner can still pay off the loan balance with his mortgage lender. In a short sale, the lender accepts a lesser amount than the current payoff of a loan, which includes penalties, fees and overdue payments.

In the event of a financial problem and you would no longer be able to afford to pay your mortgage and there is no other immediate alternative and other means to solve the situation, you should seriously consider a short sale. However, you need the approval of your mortgage lender after you submit several required documents such as the contract of sale, Final Broker’s Opinion of the value of the property, repair estimates, net offer statement, pay check stubs of seller, hardship letter made by the seller, financial statements, tax returns, personal asset statement and  bank statements. Closing a short-sale needs utmost patience and perseverance. The bank or the mortgage lender accepts not all short-sale proposals.

So, how do you close a short sale? The best thing to do is to hire someone to act for you. A real estate broker is capable of presenting your proposal well and he is very capable to negotiate with lenders. If you do not have a good relationship with your mortgage lender, the more that you need to hire a broker since he knows the trade and ways to convince lenders.

In the process of your short-sale proposal, a loss mitigation officer will discuss with you the losses that the mortgage lender will incur with your proposal. You have to be very professional and hear him out. After listening, it is then your turn to present your side. It is essential that you know the documents that you have and be able to answer questions as well.

There will be cases when the mortgage lender will disagree with the value you presented to them. If you are definite that your calculation is right, stand for it and do not be easily swayed. Be ready to present more evidence like photographs as to why you presented such values. The lender will surely consider your proposal.

Once you get their approval, there is no time to lose, work on it immediately. It is necessary for you to sell your property because the short sale has a due date. The most time the lender will give you is thirty days. It is best to find a direct buyer who is willing and able to pay for the house at its pre-determined value.

In a short sale, you should always be ready to present it convincingly. The important thing is you have to be honest with yourself and the mortgage lender and present your situation in good faith. Patience plays a big role in this area, losing it could only add to your financial distress. Whatever the situation is, be always positive. Remember, there is always a solution to every problem.

Should You choose a Short Sale Over a Foreclreade?

A reader asks : My husband and I’ve been making our mortgage payments every month even though our home is underwater. We owe a ton more than our home is worth. Now, my partner has was fired. We’re brooding about walking away from our home and letting it go to foreclosure, but my fogeys are telling us that we may qualify for a short sale. Which is better for us? A short sale or a foreclosure?’

Whether you should do a short sale or let the home go to foreclosure relies on many factors. While for some homeowners, it is simpler to throw up your hands and let the bank take your house that isn’t be the wisest thing to do.

Here are a few benefits for doing a short sale that isn’t have occurred to you .You are in control of the sale, not the bank. You may sleep better at night knowing who is buying your home. You will spare yourself the social stigma of the’F’ word, foreclosure. Contrary to popular belief, you can be current on your payments and still affect a short sale. Your house sale will be handled like any other home sale.

In the view of purchasing again after a short-sale, if your payments haven’t fallen behind 30 days late and the lender does not require that you repay the loan, Fannie Mae guidelines may allow you to buy another home straight away. The wait for an FHA loan is 3 years.

If your payments are in balance yet a short sale is granted by your lender, you will qualify to buy another home with a Fannie-Mae backed mortgage within two years, irrespective of whether the home is your first residence.

On the other hand, purchasing again after a foreclosure, with certain limitations, you may be eligible to buy another home in five years if the house was your primary residence. Without limitations, the wait is seven years.

if you’re a speculator and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.

looking at its effect on credit, short sale is not a derogatory mark on your credit because credit bureaus do not show the word’short sale’ on your credit report. It may say’pay as agreed’ or’paid as less than agreed,’ among other categories. Some clients have reported negative FICO score drops from fifty points to 130 points.

The point drop is often because of being in default, which is behind on your payments.

While after a foreclosure, a selection of sources have reported FICO score drops from 2 hundred to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for ten years.

All lenders report short sales differently and some do not report them to the credit companies in any way.

If a possible employer runs a credit check on you, your job application might be denied if you’ve got a foreclosure on your record.

Judgments are typically bartered between the vendor and the short sale bank. In a few cases, for example California, if the home is your private residence and was financed through purchase money, there isn’t any deficiency judgment.

returning to its contrary, banks are unwilling to arrange deficiency judgments with the homeowner after a foreclosure. In California, for instance, according to the California organisation of REALTORS, a deficiency judgment might be filed if the lender forecloses under a legal foreclosure versus a trustee sale or if the second loan is a tough money loan and the sale happens as a trustee’s sale.

Loan applications do not ask questions about a short sale. You can report that you sold your house. While with foreclosure, you are required to answer the question [*CO]‘Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past seven years.’ If the bank sees you’ve had a foreclosure, your loan most likely will be denied. If you lie, you could be subject to inquiry by the FBI for mortgage crime.

if you have had a foreclosure notice filed, you could be in a position to postpone that action while the bank considers your short sale. The wait for short sale approval can be from two to a quarter, or longer But with foreclosure, unless prior arrangements have been made, the bank may need you to right away vacate the property and can commence eviction proceedings.

On the area of taxation, a personal residence is free from mortgage debt relief until the end of 2012 on a Fed. level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions.

apropos foreclosure, it is the same as with a short sale. Except some lenders straight away send out 1099s, even if the owner is exempt.

In closing, always obtain legal and tax advice before picking a choice between a Short Sale vs. Foreclosure
.