Short Sale, Foreclosure Avoidance, Loan Modification

Friday, November 21, 2008

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Short Sales

Did you know that 1 out of every 200 homes in the U.S. will face foreclosure next year? Don't let this happen to you.

Mortgages With Payment Shock

Mortgages like these can give you "payment shock":

2/28 and 3/27 Mortgages. a 2/28 or 3/27 adjustable rate mortgage gives the borrower a fixed payment for the initial two- or three-year period before adjusting the mortgage up as often as every six months. After the initial "teaser rate" period, your mortgage payments typically adjust up every six months.
Interest-Only Mortgages. An interest-only mortgage lets you pay only the interest on the loan for the first 5 or 10 years and nothing to pay off the loan amount (principal). After the interest-only period, the mortgage requires much higher payments covering both interest and principal that must be repaid over the remaining years of the loan.
Payment Option Adjustable Rate Mortgages. Payment option mortgages let the borrower decide how much to pay each month. You can even pay less than the interest, and add the unpaid interest to the total amount of principal you owe. Or you can pay just the interest or an amount sufficient to pay off the loan in 15 or 30 years. These mortgages have an especially big payment shock.

Be careful if your mortgage has any of the following features:

A "teaser rate" or "no interest" period that expires and leads to a big jump in your monthly payment.
An option to pay less than the full interest due in any given month. Taking that option makes the amount you owe go up instead of down, since the interest you don't pay is added to your loan balance.
An adjustable interest rate with very high or no limits on the amount your payments can go up.
A payment that doesn't include an amount for paying property taxes and homeowners insurance. This means you may be hit with big bills you didn't expect.

Why might you want to do a short sale as opposed to letting your home go into foreclosure? Simply because there are some advantages of doing a short sale versus a foreclosure:

Short Sale

Negotiated settlement
Seller's credit is bruised
No attorney fee
Peace of mind and control over the process
Typically can buy again in 2 years
Liens negotiated and don't always follow you

Foreclosure

Court settlement
Seller's credit is ruined
Big attorney fee which you end up paying for
No peace of mind
Typically can't buy again for 7-10 years
All liens extinguished from the property and transferred to you

What is a short sale?

A short sale is when a lender accepts less than the total amount of the loan as payoff for the loan. This can occur when you owe more on your loan than your home is currently worth.

A short sale is not an easy transaction and requires a professional that is trained and knowledgeable. Not every Realtor knows how to process a short sale. Negotiation skills are particularly important as the agent will be negotiating with the bank on your behalf.

If you'd like more information about short sales and the short sale process, contact us. We can walk you through the process so you know exactly what to expect and what the bank will expect from you. We're here to help.