Frequently Asked Questions about Short Sale
And Avoiding Foreclosure
What Is Notice Of Default?
A notice of default is a notification given to a borrower stating
that he or she has not made their payments by the predetermined deadline, or is
otherwise in default on the mortgage contract. Other ways a borrower may be in
default include not providing proper insurance coverage for the property, or
not paying due property taxes as agreed.
Lenders
file in the public records where the property is located a public notice called
the Notice of Default. It dictates that if the money owed (plus an additional
legal fee), or other breach(es) are not paid/remedied in a given time, the
lender may choose to foreclose the borrower's property. Any other people who
may be affected by the foreclosure may also receive a copy of the notification.
What Is Deficiency Judgment?
Deficiency
judgment are court orders that make you personally liable for unpaid debt. They
are often associated with foreclosures, when a home's selling price is not
enough to cover the loan balance or A deficiency judgment is an unsecured money
judgment against a borrower whose mortgage foreclosure sale did not produce
sufficient funds to pay the underlying promissory note, or loan, in full.
When
you are short on a loan and the lender repossesses your residence, the value of
the property may not pay off the loan. For example, you might owe $200,000 on
your house, but it only sells for
$180,000. You're $20,000 short. Because
the lending company wants all of the cash returning, they may take further
lawsuit against you. Legal action to gather the staying quantity is known as a
deficiency judgement.
The
deficiency judgement in the example above is $20,000.
What Is Short Sale In Real
Estate?
A
short sale is a sale of real estate in which the proceeds from selling the
property will fall short of the balance of debts secured by liens against the
property, and the property owner cannot afford to repay the liens (creditor)
full amounts and where the lien holders agree to release their lien on the real
estate and accept less than the amount owed on the debt.
A
short sale is often used as an alternative to foreclosure because it mitigates
additional fees and costs to both the creditor and borrower.
How Does A Short Sale Work?
A short sale happens when a borrower
sells their property for less than what is owed on the mortgage. In order to be
eligible for a short sale the homeowner must be able to demonstrate a financial
hardship that is causing the mortgage to be unaffordable.
For example, if your outstanding
mortgage debt is $500,000 and the property is now only worth $250,000, this
mortgage is considered to be “underwater.” If you are looking to sell your
property for less than your outstanding balance, you will have to supply all of
your financial information to your lender so they can determine whether or not
they want to sign off and settle the debt for less than the amount owed.
Obviously a short sale is not the
best solution for a homeowner or the lender. No one wants to have to sell their
home for less than what they owe, especially those who have been working hard
for years to build up equity. However, this option is much better than allowing
the property to go into foreclosure. A foreclosure will completely destroy your
credit rating and will remain on your credit property for up to seven years.
For most people a foreclosure will make financing extremely difficult
How Long Will A Short Sale
Take?
Lots
of times people think a short sale will be a short process . . . The reality is
it's a very lengthy process. The process can take anywhere from two to six or
seven months. But this timelines can be very different from one lender to the
next, and even when working with the same lender from one property to the next.
Differences between Short Sale
and Foreclosure
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Short sale
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Foreclosure
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1.
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The lender that holds the mortgage
must sign off on the decision to execute a short sale.
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foreclosures are initiated by
lenders only
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2.
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The lender, typically a bank, needs
documentation that explains why a short sale makes sense
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The lender moves against delinquent
borrowers to force the sale of a home.
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3.
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Short sales tend to be lengthy and
paperwork-intensive transactions, sometimes taking up to a full year to
process
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Foreclosures take place when the
homeowner has abandoned the home. If the occupants have not yet left the
home, they are evicted by the lender in the foreclosure process.
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4.
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A homeowner who has gone through a
short sale may, with certain restrictions, be eligible to purchase another
home immediately.
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Homeowners who
experience foreclosure need to wait a minimum of five years to purchase
another home. The foreclosure is kept on a person's credit report for seven
years.
|
What Is A Short Sale Hardship Letter?
A
hardship letter is a letter that you write to your lender explaining why you
are behind on your mortgage payments. The letter should give the lender a clear
picture of your current financial situation and explain the circumstances that
have led to your financial difficulties.
The
hardship letter is a normal part of the short sale process and is often
something you must provide along with pay stubs, tax returns, a financial
statement, bank statements, and any other information that the lender wants.
Some lenders prefer that you fill out their hardship form or a hardship
statement instead of writing a letter, so check with your lender first before
preparing a letter
Short Sale Tax Implication
If a short sale results in a
deficiency, but the lender decides not to come after you for payment and
forgives the debt, this means you are no longer under an obligation to repay
the lender. The lender is then usually required to report the amount of the cancelled
debt to you and the IRS (Internal Revenue Service) on a Form 1099-C. If this
occurs, you may have to include the forgiven amount as income for tax purposes.
Example. As in the example above,
let’s say you complete a short sale by selling your property for $250,000, but
you owe the lender $500,000. The deficiency is $250,000. If the lender decides
not to try to obtain a deficiency judgment and issues a 1099-C instead, then
you have received a cancellation of debt in the amount of $250,000. This is generally
considered taxable income to you.
In
some states, the Notice of Default is also attached to the home, generally on
the front window, like a big scarlet letter. It states that the borrower is in
default, behind in the mortgage payments, and if the payments are not paid up,
the lender will seize the home.
Please
consult with Accountant to discuss further on tax implication of short sale.
The
real estate market in Bowie ,Upper Marlboro and Fort Washington
is still experiencing negative equity
and as result homeowners are unable to refinance to lower interest rate, unable
to sell because there is no equity and many are faced with the difficult
hardship of keeping their house or letting go. There are many solutions to
assist homeowners to avoid the credit damaging foreclosure process. It is very
important that homeowners reach out quickly at the first sign of trouble.
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Don't ignore the letters from the lender
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Don't know the phone calls
STOP NOW and call 301-613-2043 to get help with avoiding foreclosure or explore
other options available. Use our quick and Easy form to request complementary
consultation about avoiding foreclosure or learn more how short sale can help.
Keji & Associates of Fair fax Realty is a team of
licensed agents working daily to get homes sold for our clients in Bowie,UpperMarlboro, Fort Washington and
other parts of the metro area. We delight our clients by delivering world
class service every step of the way and we strive to create a win-win situation
this is all part of our values and beliefs. Contact us @ 301-613-2043 ,
email keji@metrohomesrealty.com or visit our website . www.metrohomesrealty.com