March 18, 2010

Working towards a short sale instead of foreclosure

Posted to Short Sales / Foreclosures, Steve Randall

In this post we talk of a real life short sale in progress in Fruit Heights, Utah. The Sellers were transferred to another State just as the real estate market was beginning its decline in Northern Utah. When unable to sell the home for more than the mortgagee value, their Realtor called us and asked for assistance renting the property. A qualified renter was found but then the Sellers had a pay reduction which meant their cash flow turned negative and it became necessary to sell. After receiving several offers and no response from both the first and second lien holder, the collections calls from the second lien holder began to increase… as well as the pressure. Without any further resources to rely on, payments got further behind and the collection calls increased. Frustration set in and the thought process was just to walk away from the property and declare bankruptcy and put this whole mess behind them.

What sellers need to understand is that foreclosure and bankruptcy are the two options that are least beneficial to them. We normally continue to work to complete a short sale until the actual foreclosure takes place. There is no harm in giving lenders one last try at a short sale because they really don’t want to take the home back into their inventory either. Short sales are less costly to lenders than foreclosures. We would encourage Sellers to hang in there until it actually forecloses before walking away.

The administration instigated a new HAMP (Home Affordability Modification Program). There is now a greater chance that lenders will cooperate. Click here for a recent article in the Utah Realtor Magazine explaining the new procedures and timelines.

Here are the advantages of a short sale over foreclosure or bankruptcy:

Short sales will impact credit less; statistics show if the Seller is current on other bills, credit may be negatively impacted 50 -70 points. This impact will be for a 2-3 year period. Completed Short Sales are reported on credit reports as:

Paid in full – Paid as agreed
Paid – Settled
Paid – Unrated
Paid – Less than owed

Foreclosure and Bankruptcy will impact a seller’s score over 200 points and stay with the seller for seven years …and may remain even longer on a credit record. It means difficulty in making any further time purchases for furniture, cars, and homes. It raises the interest rate when you do find those who will lend to you. The impact is longer lasting.

In the new short sale model, lenders are given incentives to offer a short sale solution over foreclosure/bankruptcy; $3,000 is given to subordinate liens like CitiBank. Lenders are now being paid (incentivized) to do a short sale rather than a foreclosure.

Here is more information on the HAFA program to help short sale sellers; plus a real life story from a person who actually went through a short sale.

For more information on short sales please contact me as soon as you become delinquent.

Posted By: Steve Randall