Now that there are millions of homes made available under foreclosure listings in all the States of US country, the selling of homes is sluggish and prices of homes have plummeted deep down. The inventory of unsold properties lying under various stages of foreclosure – defaulted properties waiting for foreclosure sale public auction under pre-foreclosure; actual foreclosure public auction and repossessed properties after foreclosure public auction – is huge. So the distressed home owners awaiting foreclosure of their properties by the lenders can use the option of “Short Sale” to avoid their properties being foreclosed.
Actually “Short Sale” is a compromise between the barrower and the lender. If the defaulted home owner allows foreclosure of their property to be finished, it will have two effects. One losing the property and secondly getting a black mark on their credit history, which will affect their future for years. On the part of the lender, if they choose to foreclose the property, it is an expensive proposition of spending good money after bad money, through Court proceedings/Trustee sale of the properties. Plus there is no guarantee that they will get the outstanding loan on the defaulted properties in full, by the foreclosure public auction. If there is no bidder ready to bid the opening bid, eventually the property is to be repossessed and taken into their books as “non-performing assets” that is the capital invested gets blocked. Apart from the interest loss on these repossessed properties, they will have to incur further expenditure also on the upkeep and maintenance of the properties till they are sold off.
Therefore a “Short Sale” can be an ideal solution to resolve the problems of home owners and mortgage lenders simultaneously. The distressed home owner can seek the permission of the lender to “short sell” the property, even if it is not getting the price to meet the outstanding balance of the mortgage loan in full. For example, if the outstanding loan is $200,000 and the home owner finds a buyer to take the property for $170,000, he can enter into a written agreement with the lender, presenting all the proof for clinching the deal with the prospective buyer, so as to forgive the balance of $30,000.
For the home owner he can walk away from the property, settling the outstanding mortgage loan, with a clean chit on his credit history. The property could not be saved anyway, if the lender initiates foreclosure process. On the other hand, the lender by accepting to this arrangement, gets immediate retrieval of the investment, although slightly less than the actual amount. Considering the hassles of keeping the property as a dead stock in their book, losing money by way of foreclosure expenses, interest on the capital till the property gets sold and expenses to maintain the property in good condition, this is a far more satisfactory solution.
The US Government has enacted Mortgage Forgiveness Debt Relief Act 2007, whereby a distressed home owner does not have to pay federal income tax on debts forgiven by the lender on a mortgage loan, if the concerned property is used as primary residence. So Short Sale option has many advantages.
Kevin Simpson, has been working on USREOProperties.com studying the foreclosures market, helping buyers on the finer points of REO homes. Try to visit USREOProperties.com and begin your Florida bank REO search.
Kevin Simpson, GM Sales & Marketing, USREOProperties.com
[tags]foreclosure listings, selling homes, short sales, foreclose[/tags]
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