March 2008

The Short Sale Solution!

I recently took an informative class on short sales sponsored in part by Austin Title. A short sale occurs when a bank will take less than what is actually owed by the owner as “payment in full” in an effort to avoid the foreclosure process. The foreclosure process is time intensive, costly and state specific so banks would rather ‘cut their losses’ and start replacing bad loans with good loans. Banks may save up to 40% on the transaction by approving a short sale instead of foreclosing on a property. A foreclosure appears on the homeowner’s credit and prevents the purchase of another home for seven years.

If any of you are in or at risk of default don’t hesitate to call because I can help. Time is of the essence to prevent the acceleration of the bank note, initiating the twenty-one day foreclosure period. Also, the Mortgage Forgiveness Act of 2007 states any loss by the bank in the transaction is no longer considered taxable income to the seller.

Below are some points from the course which help further explain the process.

Purpose: Short sales help homeowners prevent foreclosure and preserve credit while helping the mortgagees (banks) mitigate losses up to 40%.

Qualifications: Legitimate hardship case, mortgagor in default with little to zero equity.

Legitimate hardship: Increased payment due to arm reset, increased property taxes, illness, death, divorce, job loss or reduced income.

Short sales cost nothing to the seller although it is possible the mortgagee may issue a default judgment after the sale in order to further mitigate their losses. Banks will only work with agents representing the mortgagor and agents may negotiate any possible default judgment to minimize cost to the client. It is very important for mortgagors to communicate time of default and any bank correspondence with agents.

Remember, Texas’ foreclosure period of twenty one days is one of the most aggressive foreclosure periods in the country. Therefore, mortgagors must choose agents wisely because there is little to no room for error. Error causes delays in short sale approval placing the mortgagor at unnecessary risk of foreclosure.