A Short Sale can be an excellent solution for homeowners who need to sell.
Background:
Foreclosures and delinquency rates for mortgages are occurring in record numbers for Fresno real estate. A BIG percentage of Fresno homeowners are behind in their mortgage payments. Reasons include high unemployment rates, loss of income due to decline in consumer spending, slower housing starts, and mortgage rate increases after conclusion of teaser-rate periods. Also contributing to the difficulties in making mortgage payments is the softening rental market.
Investors who have rental homes in the Fresno, Clovis, CA area are having a harder time getting sufficient rents now to cover their mortgage payments or even getting tenants because of an increase in rental properties on the market. Higher insurance costs are adding to the difficulty for borrowers to keep up with their mortgage payments.
Now that property values have significantly decreased in the Fresno, Clovis areas, these owners are in a predicament. Many have negative equity, i.e. owe the lender more on the mortgage than the property is worth. When this is the case, and the borrower needs to sell, one solution is a “Short Sale”.
Definition: A “Short Sale” is when the lender agrees to a accept a payoff for less than the remaining mortgage balance, and possibly forgive the entire shortfall, as well as pay the seller’s closing costs including the Realtor fee. The loss is either completely written off by the lender, a payment arrangement is made with the borrower (promissory note), or a lump-sum for a potentially lesser amount is agreed to (cash contribution).
Why Would A Lender Accept a Short Sale? Banks don’t want to own your Fresno area real estate. A foreclosure can cost a lender $30,000 to $60,000. They have to maintain the property, market the property, pay for utilities, then spend money on closing costs. They would rather do a Short Sale- where the groundwork has been done for them and generally costs them less than a foreclosure.
Short Sales Explained
A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.
But to be technical, here’s a more official definition:
* A homeowner is ‘short’ when the amount owed on his/her property is higher than current market value.
* A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then ‘sold short’ of the total value of the mortgage.
For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances:
* Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
* Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
* Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. We hold the CDPE® Designation and are ready to identify all possible options and, when possible, assist in the quick execution of a short sale transaction.
If you have questions or feel you may qualify for a short sale, please contact us for a FREE consultation.
Understanding your options NOW could mean all the difference in the world.
