Introducing: A Simple Guide to Short Sale and Foreclosure- PART 2
Photo courtesy of Björgvin Sigurðar.
Who does a Short Sale Apply to?
- Seller that has missed payments
- Seller that is in foreclosure
- Seller that is upside down in a property and must sell
- Jump in payment or balloon payment coming due
- Loss of employment / divorce / illness / family death
Note: Seller requests short sale to avoid foreclosure
Discounts
To What Extent Do Creditors Discount?
- Creditors discount debt secured by real property based on their convenience and risk.
- If they will surely get paid they will not discount at all.
- If they will most likely get paid most of what they are are owed they may discount somewhat.
- If they will definitely lose an account but still get something at the auction, they will discount very much.
- If the creditor will most likely get nothing at the foreclosure sale, they will be inclined to discount heavily in order to get a recovery.
Why Do Creditors Discount?
- Creditors discount only when they will lose even more at the foreclosure or will end up with the property in poor condition.
- The higher the chance they will get paid at the foreclosure sale, the lesser the chance they will discount.
- The lower the chance they will get paid at foreclosure sale, the higher the chance and amount of creditors will discount.
Who Makes Initial Contact?
Emotions Drive Decisions
- There are very few things in this world that stir emotions as hard as real estate. Real estate is the reason for most wars.
- When it comes to a person's home, things get very personal.
- Sellers want burden removed from them.
Realtor Disclosures
- Listing must show sale needs third party approval.
- Possibility of foreclosure
- Hold harmless- because the Lender may not approve.
- Possible tax implications- 1099C - Cancellation of Debt filed with IRS
- Possible credit consequences
- Seller may still owe to creditors
- Sellers nets no money from the sale
- See Broker for requirements- code of Ethics
- Legal vs. non-legal
- Disclose to Buyer on offer
- Disclosure about re-sale
Basic Requirements of the Lender
- Hardship letter
- Purchase Agreement / Listing Agreement / Buyer Brokerage Agreement
- Estimated settlement statement (HUD1) with commission
- Market Analysis / Appraisal
- Pay stubs, Bank Statements, W-2's, tax returns and financial statements
Time Frame
- Approximately 30-90 days with no guarantees.
- May need to extend or postpone foreclosure
- Must comply with all time frames
Get everything in writing!
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