Avoid Foreclosure With a Short Sale Or Other Alternatives

The following will explain a short sale or pre-foreclosures in
detail but first let's cover some quick answers below.The definition
of a pre-foreclosure saleA pre-foreclosure sale is when a borrower
must sell their home and the proceeds are less than the amount owed to
pay off the mortgage balance. A short sale is appropriate for owners
whose financial situations command that they liquidate their interest
in their home and who are unable to qualify for other loss mitigation
techniques. Simply put a short sale is when the value of the property
has dropped below the current mortgage balance owed.Will my bank
consider me?Banks do not want to do a foreclosure. A foreclosure cost
the bank lots of money and statistics have shown that when a bank
receives a property through foreclosure it is in much worse condition
than other options because angry owners who have been foreclosed on
often leave the property in disastrous condition before leaving the
home. A pre-foreclosure reduces the banks losses and helps the
mortgage holder maintain their credit. If you are in a hardship
situation your bank would much rather do a short sale than foreclose
on your property.Will my FHA loan be considered for a
pre-foreclosure?Absolutely a bank will do a pre-foreclosure on an FHA
loan. There is actually a new program called PFS Pre-Foreclosure Short
Sale Program that will pay the homeowner up to $1,000 at the end of
the pre-foreclosure just for finishing the program. This program was
designed to help you transition to more affordable housing without the
impact of foreclosure and keep the property in good condition for the
bank.Is it true that you have to be delinquent on your payments to do
a short sale?No you do not need to be behind on your loan to complete
a successful bank short sale. There is additional info below on the
requirements for short sale approval but it is important to know that
a pre-foreclosure can be accomplished simply because the value of the
home has declined below the mortgage value or when the home owner has
fallen on difficult times. Basically you don't need to be late just in
a hardship situation. A reason for not approving a short sale is that
you don't like the neighbors loud late night parties. An approved bank
short sale requires a true hardship situation.Do I have to pay a tax
on my short sale?New laws have been passed that prevent lenders from
sending you a 1099 tax form after completing a pre-foreclosure. In
2007 President Bush signed The Mortgage Debt Relief Act that
eliminates taxes, 1099 forms and tax losses on short sales. It the
past it was normal for short sale banks to send out a 1099 tax form to
the seller after the short sale that required the seller pay a tax
loss. These activities have been temporarily halted due to our
countries current economic condition. Currently the Mortgage Debt
Relief Act has been scheduled to last through 2012. It is important to
consult a certified accountant in regard to your personal situation
because not all short sales are protected from taxes. For instance an
investment property sold by short sale is not covered by the Mortgage
Debt Relief Act but there might be other options for an investor.How
long does a pre-foreclosure sale take?A good pre-foreclosure package
is designed to get quick results. Many inexperienced realtors will
drag a short sale out over 6 months to beyond a year and often times
fail to ever close the short sale. A knowledgeable short sale agent
will promptly finalize the short sale procedure and get your home sold
in about 60 days from contract date. Short sales are a highly
technical business and it takes realtors with the know how who will
finalize the pre-foreclosure at a quick pace.Before attempting a
pre-foreclosure you should look at a few other options. A
pre-foreclosure sale occurs when the home owner must sell but the
proceeds are not enough to cover the balance of the mortgage. A short
sale is ideal for home owners whose financial situation or
circumstances require that they sell their house and have run out of
other loss prevention options. A pre-foreclosure happens when the
property value has declined below the balance of the loan.Knowing your
options before a short sale is important. Sometimes if you are in
default on your loan it is a curable situation and there is a strong
possibility that you are capable of replacing lost earnings or
diminish your expenses.Special Forbearance A special forbearance is a
payment contract between you and your lender that consists of a plan
to reinstate your loan after it has become delinquent. This could
include settlement over a period of time, a lessening of your monthly
payment for a short time, or a strategy for you to begin again with
complete monthly payments while delaying the missed payments. In a
sense your bank is allowing you to get caught up on your missed
payments.Loan Modification Modifying your loan is a permanent change
to your mortgage. It designates that your loan will be reinstated and
supply a monthly monetary obligation that you can afford.
Modifications allow for a number of options like dropping your
percentage rate, or extending the time available to pay off the
mortgage by re-amortization of the amount owed. It's similar to
applying for a new loan but unfortunately not all homeowners will get
approved for a modification.Combining Options Your lender can also
combine the above to attain a preferred end result. Banks are
diversified on how they handle these matters but the idea behind the
mitigation process is consistently the same. Your lender is working
with you to keep you in your home and help you recover from a change
in your financial condition.Often the situation has gone too far and
there is no chance of you keeping your home. If mitigation doesn't
work or can not be considered you are headed toward a potential
foreclosure. There are however options for you instead of letting your
home go into foreclosure.Deed-in-Lieu Deed-in-lieu of foreclosure is
simply giving your property to the bank by deeding it to them.
Essentially you give away your home to the bank holding the mortgage.
This may sound like a viable option compared to foreclosure but there
are a few hidden details.A deed-in-lieu has just about the same effect
on your credit as a foreclosure.
Lenders don't really want your home. It becomes an asset they have to
deal with and they are not in the business of selling houses. Many
lenders will not take a deed-in-lieu and will suggest you do a short
sale.Short Sale- A short sale allows you to sell your home and use the
proceeds from the sale to pay off part or most of your mortgage. In
most situations your lender is willing to accept less than the amount
of the mortgage balance. As already noted this option is for home
owners whose financial situation requires that they sell their
property.Here are some of the reasons your lender will do a
pre-foreclosure sale:A declining home market This reason does not
take into account your credit or your financial condition. This is a
case where the property value has declined below the mortgage balance
on your home but you are forced to sell it. Don't forget a short sale
means you must sell your home. A short sale cannot be used if you want
to upgrade to a larger home or decide to move away for no apparent
reason.The loan is in default or close to it This is the reason for
most pre-foreclosures. There was a time when lenders would not do a
short sale if all the payments were current. Banks have now realized
that in many cases it is logical to do a pre-foreclosure sale before
the payments are in default.The Seller has Met With Hard Times This
is a short sale condition where the owner of the property is in a
distressed state of affairs. Here are a few common hardships:
(Divorce, Illness, Unemployment, Death) All lenders require a hardship
letter detailing the reason for the short sale. Sometimes a hardship
description can be overdone. It's good to know the guidelines for
writing a good hardship letter. Your hardship letter should always
state that you seek a short sale so that you won't have to do a
foreclosure.You should also consider your assets when submitting for
short sale. Your short sale bank will ask you to fill out a financial
worksheet listing all of your assets. If they find that you have a
bunch of money lying around they could deny the short sale because
they see that you have funds to get caught up on payments. Another
common possibility is for you to be granted a short sale but your
lender will ask you to pay back part of the shortage with a promissory
note. This can still be a good solution for a seller who must sell
their home who has the ability to pay back a reduced amount of their
mortgage loan.Negative Amortization Some loans that were formed
before the housing bubble allowed for negative amortization. The
amount of payment made every month is not adequate to cover the loan
interest. A lender will consider a short sale in these
situations.Aggressive Secondary Financing Throughout the housing
expansion period some lenders were creating second mortgages for more
than the house was worth. This is another situation that will be
considered when requesting a short sale. Second and Third mortgages
get a little tricky when doing a short sale but a good agent will have
experience in dealing with these tough situations.The importance of a
knowledgeable realtor cannot be overlooked when doing a short sale.
Remember most agents do not know how to do a short sale. Make sure you
do your research and find the best agent for your short sale
situation.