Re al Estat e BY TARA KELLEHER
Avoiding Foreclosure: The Short Sale
T oday’s housing market buzz words “short
sale” and “foreclosure” have been around
for years. Only now we hear it on a regular basis.
Changing events include efforts to stimulate the
economy, while other events are happening to
avoid further mortgage crisis and falling real
estate prices. There is help available for those who
are currently affected by this unfortunate chain
of events to avoid foreclosure on their current
primary residences.
The short sale
A “short sale,” or short on the loan, means that the
value of the home for sale is currently less than
the mortgage or mortgages recorded on the home,
and that the proceeds will fall short of the debt
owed at the closing. In many cases these homes
were recently purchased and the borrower was
approved for a loan with high loan to value, and
was relying on property values appreciating in
the near future, and/or the mortgagee being able
to afford the adjustment on a limited time ARM
(Adjustable Rate Mortgage). Other instances
include homeowners who have borrowed against
the equity in their homes, which leaves little room
for a sale in today’s market. Yet another category
of homeowner who is seeking a short sale are
those who put money down, paid on principle,
and due to market deterioration now find
themselves without sufficient equity to sell. When
these homeowners can show a legitimate financial
hardship they may qualify for a short sale.
With the collapse of the sub-prime mortgage
industry beginning in late summer of 2005, and
with home values continuing to decline on the
heels of the crash of the financial markets in early
fall of 2008, more homeowners are being faced
with the reality that their properties have lost a
tremendous amount of equity. If a homeowner
is not planning on moving, however, and not in
or anticipating being in default on their loan(s),
then waiting for this to be over will allow time to
recover some or all of the equity position in the
home again.
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Options for homeowners
A homeowner who can foresee a change in
circumstance or hardship, and will need to sell
the home to avoid further complications, should
know that there are a few options for making a
prudent change as soon as possible. Many banks
are working hard to mitigate the loans they have
given with qualified homeowners. This is a process
by which application is made to the bank for a
renegotiated loan amount. If staying in the home
is not an option, then listing it for sale is the most
important next step toward recovery. In a short
sale, the Realtor will work with the seller and the
bank to help sell the home for the most money in
the shortest amount of time. Tara Kelleher is a resident of Barrington
Alex Charfen, founder of the Distressed
and a Realtor with RE/MAX of Barrington.
Property Institute, said, “Over one out of every
10 home loans in the United States is currently She may be reached on her direct line at
in default.” This number is expected to continue 847-826-2178 or via e-mail at
rising. Charfen goes on to say that, “Homeowners tarak@remax.net. Visit her Web site at
facing default (one missed or short payment)
www.tarakelleher.com.
on their loans, or anticipating a default, should
contact a trained and knowledgeable agent as
soon as possible.” There is help, and an educated
Avoiding foreclosure is key
agent will help avoid foreclosure at all costs. In
Once forgiveness for the debt has been granted
many cases the banks will approve a sale even with
with the bank, there is a period of time before
the short fall on the loan, given the homeowner’s
credit ratings will improve and qualifying for a
hardship situation qualifies. The listing agent for mortgage is possible. This, however, is a minimal
the property will advise the negotiator at the bank inconvenience in comparison to the long-term
of the market trends in the area that qualify the implications that going into foreclosure can cause.
homes value in today’s market. If you or someone you know is experiencing a
Mortgage forgiveness guidelines hardship or is in or nearing default status on the
Upon qualifying for and obtaining the short sale, loan of their primary residence, know that help
there are some very specific rules that apply in the is available.
year of the sale. The IRS requires forms attached
to the tax return, and it is important that the
guidelines they set are followed in order to avoid
further complications. Complete information
about the Mortgage Forgiveness Relief Act can
be found at www.irs.gov. This Web site provides
an extensive question and answer section that
explains how a homeowner may qualify for
this relief.
Reprinted With Permission - Quintessential Barrington Magazine - Copyright © 2009