Facing Foreclosure? Thinking about Doing a Short Sale? Here are the Answers to 10 Frequently Asked Short Sale Questions
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If you’re facing foreclosure, one of the things you can do to avoid it is conduct a short sale.
What is a short sale?
In case you don’t know, a short sale is when you sell your home for less than what it owed on it. We’ll go over the definition again inteh article below. Also, you can learn much more about short sales in a week-long series we did on this topic last summer. The entire series of posts — which covers everything from tax implications to what to expect during the process — are as follows:
Now, on to the article entitled . . .
10 Frequently Asked Short Sale Questions
After reading the above series of articles, you should have a really good grasp of what shorts sales are and the pros and cons of selling your home this way. For more clarifying detail, following are some commonly asked questions about this real estate transaction (from both a seller and a buyer’s point of view).
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1. What happens to the seller’s credit rating when they allow an investor to short sell their property?
What typically happens is the loan will show up as “paid” on their credit report; however there will be a notation that says “settled for less than originally owed” or something along these lines. It is more favorable for a homeowner to short sell than to have a foreclosure on their credit report.
2. Where do you find investors for Short Sales?
Depending on where you live, you may see investors who advertise with bandit signs or in your local newspaper. Call the investors directly and ask them if they are experienced in doing short sales and if they would be interested in working with you. Another good place is your local real estate investors’ club meeting.
3. Define Short Sale?
A short sale is really a form of pre-foreclosure sale and occurs when the mortgagee agrees to accept less than the loan amount to avoid foreclosure. A negotiated short sale results in a discounted purchase price for the buyer. The buyer would finance the acquisition much the same as in any conventional realty acquisition . . . but without the luxury of time.
4. Can a homeowner (seller) profit from a short sale?
The seller cannot profit (monetarily) from a pre-foreclosure short sale. But there are always exceptions to the rule.
5. How do bankruptcies affect the possibility of doing a short sale?
Most mortgagees won’t consider a short sale if the homeowner is in bankruptcy. Why? Because negotiating a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcy.
6. Can somebody tell me what documents do I have to include in a short sale package?
What’s required varies from lender to lender, so there is no cut and dried answer. In short, documents needed depend on the lender and each lender has different requirements. It is typical to require the following: a hardship letter, a purchase and sales contract, ECOR, a settlement statement (HUD 1), net sheet, pay stubs, bank statements, a personal financial sheet (monthly budget), etc.
7. What percentage of mortgage companies send someone out for an appraisal on a possible short sale?
All lenders order a BPO or full appraisal of the property before making their decision to accept or reject the short sale offer. This is there only way of assessing the value of the property.
8. How late in the pre-foreclosure process can you start a short sale?
Try to allow a window of at least 90 days to effectuate a mortgagee- approved, pre-foreclosure short sale.
9. What is a Due on Sale Clause?
“Due on Sale” Clause (DOS) Provision in a mortgage or deed of trust calling for the total payoff of the loan balance in the event of a sale or transfer of title to the secured real property. A contract provision which authorizes the lender, at its option, to declare immediately due and payable sums secured by the lender’s security instrument upon a sale of all or any part of the real property securing the loan without the lender’s prior written consent.
For purposes of this definition, a sale or transfer means the conveyance of real property of any right, title or interest therein, whether legal or equitable, whether voluntary or involuntary, by for deed, leasehold interest with a term greater than three years, lease-option contract or any other method of conveyance of real property interests. Standard language which states that the loan must be paid when a house is sold.
10. Will banks allow a short sale when the owner has some or a good amount of equity?
If a property has what the lender would consider a substantial amount of equity, chances are they would consider allowing the property to foreclose and then reselling it closer to the retail value. Focus on homes that do not have much equity. Your job will be to create the equity in the home by negotiating a successful short sale.
About the Author: Mr. Fowler has been a real estate investor for over 15 years specializing in the area of pre-foreclosure/short sale investing. He has bought and sold over 200 homes in Georgia, Florida, Louisiana, and Tennessee using the same short sale techniques that he teaches in his course, Making Money with Short Sales: The Complete Guide to Acquiring Property Pre-Foreclosure. Mr. Fowler currently resides in Atlanta Georgia. He also spends many hours per month teaching his creative real estate investing techniques to other aspiring investors across the country.
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Copyright ©2012 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.