Top Three Reasons Banks Accept Short Sales

A short sale refers to the sale of a piece of real estate at a price that is insufficient to meet the current mortgage obligations recorded against the property. In other words, if the house is mortgaged for $450,000 but it is sold for only 400,000, the fact that the payoff is short by $50,000 makes this a short sale.

Lately the short sale is a practice mortgage lenders are accepting from homeowners who prove that they are unable to stop foreclosure proceedings on their homes from going forward. Although the bank stands to lose money in the short sale, the vast majority of financial institutions will accept such sales upon application by the borrower.

Although at face value this appears to be a somewhat nonsensical way of doing business for a bank, there are some bona fide reasons that make this a preferred method of dealing with defaulting loans. This of course is when all possibilites of a mortgage loan modification has been exhaausted. Essentially, there are three main reasons currently identified why banks are more willing than ever to go ahead with this kind of business deal.

1. Foreclosures are costly and lengthy procedures that drain a lot of additional funds from a bank. Since the properties sit empty for a period of time, there is the chance of vandalism that will further decrease the actual value of the real estate. A short sale avoids foreclosure proceedings and also protects the bank’s interest by keeping the real estate owner occupied until the time of sale.
2. Auction sales of foreclosed properties no longer pack in the buyers the way they used to. A softening real estate market has potential buyers making bids with desperate sellers and rather than bidding on foreclosed on properties that did not receive the care a sale minded seller would exercise. This of course forces banks to sometimes sell foreclosed properties at cut rate prices, greatly diminishing any funds they might hope to recover.
3. Asset protection is the number one goal of lending institutions that are currently suffering from the close scrutiny of the FDIC. Subprime mortgages have led to a great many banking institutions losing interested investors as their books reflect an abundance of bad debt. Short sales are the currently best loved method for making the bad debt go away and increasing the recovery of funds on properties that are headed for foreclosure.

Borrowers interested in finding out if they meet the qualifications for a short sale program should contact their lender as soon as possible before a foreclosure actually takes place.

Are You A Good Candidate For The Short Sale?

If you fear that a foreclosure is in your future, you are not alone. As a matter of fact, the number of foreclosures is at an all time high and it is speculated that the numbers will keep on climbing. Lenders are eyeing the softening real estate market, the recent bank bailouts by the FDIC, and also the losses they stand to incur if their foreclosure rates go up with weary eyes.

To counteract the potentially disastrous consequences this has for their competitive edge, lenders are more willing than ever to work with borrowers to either cure defaults or help them to dispose of unaffordable real estate via a short sale. During a short sale, the lender will accept an amount less than the currently outstanding balance of the home loan as payment in full on the debt and forgive the difference. In other words, if a borrower owes $350,000 on a property but can sell it for only $325,000, the bank will accept this payment and forgive the remaining $25,000.

To find out if you are a good candidate for the short sale option, you should contact your lender as soon as possible before an actual foreclosure takes place. Generally speaking, there are some overall qualifications you must meet before being even considered as a serious applicant for the program. Sometimes, a loan modification is the answer and not a short sale.

You must be headed toward foreclosure. You cannot apply for a short sale application unless your mortgage is seriously in arrears and the bank has notified you that a foreclosure action is going to be filed against you. Usually this takes place when you are three payments in arrears.

You must have no assets that could be sold to cure your mortgage default. If you have a pension plan or 401(k) account against which you could borrow money, you are not a good candidate for a short sale. Similarly, if you own any investments, other real estate, or any other assets that you are not using to pay your mortgage, then you will not be considered a qualified applicant.

You must be able to document your income and expenses and also your inability to pay your mortgage. Remember, the bank first and foremost wants to keep you in your home and making payments. The short sale is one of the secondary options if there is absolutely no way that you are going to be able to afford your home any longer. Be sure to have copies of bank statements, paystubs and other related documents to prove your case.

You must be willing to do whatever it takes to make your home attractive for a potential buyer. The goal is to squeeze out as much money as possible to lessen the debt the lender must write off. In some cases the lender will give you a predetermined figure the bank is willing to accept and it is up to you to make your house as presentable to buyers as possible.

You must ask for the short sale option. Unless you ask, the loan will proceed to the foreclosure option. Remember that not every applicant for a short sale will be accepted, but unless you request this option, you most likely will have to endure the blemish on your credit report.  As a side note, you might also look into credit card debt settlement as well to see if you can address your financial situation.

How to Avoid Foreclosure

To the financially overextended homeowner, foreclosure is a specter that never truly seems to be too far off. The last two years have marked a record increase in the foreclosures taking place nationwide, and at this point there is no end in sight. If you are finding that your home might be in jeopardy as well, learn how to avoid foreclosure and save your home or at least your credit rating!

It is true that there are only two ways to truly avoid a foreclosure: make the outstanding payments or sell your home. Within these two ways, however, there are numerous paths that seem to branch off and what may not work for one desperate homeowner is the perfect answer for another one. The result of either way is the same: foreclosure is avoided and your credit record is left intact.

The first real decision you need to make pertains to which way you want to pursue. This of course depends on the reason for falling behind on the loan in the first place. If you fell behind due to an unforeseen event that is of a short term nature, the odds are good that keeping your home is the best choice. On the other hand, if your financial situation has deteriorated to such an extent that the inability to make the monthly mortgage payments is not possible in the long term, then ridding yourself of the debt and the property are probably the better way to go.

If you choose to stay in your home and get caught up on the payments, communicate clearly and often with your lender. Explain that you are looking for ways to make the mortgage work and find out which mortgage workout solutions are available to you. In some cases your lender will ask you for a lump sum payment of past due payments while in other cases the bank will spread the total amount over a number of months. Once you are caught up, you will make your regular mortgage payment as scheduled.

Should you opt for selling your home, you may attempt to sell the property on the open market. Depending on the real estate market in your area, you may have good luck with doing so. Even if you are upside down in your loan, you do not need to despair! An option termed a short sale is a new method by which lenders will allow you to sell the home for less than is actually owed on it and they will accept the funds from the sale as payment in full on the note. You do not owe the difference and are free and clear of both the property and the debt.

Who Is A Good Loan Modification Negotiator?

Homeowners desperate to keep their homes out of foreclosure have been handed a new tool: loan modification. It is a regulatory ruling that requires many lenders to offer modifications to existing home loan terms, making it easier for homeowners to afford the homes in which they live. In some cases this involves changing an adjustable rate mortgage that is adjusting upward into a fixed rate home loan. In other cases it may be a lowering of the interest rate the homeowner requires to keep the home they are currently paying on.

Payment terms are changed, but the loan itself is not canceled. While lenders are asked to offer this service to their customers, there are few guidelines when it comes to the process the lender should require, and some are more generous than others. Similarly, some lenders will lower interest rates a fraction only after lengthy negotiations, requiring further negotiating sessions to get the loan down to an affordable amount the homeowner can actually find the money for.

Since homeowners this desperate are notoriously incapable of being levelheaded and willing to negotiate without letting emotions, frustrations and anxiety take over, it is almost always recommended that individuals search for a professional agent to take on their loan modification negotiations. Those wondering just exactly who is a good loan modification negotiator should keep in mind that it is wise to choose an agency that has a record performing this service on behalf of home owners.

In addition, the agents should know of and understand the guidelines set forth by RESPA and TILA. Any agent assigned to a specific homeowner should be careful to listen and help ascertain the bottom line figure to which the loan must be modified in order for the homeowner to get out from under the threat of foreclosure. This amount is different for every homeowner and it is up to a skilled negotiator to help their client arrive at this figure.

The negotiator furthermore needs to understand the gravity of the situation: a primary residence is at stake and failure to negotiate the best terms possible will lead to a family losing a home. This kind of seriousness should accompany all conversations the negotiator has with the lender on behalf of the mortgage customer. Finally, the right negotiator belongs to an agency, law firm, or governmental agency that has extensive records with respect to the negotiation tools and schemes used by various lenders, how to approach the lender best, and also the bottom line the lender – thus far – was willing to meet.

What You Need to Know About Loan Modification

If you are a homeowner that is struggling to meet your mortgage payments now that the initial term of your interest only mortgage loan is over and your payments are going up you should consider a loan modification to bring your mortgage payment down to something you can afford and to keep your home out of foreclosure. A loan modification is not a consolidation or a refinancing.

A loan modification is only for your mortgage and it changes the terms of your original loan to make the monthly payment more affordable. Unlike a refinancing or a consolidation you are not taking out a new loan to pay off the mortgage you are just changing the terms of the original loan. Here are a few more facts you need to know about loan modification:

Lenders usually are willing to work with homeowners to find a loan modification that will lower the monthly payment for the homeowner while still incorporating the cost of the fees from the original loan and the fees from the loan modification so that the lender still makes money. For most lenders negotiating a loan modification with a homeowner is much less expensive than the foreclosure procedure and the cost of reselling the property.

Any homeowner that has a monthly payment that has become too high for them to pay because of an interest only mortgage loan or because of a change in life circumstances that reduces their ability to pay a mortgage can qualify for a loan modification. What you need to qualify for a loan modification is verifiable income and proof that your ability to pay the mortgage was compromised either by an increase in the rate of the mortgage or by a reduction in your monthly income.

You don’t have to wait until your home is in foreclosure to start the process of negotiating for a loan modification. In fact, it’s better if you don’t wait. As soon as you realize that your monthly mortgage payments are going to become more than you can comfortably afford you should start the process of asking for a loan modification.

A loan modification typically takes a month or so before you see any real change in your monthly payment although some home owners can have a loan modification agreement in as little as two weeks which can mean almost immediate help dealing with a high mortgage payment. The sooner that you start the process of negotiating a loan modification with your lender the sooner your monthly payment will drop. So don’t wait until you are already in serious financial trouble to start the process.

It helps to have a legal specialist that is experienced in negotiating loan modifications working for you to represent your interests to the mortgage company. The lender is going to be doing everything they can to protect their financial interest in your home, so you should have a specialist working for you to protect your financial interest in the negotiation. Hiring a loan modification specialist is a very smart thing to do when you want to get the best terms on a loan modification.

Quick Facts about Loan Modification

If you are having trouble making your current mortgage payments and you’re worried about foreclosure a loan modification might be something that can help you keep your home.  Many banks and lenders are much more willing to work with you if you have a loan modification instead of just a refinance agreement so before you agree to refinance your mortgage you should find out more about the possibility of using a loan modification to reduce your monthly mortgage payments to something that you can easily afford.

What is a Loan Modification?

A loan modification is when one or more of the original terms of a mortgage loan are changed.  Usually a loan modification is a restructuring of the original loan that lowers the monthly payment that the mortgage holder is responsible for.  A loan modification is preferred by lenders so if you are in the early states of foreclosure and are trying to work out an agreement with your lender that lender will probably be willing to work with you if you agree to a loan modification instead of a mortgage refinance.  Loan modifications can stop the foreclosure clock because you are modifying the original loan not setting up a new one.

What are the Benefits of a Loan Modification over a Refinance?

When you opt for a loan modification instead of a home refinancing there are several benefits to both you and the lender.  Because you are still working with the original mortgage loan your credit is not going to be damaged by late or missed payments or by a foreclosure like it would be if you went with a straight refinancing. Lenders prefer using loan modifications to help borrowers find a monthly payment that they can afford because the costs associated with the loan modification are rolled into the loan modification and are repaid over time so that the lender is not really losing any money. And in the current economy it’s in the lender’s best interest to help homeowners find a payment they can afford and keep them in the home rather than go through an expensive foreclosure process.

Who can qualify for a Loan Modification?

There are really only three qualifications that you need to meet in order to be eligible for a loan modification. First of all you need to have a job or some time of verifiable income that is well documented.  Second you need to be able to show that your current income is not enough to meet your monthly mortgage payment without making it impossible for you to live. Third the house that you are seeking a loan modification for must be your primary residence; you can’t get a loan modification on a summer home or a vacation home. As long you meet those criteria you can qualify for a loan modification. If you are having trouble making your monthly mortgage payment and you need to find a way to reduce the cost of that payment or risk foreclosure, or if you are already in foreclosure, talk to your lender about a loan modification. You still might be able to save your home and your credit.

The Skinny on Short Sales

Short sales are hailed as the answer to the current mortgage crisis. Generally speaking, a short sale is little more than the lender agreeing with the borrower to accept an amount that is less than the currently outstanding balance of the mortgage. The lender will treat the payment as though the note was paid in full, and both lender and borrower walk away from the loan. In order to facilitate this payoff, the borrower agrees to sell the property at or above a certain asking price.

 

This has serious implications for the actual real estate transactions since the potential buyer is not negotiating with the seller directly but instead with an agent of the bank. At times this has been known to add a lot of delay in the proceedings and some buyers have walked away from such transactions simply because they did not want to deal with the intricacies of such a more complicated transaction.

 

Even as not every buyer will eye this opportunity as desirable, some are willing to jump on these short sales. Perhaps this is the reason why it is so surprising that there are comparatively few homeowners facing foreclosure who actually are aware of this option altogether. It stands to reason that a bank will seek to avoid foreclosures whenever possible. After all, auctions do not hold as much promise in the current housing market as they used to and in addition the bad loans that are on the books of a bank’s balance sheet make them singularly unattractive to potential investors.

 

Of course, the skinny on short sales also demands that the home owner understands that this option is not open to each and every borrower facing foreclosure; instead, there needs to be a demonstrable financial hardship that makes it next to impossible for the borrower to pay the difference between the lowered payoff amount and the actual outstanding balance of the mortgage.

 

If all conditions set forth by the lender are met and the borrower can prove their inability to make good on the loan or at least the difference between the payoff and sale price, the lender is likely to agree to the short sale. There are times that a loan modification is a better option for the borrower. Yet even so, there is a significant slowing in the overall sale process and it takes a dedicated buyer or investor with an eye on the property to wait patiently for the approvals.

 

Hiring The Right Agent For Your Loan Modification

The current mortgage crisis is leaving a lot of homeowners floundering in the wake of soaring interest rates and a softening real estate market. Some who started out with a great property and a good loan soon realized that they ended up being upside down in their loans and when the financial going got tough, there was no way to refinance the mortgage via regular channels.

At this juncture the threat of losing the home to foreclosure is imminent. Fortunately for home owners, there are a number of agencies specializing in a practice called loan modification. In the course of such a modification the homeowner remains in his/her house, keeps the mortgage loan they currently have, and even continues with a relatively clean credit record; the only thing that changes are the terms of the home loan.

Hiring the right company for your loan modification is an important step in this process. It is true that you could go ahead and simply negotiate with your mortgage lender yourself, but doing so might not yield the results you are hoping for. In some cases lenders are very stingy with their willingness to modify the terms of a mortgage significantly and the homeowner who may not be a skilled or practiced negotiator fails to change the terms to the most advantageous they could be.

With the help of expert negotiators, however, terms are sometimes renegotiated to such an extent that the family’s budget is completely changed and where previously money was tight and stress was part of the daily lifestyle, soon there is a bit of extra money and no more arguments about money! On the Internet, loan-modification411.com is one of only few websites connecting you to such companies.

Prior to enlisting the help of loan modification agents it is advisable for homeowners to thoroughly research the company offering the service and also get a good understanding of the company’s Better Business Bureau rating. Finally, those who will hire a loan modification agent should ensure that the company’s agents are well versed with RESPA and TILA guidelines, and that any financial arrangements are affordable.