Short sale an exit strategy preferred by a growing number of troubled homeowners. http://www.townsrealty.com
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Orlando, FL (PRWEB) December 30, 2009
Yes a Short Sale can avoid a Foreclosure
This is the purpose of it. Otherwise banks would not approve it.
Is the loss on a Short Sale greater than Foreclosure?
No, a Foreclosure Sale will always cost the homeowner, the lender and their communities thousands of dollars less.
Promissory Note in Short Sale:
Example: If a homeowner owes $200,000.00 dollars to Bank A on their first mortgage, and $100,00.00 dollars to Bank B on their second mortgage and/or equity line of credit also known as a HELOC.
The property’s fair market value is $175,000.00 dollars and is sold for this price.
In most cases, Bank A forgives all of the remaining balance. Then Bank B forgives $90,000.00 dollars but asks homeowner to sign an unsecured promissory note for the outstanding balance of $10,000 dollars.
This is a win win situation, because nine out of ten times the new note is at 0% interest which is much less than the original note of $100,000.00 dollars and there will be no Foreclosure judgment entered against the homeowner even if the homeowner never pays this new note on the property. The new note is unsecured and the property was sold without having to be foreclosed on.
To make matters ever more clear; if the property is already sold and if there were a foreclosure filed it would have been filed by the first mortgage and not the second mortgage.
In summary what is better, being sued by two mortgage companies for $300,000.00 dollars or an unsecured mortgage for $10,000.00 Dollars? Maybe the $10,000.00 dollar unsecured note is a better option if you were to default.
Is the new unsecured note is a legal contract?
This is what the most argue all the time, of course it's a legal contract, but so were the previous promissory notes. Which in most cases is a HELOC that most lenders had language in the note stating that the HELOC note could be with or without collateral, meaning that it could even survive Foreclosure and become a unsecured debt just like a credit card, which is what a HELOC essentially is, a credit card secured by a piece of property nothing but that.
This is also another myth. Most do not realize that the taxes in a Short Sale are no different than in a Foreclosure. If the property is taken in a Foreclosure, the court Sale in most cases will usually sell for less than Fair Market Value. This makes the situation worse for the Borrower and for the Mortgage Company. Ultimately the whole neighborhood will suffer.
If the property is the borrowers principal residence there may or may not be any taxes owed on a Short Sale. Please see The Mortgage Debt Relief Act of 2007. And IRS Publication 4681,
In every Short Sale situation Albert Stimer has come across, and it is hundreds, He has never had an attorney advise any of his clients not to sign an unsecured promissory note for a fraction of the original note and risk a potential deficiency judgment after Foreclosure. As said above, it is a win win situation.
Always interview the agent or broker before hiring them. Ask for written references and experience.
By no means is a Short Sale an easy process. This is a one shot deal. There is not any room for mistakes.
Unfortunately there are a lot of amateurs in this market trying to do Short Sales and are not successful at getting them approved. As mentioned, this is a one shot deal and if submitted to the lender incorrectly it could cost you the Short Sale of your property. There are a lot of good people going through very difficult financial times and unfortunately there are many amateurs taking advantage of these people. Don’t let that be you.
Albert Stimer is the managing Real Estate Broker with Towns Realty in Florida.Albert Stimer is not a lawyer or tax professional and cannot render such advices. Please retain such professionals if you have legal or tax questions.Mr. Stimer has done and overseen hundreds of Short Sale situations and transactions. He has a passion for helping homeowners in these difficult times.Mr. Stimer has been asked to teach and has taught numerous classes at local Realtors Associations Pro Bono just to help educate his fellow brokers and realtors.For Free Short Sale consultation dial 800-587-3693 or visit http://www.townsrealty.com or at his blog at http://www.albertstimer.com###