Farmington Hills, Michigan (PRWEB) March 31, 2013
Home owners who find themselves upside down in their home have several choices to make when confronted with a home value that is substantially less than their mortgage. They can stay and do nothing in hopes that the value of their home will appreciate someday. They can try to modify their mortgage with their lender. Finally, if they need to leave the home for financial reasons or otherwise, they can either default on their mortgage which will lead to a foreclosure, or they can short sell their home.
The term "short sale" has become a popular term in recent years and simply means that assuming there is a mortgage on the home, the lender will have to approve of a home sale in which the sale proceeds less than what is owed on the home. Real estate agents who market themselves as "short sale" specialist are simply real estate agents who sell your home for less than the mortgage amount. Please note, there is no federal or state licenses for a "short sale" specialist. It is just a title that real estate agents like to use so as to impress less knowledgeable home owners. Here is what your real estate agent most likely will not tell you:
1. Short sale approvals are not automatic. Despite what your agent may tell you when listing your home, when considering a short sale request, lenders look at an extensive financial statement and hardship application from the home owner. Lenders also look at the marketing area of a home, assess comparable home values, and then determine your financial ability to repay the current mortgage. Also note: Lenders can allow the short sale to go forward, but still require the home owner to make payment arrangements on the balance of the loan even after the home sells.
2. A short sale happens only upon the home sale. If you are able to do so, do not stop making payments to lender while the home is being listed. Failure to do so will affect your credit. Don't listen to anyone who tells you to stop making payments. What happens if the home never sells? Now you have a mortgage default and a possible foreclosure. When completed, a short sale will also be reflected upon your credit report and can last anywhere from 3 -5 years. And while is better than having a foreclosure reported on your credit, it still affects your ability to obtain future new home financing. It is said that a short sale will cause a credit score to decline by 150 points.
3. Arms -lengths agreements are contacts just like your mortgage agreement. Some lenders have short sale agreements that restrict the home buyer in a short sale from selling the home back to original home owner. Called an Arms- Length Sales agreements require buyers, mortgage brokers, real estate agents and title companies to attest that the short sale is at arms length. The restrictions usually have a 12 month time frame. Be very careful. This agreement is a valid contract and has the same weight as the original mortgage. Don't be tempted to breach this contract with the lender. Having to pay back the entire balance is but one far-reaching consequences of breaking your arms-length agreement.
4. Deal directly with the bank. Your success at obtaining a short sale may depend on the representative you work or not work with. It is rumored that some major lenders would rather have the homeowner contact them directly; That they give borrowers better short sale deals than if they go through a real estate agent. I can see real estate agents scoff at this because in many cases without the agents assistance, the process, already lengthy, would take even longer without agent. In summation, the jury is still out on this matter.
5. Choose the right professional. A consistent theme of my articles is that a home or business owner should always retain a competent professional. Don't let anyone tell you to cut corners. There is a reason for the adage: "Measure twice, cut once." When it comes to a short sale, consult with a qualified real estate attorney to discuss the consequences of the short sale. Legal opinions are based upon legal experience when opining on an existing mortgage obligations, tax ramification, promissory note deficiencies, subordinations, discharges, title issues, and negotiated settlements. Remember, only attorneys can give you legal opinions. And as a courtesy, your attorney should leave the home selling to your real estate agent.
David Soble is a real estate and finance managing attorney with the multi-disciplinary firm of Proven Resource, a legal and financial relief firm. He has over 23 years legal and practical expertise representing commercial and residential mortgage lenders, national banks, loan servicers, business and home owners.