Are you “under water” with your mortgage?
There are so many reasons that debt can sneak up on us and start to get the upper hand. Perhaps we have had to refinance our property to care for a loved one, to pay for an unexpected health concern, or simply to pay the bills if a main breadwinner loses a job. It isn’t long until we owe as much or more on the house as it could sell for. We can feel trapped when we get to a point where we’d like to sell our property fast, for cash, just to avoid foreclosure and the years of damage that will happen to our credit. But when we owe more than it’s worth, selling our home on the market just isn’t an option any more. That’s when a short sale can be the right thing.
You may feel very isolated and alone, but many folks are facing a similar stress in their lives, as the economic downturn associated with the Coronovirus pandemic has left millions out of work and unable to keep their mortgage payments current. Right now, many are only able to live by letting their house payments slide, knowing that it will be awhile before the banks are able to foreclose.
There is an old saying: ” the mills of the gods grind slowly, but exceedingly fine”. Unfortunately, the day of reckoning will surely come one day. Is it best to just sit and wait for the bank to get around to forcing you out of your home with a foreclosure? or may there be a better option than to watch your credit be destroyed for years to come?
Short Selling your Property
A Short Sale involves asking the bank to lower the mortgage value so that the property can be sold on the market for its present value. It’s an important legal maneuver to help you walk away with the least amount of damage to your creditworthiness. However, if the bank agrees to a short sale, where they will lower the mortgage value, then they will not allow you, the seller, to walk away with any money from the sale.
Pros and Cons: (compared to a foreclosure)
- Reduce credit damage: a mortgage settlement will cause less damage than a foreclosure or bankruptcy.
- Possible “relocation fees” can be paid to you, the seller, up to $10,000.
- In two years you may apply for a FNMA (Fanny Mae) sponsored loan. (After a foreclosure, expect to wait 5 years).
- Bank may forgive a “deficiency judgment” which let’s you off the hook for the amount of the loan the bank will forgive. Otherwise, even though your mortgage is reduced, the bank or collection agency can hound you for the “forgiven” money for years.
- Right thing to do: with a short sale you are negotiating and discharging, not abandoning your obligation of payment.
- There is a possiblity that in some cases your credit may be negatively impacted with a deficiency judgment.
- The bank’s reduction of your mortgage may a negative credit impact as well, but a reduced impact compared to foreclosure or bankruptcy.
- Paperwork: As the mortgage holder, you will need to demonstrate the particulars of your hardship to the bank.
- Time: it may take several months for completion of the process , although you may be able to remain in your home during this period.
How the short sale process works:
Short selling your property is quite a bit more complicated than turning it over to a realtor to sell on the market. Once you decide that a short sale is the best option for you, an investor (to purchase the property) and a realtor who specializes in short sales can be called in to help make the deal happen.
- Purchase contract signed by the you, (the owner), and the buyer (investor) but with the clause: “sale is contingent to bank’s approval of the short sale”.
- Authorization to Release information – given by the you, the owner, so either of the parties above can negotiate with the bank on your behalf
- Hardship letter – written by you the seller saying why you can’t pay the mortgage and it’s impossible for you to catch up.
- Income Statement from the owner – showing how much your income is and the expenses you have without the house payment. This will give the bank a clear picture of why you can no longer afford the house payment.
- Comparative Market Analysis done by a licensed real estate agent – particularly of any foreclosed properties in your nearby area in the past 90-120 days. The idea is to show the bank that foreclosing on this property will be costlier than accepting the buyer’s offer. For example, if foreclosed properties sold for $300K, it could make sense for the bank to accept your buyer’s offer of $385K.
- Have at least 2 rehab estimates done by a licensed and bonded general contractor – showing how much repair the property needs
- Pictures of the repairs needed speak many words – banks are afraid of mold, water leaks, and foundation/structural issues. If the property has these the chance of shortsale approval is higher.
- Cover letter from the buyer – explaining why it makes sense for the bank to accept the shortsale offer.
How we can help.
All things being equal, banks prefer a cash purchase over short selling your property to a buyer that has to qualify for a loan. JR Berger Properties has the resources to make a cash offer to the bank with a quick closing, often less than a month. We provide experienced team players such as experienced realtors, a short sale negotiator, and even an attorney to make sure that everything about this complex process runs as smooth as possible. Get in touch with us today, and let’s have a chat about what you’re facing, and how we can help you…
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