"Life After Foreclosure" or "Life Without Foreclosure?”
We know all too well that these are tough and frustrating times. The housing crisis has left millions of homeowners “upside down” on their mortgages. A bankruptcy, short sale or mortgage modification may be your only alternatives to foreclosure. But before you pay money-up-front to the mortgage modification company or bankruptcy attorney, call Rick Brenkus to learn more about short selling.
Short sales are the most acceptable way out of an unreasonable mortgage. When the bank agrees to take a short sale for your property, you can walk away knowing that your credit won’t be wiped out for the next 7 – 10 years. The Brenkus Team’s Short Sales Division works for YOU, assisting you through the complicated and changing process of working with a bank to free you from your debt.
Banks are agreeing to more short sales now than ever before. New technologies and a renewed spirit of cooperation with Realtors who specialize in short sales mark a turning point in this crisis. That’s why we call short sales “the honest man’s way out” if you’re upside down on a mortgage. The Federal Government agrees and has even started offering some valuable incentives.
Considering a possible Short Sale of your property?
Frequently Asked Questions
What is a Short Sale?
In the world of Real Estate, a short sale refers to the sale of real property for an amount less than the amount owed on the property. In the short sale scenario, the bank agrees to accept less than the full balance due on the debt, and usually ‘forgives’ all or a large portion of the difference.
How will the Short Sale affect my credit?
Short Sales are still a relatively new concept. Banks have the option of submitting the short sale to the credit bureau as "Paid in Full" or "Settled for less than full balance". There are many factors that may effect your credit score on a short sale including if payments have been missed and how many payments may have been missed. In some situations a credit score could improve by completing a short sale.
Who benefits from the Short Sale?
Short sales are a win-win situation. Lenders, Mortgagees and Realtors all benefit from the successful short sale. Mortgagors get the majority of their money back, Mortgagees get the relief they need and are able to sell their property and avoid foreclosure, and Realtors can facilitate the transaction and receive compensation (commission) from the sale of the property.
Why would banks forgive the difference?
To mitigate their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property ‘back’ through foreclosure, a short sale often makes a much wiser business decision for the bank.
This sounds too good to be true!?
Not really. Things that are ‘too good to be true’ usually don’t make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is, Mortgage companies and banks are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.
Can FHA, Conventional or VA loans receive a short sale?
Yes! Our office has successfully negotiated short sales for each of these loan types.
Why does my property have negative equity?
Here are a few common reasons:
- Person bought at the height of the market and the market has now declined or paid more than the property was worth.
- The area has become less desirable for any number of reasons, so property values have declined.
- Person purchased the home with little or no money down and wants to sell within a few years of purchase… and the property value has not increased during that time. Therefore, costs associated with selling the property may create a balance due at closing,
- Person refinanced the home (with a high appraisal value) and now has little or no equity.
- Person bought in a brand new subdivision or recently developed area that has not been fully developed or has not appreciated (or has depreciated) in value
- The market is soft because there is too much builder (new home) inventory or too many existing homes on the market (buyer’s market)
What is Negative Equity?
Also known as being "upside down" negative equity is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. For example, if your car is worth $10,000 and you owe $15,000 on it, you would have a negative equity of $5,000. Negative equity can result from a decline in the value of an asset after it is purchased.
Some areas decline in value. In other areas, prices may remain flat so that the properties in that area do not appreciate. If a seller wants to sell within 2-3 years of purchasing their property, they may be in a situation where they have negative equity.
What if I owe what my home is worth?
Even if you owe exactly what your home is worth, you may still need to do a short sale in order to pay for the costs of the sale (Realtor fees, Title Policy and other seller closing costs).
Why not just let my lender foreclose?
NO! What is the first thing banks do when they foreclose on a property? The foreclosure process is a legal process. It involves attorneys and it costs MONEY. Once they get the property back via foreclosure they must often sell it for MUCH LESS than market value and pay Realtor commissions and all customary holding and closing costs. Doesn’t it make more sense for them to take at or a little below fair market value before foreclosing?
And, even when they do sell it through foreclosure... this does NOT remove your obligation to repay the remaining balance! It is not wiped away!!!
What if I'm not behind on my payments?
Short sales work – even if you’ve never missed a payment! Yes, I know… short sales have gotten a stigma of being only available for folks who are in foreclosure. But our office has successfully negotiated short sales for folks who have never missed a mortgage payment! They just happen to be in a negative equity position and need the short sale in order to sell their home.
How long does it take?
Short sale approval time can vary. We have had transactions approved on the spot with very little documentation and others have taken several months. We have a very efficient system to move the process along in a timely manner.
What if my home is already in foreclosure?
Your foreclosure sale may be suspended during the short sale process. That's why it's imperative that you contact us right away!!!
Will my lender send me a 1099 on the debt forgiven?
In 2007 the U.S. Congress passed the Mortgage Debt Forgiveness Relief Act and it is in effect until 2012. As a result of that act, in some circumstances, the debt forgiven during a short sale of a primary residence will no longer be considered income and the homeowner would not have a tax consequence on the forgiven debt.
For investment property, the lender does have the right to report to the IRS the amount they have ‘forgiven’ in a Short Sale transaction, the amount of the resulting tax will be far less than the debt forgiven.
If the seller of an investment property is insolvent, the seller may have other options. We always recommend that a seller consult with an attorney, accountant or other tax professional.
If you have family or friend who may have questions, please feel free to pass this along.
For more information on Buying, Selling, or Short Sales, click here