Short Sales

Ray Caran asked: This is not to be considered legal advice. Legal advice can only be given by licensed attorneys from your state and we recommend that you hire an attorney. Short sales are becoming more and more popular when buying a foreclosure just because of the huge discounts they offer. These sales are another method of buying real estate when in one of the three stages of the foreclosure process: pre-foreclosure, foreclosure auction, and bank owned properties REO. Foreclosure is a process in which the estate becomes the absolute property of the lending institution. It starts when a home owner is faced a foreclosure suit against their financial interest in a property. They have missed numerous payments on the first mortgage. Often that same property owner has also missed payments on a second mortgage. Rarely, there might even be a third mortgage. A short sale is basically an offer from an investor to the first and/or second note holder offering a discount to purchase and pay off the notes. Benefit to the Property Owner: An investor pays off the mortgage averting foreclosure and a stain on the property owners’ credit report Benefit to Investor: Buys a property at a discount often gaining immediate substantial equity. Benefit to Mortgage Holder: First mortgage holder gets less than owed for a property but does not add it to their ever growing list of REOs. From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process – attorney fee’s, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. They would rather discount a mortgage than go to the courthouse steps. Any additional note holder, that is, second or third mortgage holder will likely not get any money in a foreclosure. A substantially lower offer may be accepted as they will probably feel that anything gained is better than losing everything. Disadvantages to the Property Owner: There is a possibility that the homeowner may lose all equity. This may include any down payment made to purchase the property originally. The new owner may insist the old owner vacate the property. The original homeowner may still owe the difference between the balance of the mortgage and the discounted amount as a result a deficiency judgment. If granted, this judgment will affect the homeowners and their credit report. A short sale entails considerable paperwork for the investor but will frequently become a win-win situation for both the property owner and the investor. Website content

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