Finance Roll

Short sales are becoming the wave of the future for lenders that find themselves enforcing the foreclosure process. A short sale saves them time and money, plus it just makes more sense to cut their losses early with a solid offer on the table instead of listing with a real estate agent and wonder when that particular property may sale.

With the rise in foreclosures mortgage companies are going out of business left and right. Filing a foreclosure and going through the entire process can cost lenders upwards of $30,000 on bread and butter houses. Selling short of the mortgage balance is also in the favor of homeowners that find themselves behind on payments in a house that is over financed.

A lot of homeowners are faced with foreclosure due the Adjustable rate mortgages and exotic loans lenders made available post 911. There are a few ways to stop foreclosure but this article focuses on the short sale process which is one of the most effective ways when a homeowners back is against the wall.

If you don't already know, a short sale is when a lender accepts a lower amount as payoff for the balance than what is actually owed on a mortgage. So if you owe $200,000, your lender might accept an offer from a buyer for the amount of $140,000, which is a discount of $60,000. A few things to take into consideration when thinking about a short sale is what are the setbacks of selling your home short?

First some lenders may come after a homeowner for the balance that is owed or the difference between the actual selling property and the amount that is owed on a mortgage. This is called a deficiency judgment. That's why it is a good idea to know the lender stance when they agreed to the purchase price. Most lenders accept the short payoff as a full payoff but they will issue a 1099 or a tax bill for the benefit of writing off the debt. Another thing you need to know unless you have a FHA loan your lender will not allow you to receive any money as a result of this type of sell. You can't blame them since they are the ones taking the hit.

Don't let someone offer money under the table as an enticement to sell your home to them. It is fraud and your lender will also have you sign off on documents that state you understand you won't receive any of the proceeds from the sale. That is agreement is to bind you and keep you from profiting from their downfall. You must understand that once you sign that agreement and the HUD settlement statement, if you do receive any money you can be fined and imprisoned for conspiracy, so don't fall into the trap.

That tax bill go to the homeowner. Don't worry, new laws have been put in place to protect homeowners from the detriment of the capital gains that come from a short sale, according to my accountant. My accountant said as long as a homeowner is insolvent or broke the 1099 can be written off by the homeowner and allows the homeowner to have a fresh start with no debt from the short sell of their homes. It is recommended that you speak to a professional tax preparer to clearly understand the tax benefits of a discounted payoff.

If your house is listed with a real estate, and you feel like you might fall behind on your mortgage payments it's best to start planning a way to sale your house properly. Ask your real estate agent how many short sales they have performed and out of the ones they have performed how many have actually closed.

As I am writing this article, most agents are not aware how to properly proceed with a short sale nor are the aware of the risk versus rewards of performing one. It may be a better idea to sale your home by owner to a buyer that has the cash and means to submit the short sale to get the ball rolling.

HUD also provides credit counseling to inform homeowners of all the different programs available to stop the foreclosure. Note a short sale is normally possible once you are 31 days late on your mortgage payments. Also short sales can help relieve the burden of a foreclosure on your credit record.

It's best to start the short process as early as possible since each 30 day block your are behind on your payments even during the process shaves points from your credit report. Plus negotiating discounted payoffs normally take 60-90 days to complete so if a foreclosure notice has been sent out more than likely you are already behind on your mortgage payments by 60-90 days, so the short sale process can cause you to be delinquent as low as 150-180 days. Although those late payments are better than a foreclosure, it best to start as early as possible. Now it's time to stop the denial concept and start to become more proactive in selling your house fast.

Alternatives to selling your house without an agent is to list your home with a flat fee agent which can save you half of the realtors commission or sale to a buyer that knows the process.