What Do All These Short Sale Terms Mean?
Selling short has been a term used primarily in the stock market for decades but it has emerged in the current real estate market.
With a stressed economy and the crisis with sub-prime mortgages, instead of appreciating, properties in many communities have declined in value to the point where they are no longer worth the price originally paid for the property.
When a homeowner is no longer in a financial position to continue making the monthly payments to the lender, he negotiates with the lender for approval to sell the property to a new buyer for less than what is owed on the loan.
It is also often referred to as a pre foreclosure sale.
The Mortgage Lender And Short Sales
Liar Loans - Ninja Loans
In the mortgage industry, they are called liar loans -- mortgages approved without requiring proof of the borrower's income or assets. The worst of them earn the nickname ninja loans, short for no income, no job and no assets.
The nation's housing market already awash with subprime foreclosures, is now getting hit with a second wave of losses as homeowners with liar loans default in record numbers. In some parts of the country, the loans are threatening to drag out the mortgage crisis for another two years. ~ Alan Zibel, AP Business Writer
Let's be clear about a few facts:
Mortgage lenders often agree to a short sale when they know that you have already used the services of a real estate broker in an attempt to get the property sold.
The longer the property would have to sit on their books, the more they lose. Selling short mitigates their losses as well as yours.
Since you have no equity and the Lender is the only one getting any money in the transaction, the real estate brokers commission fees come out of funds that would otherwise have gone to the lender.
A short sale can often be negotiated where the personal liability of the borrower is waived and therefore no deficiency judgment can be obtained for the shortfall amount.
Selling Short And Your FICO Score
Setting yourself up and planning for selling short is very important. The affect of a short sale on a seller's credit report is much less damaging than a foreclosure or many other methods of financial re-structuring. Your credit report will likely indicate a pre foreclosure in redemptive status, and the result in most cases could be a loss of 80 to 100 points.
So, if your original FICO score was 700, it may fall to 600 or 620. You can quickly recover some of those points by reducing your credit card debt. (More tips on how to improve your credit score here.)
General Tips & Info:
NEVER sign away ownership of your property, often referred to as a "quitclaim deed" to anyone without the advice of a lawyer YOU trust.
All banks have different short sale requirements and the loss mitigation departments at most banks are overwhelmed with short sale requests. Most banks won't review the file until there is an accepted offer.
Lenders are finally waking up to the fact that short sales may actually cost less and save time.
Selling short requires you to put the property on the market through a Realtor, so, hiring a real estate agent, experienced in this field, has become a necessity for selling upside down mortgaged real estate.
Each lender has their own list of requirements and documentation before considering a short sale so check and perform your own due diligence. More details for selling short here...
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Real difficulties can be overcome; it is only the imaginary ones that are unconquerable.
~ Theodore N. Vail
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