Monday, September 24, 2007

Short Sales

Foreclosures and delinquency rates for mortgages are occurring in record numbers, many due to teaser-rate mortgages now adjusting upward after the housing boom of two to three years ago. Investors purchased properties either hoping to "flip" them for a profit in a short period of time, or to earn income from rentals. Higher taxes and insurance costs are making it increasingly difficult for borrowers to keep up with these payments. This is especially evident on the Emerald Coast of Florida. Now that prices have significantly decreased, these owners are in a predicament. Many have negative equity, i.e. owe the lender more on the mortgage than the property is worth. When this is the case, and the borrower needs to sell, one solution is a "short sale". The lender may allow the homeowner to sell the property for less than the mortgage payoff. The loss is either completely written off by the lender, a payment arrangement is made with the borrower, or a lump-sum for a potentially lesser amount is agreed to. The lender will make its determination based on the financial status of the borrower. For example, if the borrower has enough income and has been keeping up with payments, the lender may not be as motivated to make such an arrangement. Or, if the borrower has liquid assets that would cover the loss, the lender may not be amenable to a short sale.


Anonymous keith said...

hello wendy, i am currently looking at short sale. my concern is i currently own a home with about 60% paid. the short sale needs approx 80-100 thousand in repairs and finishing. also owner owns property at the rear with no easement, that would be landlocked. can the landlock hold up title transfer? also what kind of financing would be best if our home doesn't sell in time to make transfer?

October 23, 2008 at 6:22:00 PM CDT  
Blogger Wendy Rulnick said...

Keith: You can consider a “bridge loan” or use your home equity to enable the purchase of your new property. I would use caution, however, because your house may take a long time to sell. Most U.S. markets have declining and/or slow-paced sales. Make sure you get a home inspection. Also, hire an attorney regarding the rear-lot access.

October 23, 2008 at 6:42:00 PM CDT  

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