The Mortgage Blog

This is just a little follow up of the piece I wrote earlier this month “I Owe More Than My House is Worth!” There have been a number of questions about Short Sales and I have a few answers.

The definition of a Short Sale is when you owe more on a property than it can be sold for and your lender agrees to accept less money than they are owed in an effort to keep the home from going into foreclosure. No lender wants to foreclose on anyone. It’s a lot of work and nobody wins.

What Steps Do I Need to Take for a Short Sale? Well, the first thing is to verify the value of the property. In order for a lender to consider a short sale they will first want to appraise the home. They will have to justify why they took less than they were owed on the loan.

Next, you want to add up all of the costs of selling the property. These will include Real Estate commissions, transfer taxes, closing costs and title fees.

Then get the balances of all loans owed on the home. Don’t forget, the principal balance is not the payoff. The payoff will include accrued interest and any unpaid late fees, etc.

Add all of these things up and the total is the amount needed to walk away from the home even money. If these costs total more than the value of the property the difference is the “Short Sale” amount. This is the amount the lender stands to lose if it accepts the sale.

How Does the Short Sale Affect the Owners Credit Rating? This is somewhat of a gray area. It doesn’t have to have any negative impact on the owners credit score as long as the owner continues to make the mortgage payments on time. If you miss payments at anytime during the loan term these will show up on your credit report and can lower your credit score dramatically. Of course, one of the main factors in evaluating a loan application is the borrowers past history with making payments on time. So, keep those payments on schedule! The short sale, if handled correctly, should not result in a major black mark on your credit.

Ken Mascia, Loan Officer

This article was originally posted on Maureen's Blog

That’s a tough spot to be in pal. With today’s real estate market and some very aggressive mortgage lending tactics, this has become all too common. Many lenders encourage people to borrow all of their equity and in many cases, on an interest only loan! This is truly a recipe for self destruction. When you owe money, the general idea is to try to pay it back. At least that’s what Mom always said. Anyway, if you’re in this situation, for whatever reason, what are your options?

One option that should not even be considered is stopping making payments on the house and giving it back to the bank! Otherwise known as foreclosure. The bank can still go after you for the shortfall after the house is sold. Plus, your credit will be destroyed. Not cool.

Another possibility is renting the home to someone else so you can go out and buy a new house. This will work great as long as you can get enough rent to cover most, or all, of the house payment.

If you really have to get out of the house, then you may have to sell at a loss. In some extreme circumstances, it may make sense to bring money to closing to get out of the situation and move on with your life.

Maybe your lender will allow a “short sale”? This is when the sales price does not cover the mortgage payoff and your bank agrees to eat the difference. Doesn’t happen often, but it may worth at least a phone call to see if they would consider it. This would probably only be allowed if your having some extreme financial trouble and the bank feels it’s the best way out for them.

As a last resort, you may be able to voluntarily give the property back to the lender. This is known as “Deed in-lieu of Foreclosure” and is generally only done if you are behind on your payments and the bank agrees to take the house back. This is not nearly as damaging to your credit as a foreclosure. A call to your lender can determine if this is a possibility.

Finally, watch out for scammers! Someone may offer to buy you out of the house and take over your house payments. Never give someone else the responsibility to pay for your loan. If they don’t make the payments, you are the one who gets foreclosed on and your credit is ruined – not theirs. If someone offers to do something to get you out of this mess that sounds too good to be true – it is!!

Ken Mascia, Loan Officer

Originally posted on miOaklandCounty.com