Foreclosure vs Short Sale

FORECLOSURE  vs  SHORT SALE

This issue has been pushed into the forefront of real estate in this area of late. It is not a subject I prefer to talk about, BUT, alot of people don't understand what either term can mean to them. And if you are headed toward foreclosure, you need to understand what it means, especially to you!

First, I need to disclose my position. I am a Realtor......I am NOT an attorney. I highly advise anyone getting into the foreclosure position, "Call an Attorney!" There, I have done what the state requires me to do.

Now, I will attempt to answer questions that you may have concerning foreclosure and/or short sales. If I don't answer your specific question, you can leave a response below OR, you can send an email to Woody419@gmail.com and I will respond directly to you.

Let's get into some definitions:

Foreclosure - Due to the homeowner not fulfilling some portion of the mortgage papers that were signed at closing, usually not making the payment, the bank can and will call the note due. If the homeowner, for whatever reason, can't catch up on the payments, the bank proceeds through the courts and will sell your note on the courthouse steps.

MOST of the time, the bank buys it back, because no one bids the amount of what is owed. At this point, the bank preceeds to vacate the house, change the locks and eventually put the house on the market and attempt to sell it for the amount owed or more if possible. In todays market, the bank usually loses money on the original debt, plus they have additional costs of getting possession of the home, namely in lawyer fees and court costs.

Short Sale - The term basically explains what happens! The home is sold for less than is owed on it! Now, think about what I just said! Sold for less than is owed on it! Why would the bank allow that to happen? The bank does not have to allow it to happen, the bank has the final word.

Basically, what happens on a short sale is.....A Realtor comes in and does a CMA (comparitive market analysis) or as the banks like to call it, A BPO (broker price opinion) to determine what the home is worth TODAY. The CMA and the listing agreement are forwarded to the bank involved, plus paperwork provided by the home owner.

The owner is required to turn in his/hers/joint last 2 tax returns, bank statements, pay stubs, etc. I know, it sounds just like what the "buyer" has to turn in when applying for a loan. It is!!!!!!! Only this time, the owner is trying to show that they CAN"T afford the loan payments, or applying for a loan in reverse.

The Banks

The banks normally only allow short sales for a handful of reasons:

1. Job Loss of one of the lienholders

2. Death of one of the leinholders

3. Job transfer

4. Major medical bills

Now, none of what I have stated in this blog, is "set in stone", so don't hold me to this. The senerio of short sales is so new to the industry, there are no "set rules". Each bank has their own rules, and even those are changing daily. What worked a month ago might not work today.

A question many of you may be having about now is, "Who pays for everything to sell a home as a short sale." Like I said earlier, "Usually" the bank pays for all the closing costs. Remember, the home is being sold for less than is owed on it.

If a homeowner can't afford to sell the home, pay Realtor and attorney fees, release fees and any other associated fees with selling, then it becomes a short sale and the bank picks up the costs. Now, this only happens when the bank gives their approval of the short sale.

AND, the homeowner will not walk away with any money from the closing, if the bank has to pay any expenses.

Final Thought

There is one more item I want to discuss. If the bank approves the short sale, and the home is sold for less than owed, or if the home is foreclosed on, the bank has the right to come after you later to make you pay the difference. It is discussed in that stack of paperwork you signed at closing when you bought your home.

Some banks aren't coming after the homeowners for the money. Some are reporting the difference as a capital gain which has to be reported as income on your tax return. One of my jobs is to attempt to get a form from the bank stating they forgive the debt. Some Realtors don't even know that can be done

Now, I'm sure you can understand why I said to contact an attorney. You might also want to discuss this with your tax person. Whatever your situation, don't ignore it, talk to somebody. It won't go away.

I don't have all the answers, but on my team, 2 of us have specific training for short sales. We have a form that can get the bank to stop calling and harassing you. So, if what I have talked about today hits home and you want to talk about it, give me a call.

(804) 712-8801

Woody419@gmail.com