A short sale is a sale of real estate in which the net proceeds from the sale of property will fall short of the debt secured by the lien against the property. In this case, if all the lien holders agree to receive less than the amount owed on the debt, the sale of the property may be settled. Short Sales is not to be confused with the Quick Settlement.
Short sales have two intrinsic and unforeseen components. Short Sales are successful when (1) Lien Holders (aka Mortgage Companies) agree to pay less than the amount owed on the note (debt) as a result of (2) sale of arm lengths at or below the assessed value for the property. The intrinsically approved sale price defined at or less than the assessed value allows the process to be achieved. The wise buyer will not pay more than the assessed value, and the Bank or the Finance company will not give the mortgage for a value greater than the assessed value, thereby limiting the Short Selling results to the maximum gross proceeds from the Value of the property.
It is important to understand that Lien holders are not bound to receive the Assessed value and can demand a larger sale price. In this case, "Sales" with a wise arm-length buyer is no longer a reasonable or achievable expectation. Instead of a request greater than the Assessed Value (but less than the amount owed on the debt) is called "Quick Settlement". Some Lien holders will approve a Short Sale but not a Brief Settlement while demanding is greater than the Estimated Value. This is a paradox because both can not be achieved and both are destined to fail.
Therefore, "Short Sale" can only be achieved when Lien Holders are willing to accept less than what is owed on the debt while also agreeing to accept the sale price which is at or below the assessed value for the property.
Creditors holding liens against real estate may include a primary mortgage, a second mortgage, a home equity loan (HELOC), a homeowner's lien, a mechanical lien, the IRS, and a State Tax Payable, all of which must approve the sale in return for less than the amount they have to pay. Lien holders do not have to agree to receive less, but they often do because the alternative is to let property go to foreclosure.
Short sales is a more profitable alternative to foreclosures and has become commonplace in the United States since the 2007 real estate recession. Other countries have similar procedures. For example, in the UK this process is called Assisted Voluntary Sale. While short sales and foreclosures result in negative credit reporting against property owners, because owners act more responsibly and proactively by selling short, less credit impact.
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Alternative Affordable Home Termination Program (HAFA)
The HAFA program ends December 31, 2016.
In 2009 the government implemented a Profitable Home Based Program (MHA) to tackle the real estate recession and the need to help homeowners handle their real estate loans. The main components are loan modifications (Home Affordable Modification Program known as HAMP) and alternative foreclosures (Alternative Home Affordable Foreclosure known as HAFA). HAFA Ã,® gives homeowners an opportunity to get out of their homes and be released from the rest of the mortgage debt through short sales. It also provides homeowners or their tenants with up to $ 10,000 in relocation assistance. Through HAFA, you can sell your main property or rental property. After you complete a short sale of HAFA, there are exceptions to the deficiency, which means you are exempt from the remaining mortgage debt.
You may be eligible for HAFA if you meet the following basic criteria:
Ã, Â · You are struggling to make mortgage payments due to financial difficulties.
Ã, Â · You are naughty or threatened left behind on your mortgage.
Ã, Â · You acquired your mortgage on or before January 1, 2009.
Ã, Â · Your property has not been censured.
Ã, Â · You owe up to $ 729,750 in your primary residence or lease property of one to four units (higher credit limit for two to four units property).
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Short sales process
The Short Sales Facilitation Process consists of the following.
1. Contact the Main Lien holder and create an application to be accepted into their Short Selling Program. The lender will not entertain a short sale contract with the buyer unless the homeowner has been approved for their program.
2. The Lender must verify that any government program, such as Home Affordable Foreclosure Alternatives (HAFA), is explored, including relocation assistance to the borrower.
3. Upon approval, the Lender shall provide the terms of the short sale. Terms may include forgiveness for any deficiencies, Money incentives for successful closure, property must be registered on a certain date, and many other incentives.
4. Interview the real estate agent and select the most qualified person to handle your short sale (if you have not yet selected the listing agent).
5. Can help to get a Broker Price Opinion letter to set an estimate (not a valuation) of the current market value of the property. This BPO should use the comps in your direct market. Property must be listed at a higher price to show your Lender trying to get the highest price possible.
6. Monitoring the list to ensure that it is handled proactively.
7. Negotiate with Lien Junior holder for lower yield. Junior Lien holders will not get anything in foreclosure (which qualifies for short sales), therefore they have every incentive to get things done, nothing. Junior Lien's holder was allowed to pursue a personal money assessment because of any shortcomings that occurred. Negotiating to eliminate this is the most important thing for the borrower.
8. Make a short sale offer to all lien holders and negotiate with them to get sales approval.
9. Working with librarians to obtain any release of any deficiency responsibilities.
A party for short sale
Some junior lien holders and others with property interests may object to the amount earned by other lien holders. It is possible for any lien holders to prevent short sales by refusing to agree to negotiate their reduced payments to free their lien. If the lender has mortgage insurance on their loan, the insurer will likely also be the third party of this negotiation, since the insurance policy may be required to pay a claim to offset the creditor's losses. The various parties, parameters and processes involved in short sales can make it a complex and highly specialized form of debt renegotiation. Short sales have a high risk of failure for many of the reasons stated, but have the best chance of success if the right professionals are employed to facilitate.
Assessment deficiency
Unpaid balances to creditors over the payments they receive with short sales are known as deficiencies. Short sales agreements do not always free the borrower from their obligation to repay the shortage of the loan, unless specifically agreed between the parties or provided by law. Most countries allow lenders to obtain deficiency assessments after a short sale, but some states including Arizona, California, Nevada and Oregon, prohibit this. In countries where deficiency assessment may be possible after a short sale, it is important that the Short Sale and Purchase Agreement between the borrower and the lien holder includes a clear deficiency release agreement.
Credit and tax implications
Short sales will result in negative credit reporting to the borrower. However, the borrower who has sold the short property has a much shorter waiting time for the loan than the borrower who let the property go to foreclosure. With the FHA Returns to Work Program, some borrowers may qualify for a new loan a year after a short sale. It is the norm that borrowers who act responsibly with short sales are rewarded.
Short sales borrowers will receive 1099-C (C which means Debt Cancellation) after a short sale. The Mortgage Forgiveness Debt Relief Act can give you an exemption from a tax liability if a short-sold property is your primary residence. Otherwise, the property may be detailed on Schedule D as total loss and deducted accordingly (see your tax professional).
See also
- Deed instead of foreclosure
- Mortgage Forgiveness Debt Relief Act of 2007
References
External links
- "Alternative Home Alternative Foreclosure". Hud.gov . March 11, 2012.
Source of the article : Wikipedia
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