Introducing: A Simple Guide to Short Sale and Foreclosure- PART 2

Read part 1

 

Who does a Short Sale Apply to?

• Seller that has missed payments

• Seller that is in foreclosure

• Seller that is upside down in a property and must sell

• Jump in payment or balloon payment coming due

• Loss of employment / divorce / illness / family death

Note:  Seller requests short sale to avoid foreclosure

Discounts

To What Extent Do Creditors Discount?

• Creditors discount debt secured by real property based on their convenience and risk.

• If they will surely get paid they will not discount at all.

• If they will most likely get paid most of what they are are owed they may discount somewhat.

• If they will definitely lose an account but still get something at the auction, they will discount very much.

• If the creditor will most likely get nothing at the foreclosure sale, they will be inclined to discount heavily in order to get a recovery.

Why Do Creditors Discount?

• Creditors discount only when they will lose even more at the foreclosure or will end up with the property in poor condition.

• The higher the chance they will get paid at the foreclosure sale, the lesser the chance they will discount.

• The lower the chance they will get paid at foreclosure sale, the higher the chance and amount of creditors will discount.

  Who Makes Initial Contact?
  Emotions Drive Decisions

• There are very few things in this world that stir emotions as hard as real estate.  Real estate is the reason for most wars.

• When it comes to a person's home, things get very personal.

• Sellers want burden removed from them.

Realtor Disclosures

• Listing must show sale needs third party approval.

• Possibility of foreclosure

• Hold harmless- because the Lender may not approve.

• Possible tax implications- 1099C - Cancellation of Debt filed with IRS

• Possible credit consequences

• Seller may still owe to creditors

• Sellers nets no money from the sale

• See Broker for requirements- code of Ethics

• Legal vs. non-legal

• Disclose to Buyer on offer

• Disclosure about re-sale

Basic Requirements of the Lender

• Hardship letter

• Purchase Agreement / Listing Agreement / Buyer Brokerage Agreement

• Estimated settlement statement (HUD1) with commission

• Market Analysis / Appraisal

• Pay stubs, Bank Statements, W-2's, tax returns and financial statements

Time Frame

• Approximately 30-90 days with no guarantees.

• May need to extend or postpone foreclosure

• Must comply with all time frames

Get everything in writing!

Read part three

Related reading:

• Why do banks take so long to approve a short sale?

• Confessions of a short sale expert

• To short sale or foreclose? I share my experiences

• Randi Bennett talks about short sales and foreclosures