Is a Short Sale a Foreclosure?

The question was recently asked of me what the difference between a short sale and a foreclosure is.  Since I assume most people have a general understanding of what a foreclosure is, I will focus on explaining what exactly a short sale is.

The short sale addendum defines a short sale as “a transaction in which any Lien Holder releases it’s lien against the property and (a) accepts an amount less than the full amount Lien Holder claims is owed or (b) treats the debt secured by the Lien differently than as originally provided for in the evidence of debt (such as a promissory note).  Ok now in simple English, a short sale is an alternative to a foreclosure that may be less detrimental to the homeowner.

Let’s say John Smith bought a home at the height of the real estate market and today he is upside down on it (owes more than it’s worth).  Now if John like many Americans falls on tough financial times, he may no longer be able to afford his monthly mortgage payment.  Furthermore, John may not be able to afford to sell his home for less than the loan amount and bring the difference to closing to pay back the lender.  However, if John can document his inability to repay the loan, with the help of his Realtor® he may be able to negotiate a short sale with the Lien Holder.  In the short sale, the Lien Holder would agree to accept an amount less than what is actually owed, there by making it possible for John to sell the home without it being foreclosed upon.

It is important to understand however, that short sales are by no means the perfect solution.  Sometimes the Lien Holder does not agree to release the Seller from the unpaid portion of the debt and the Seller may remain liable for the debt after closing.  There for, as I said in the beginning, a short sale is an “alternative” to foreclosure not a solution or fix all.

If you have any questions about this or think you may need to try to negotiate a short sale with your Lien Holder, please feel free to contact me anytime.  You can also find lots more information on Summit County Real Estate on my web site

                                            

All the best,

Tyler MacGuire  e-PRO® SFR

Broker Associate

Omni Real Estate Company

Office: 970-468-2740

Mobile: 970-409-7779    

Web: www.tylermacguire.com

       

“Your Guide to Summit County Real Estate” 

Should I Be Talking With a Lender?

Often, buyers will ask me at what point in the buying process they need to sit down with a lender.  Furthermore, many times buyers are apprehensive about speaking with a lender as the will have to disclose all of their financial history including income, debts and their credit scores.  However, it is to the buyer's benefit to get a lender involved in the home buying process as early as possible…and by early, I mean as soon as you start considering purchasing a home.

By sitting down with a lender you can get pre qualified for a loan.  The prequalification process consists of answering the lenders questions about your income, debts and credit scores.  Once the lender has this information they can estimate not only how much house you can afford but, how much your monthly payments will be at different price points.  As a buyer this information is very important as it will dictate what properties you look at and ensure that you are not wasting time looking at properties that you either cannot afford or, are far below your purchasing power.

                

Once you have been prequalified for a loan the lender will ask you to provide documentation of your income and debts.  This will typically include bank statements, tax returns and a full credit report.  Once this is done the lender can issue a Pre Approval Letter that assures your ability to secure a loan.  When you make an offer on a home, you can attach a copy of the pre approval letter to demonstrate to the seller that you are a well qualified buyer who will be able to secure a loan to purchase their property.  Without a Pre Approval Letter, the seller will likely be apprehensive to accept your offer as they will have to take their home off the market while you start the loan process.  If you fail to secure a loan, the seller will have lost valuable time trying to sell their home and will have to start the process over.  Furthermore, if you end up in a situation where multiple buyers are making an offer on the property you want, a Pre Approval Letter will make your offer more attractive to the seller.

As always, if you have any questions, or would like a list of top notch Summit County Lenders please feel free to contact me anytime at the information below.  I am always happy to discuss your Summit County Real Estate goals.

All the best,

Tyler MacGuire

Broker Associate
Omni Real Estate Company

Cell: 970-409-7779

Email: tylermacguire@hotmail.com

Web:   www.tylermacguire.com  
         

      

"Your Guide to Summit County Real Estate"