Cash Flows From Collections On Credit Sales Are Usually Reported Short Sales – Getting in on the Action

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Short Sales – Getting in on the Action

A short sale is one where the property has not yet been officially foreclosed on, but the lenders have agreed to take less than what is owed on the loans in order to get the amount owed paid off.

Lenders typically allow a short sale to prevent foreclosure because they believe it will cause less financial loss than foreclosure, and it’s usually faster and less expensive than foreclosure. For the property owner, the benefits include avoiding the seizure of their credit history

Think about it this way. A short sale is a negotiation with lien holders for payment (usually for a piece of property) of less than what they are owed or less than the full amount owed, and is usually done to avoid foreclosure.

Why do mortgages get to this level?

This is because the owners have a problem. For one reason or another, owners start drowning and lenders have found that they can cut their bad loan losses by selling the property before they have to go through the formal foreclosure process.

Why are there so many?

Due to a combination of falling real estate prices and properties financed with low down payments, many owners simply owe more on their properties than they are currently worth. Others who have to sell for other reasons (moving, etc.) simply find themselves in the middle of a bad market.

Either way, when the property owner simply can’t come up with the money, the property owner’s problem becomes the lender’s problem, and the lender has the choice of either agreeing to a short sale and forgiving the outstanding debt, or foreclosing on the house and re-selling it. Remember, it’s up to the lender to make the decision, not the seller. It makes sense for lenders hoping to avoid additional foreclosures on the books to choose this option.

Selling your property

If you want to short sell your property, you may need to provide a wide variety of documentation to the lender.

  • Call the lender You may have to make many calls before you find the person responsible for the short sale. Be sure to talk to someone who is capable of making a decision.
  • Authorization This gives the lender written authority to speak with these specific interested parties, such as a real estate agent, closing agent, title company, or attorney or attorney, about your loan.
  • Preliminary net sheet This is a projected closing statement that shows the sale price you expect and all sales charges, outstanding loans, outstanding past due payments and late fees, including real estate fees, if any.
  • A solid letter Describe how you got into financial trouble and ask the lender to accept less than the full payment. Be honest. Lenders are not particularly sympathetic to situations involving dishonest or criminal behavior.
  • Proof of income and assets Lenders will want to know if you have any savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate, or anything of tangible value and you really can’t pay back any debt that is being forgiven. Attach copies of bank statements.
  • Comparative market analysis This can be especially helpful if your real estate market has really tanked and property values ​​have dropped. Ask a real estate agent to prepare a comparative market analysis (CMA) for you.

Purchase of real estate

If you decide to buy a short-term rental property, you will negotiate with the owner, subject to lender approval. So keep in mind that the owner may not be overly concerned about the price you offer (the bank will get everything anyway) and may be happy to accept your offer, but the bank may reject it.

So here are some things you might want to include for the lender along with a copy of the purchase agreement and the good faith deposit.

  • A brief biography of you and your real estate knowledge
  • A complete financial package for you and two years of tax returns
  • Pre-qualification letter from a reputable lender
  • A strong statement of why the lender should accept your offer

It’s not a slam dunk

If all goes well, the lender will approve your short sale, and as part of the negotiation, you may even request that the lender not report the bad credit to the credit reporting agencies (although the lender is under no obligation to comply).

But it’s not a slam dunk.

Many things can derail a short sale. For example, even though lenders lose a lot of money when they foreclose on a property, a payout from private mortgage insurance could reduce that loss enough for the lender to choose foreclosure. Additionally, lenders who hold other mortgages, such as home equity lines of credit, can also kill the sale. Other mortgage lenders are supposed to be at the end of the line to collect the loan payments, but they can reject the proposed short sale if they don’t think they’re getting enough from it.

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