Frequently Asked Questions about Short Sale And Avoiding Foreclosure

Frequently Asked  Questions about  Short Sale  

And Avoiding Foreclosure

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What Is Notice Of Default?

A notice of default is a notification given to a borrower stating that he or she has not made their payments by the predetermined deadline, or is otherwise in default on the mortgage contract. Other ways a borrower may be in default include not providing proper insurance coverage for the property, or not paying due property taxes as agreed.

Lenders file in the public records where the property is located a public notice called the Notice of Default. It dictates that if the money owed (plus an additional legal fee), or other breach(es) are not paid/remedied in a given time, the lender may choose to foreclose the borrower's property. Any other people who may be affected by the foreclosure may also receive a copy of the notification.

What Is Deficiency Judgment?

Deficiency judgment are court orders that make you personally liable for unpaid debt. They are often associated with foreclosures, when a home's selling price is not enough to cover the loan balance or A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full.

When you are short on a loan and the lender repossesses your residence, the value of the property may not pay off the loan. For example, you might owe $200,000 on your house, but it only sells  for $180,000. You're $20,000 short.  Because the lending company wants all of the cash returning, they may take further lawsuit against you. Legal action to gather the staying quantity is known as a deficiency judgement.

The deficiency judgement in the example above is $20,000.

What Is Short Sale In Real Estate?

A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens (creditor) full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.

A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower.

How Does A Short Sale Work?

A short sale happens when a borrower sells their property for less than what is owed on the mortgage. In order to be eligible for a short sale the homeowner must be able to demonstrate a financial hardship that is causing the mortgage to be unaffordable.

For example, if your outstanding mortgage debt is $500,000 and the property is now only worth $250,000, this mortgage is considered to be “underwater.” If you are looking to sell your property for less than your outstanding balance, you will have to supply all of your financial information to your lender so they can determine whether or not they want to sign off and settle the debt for less than the amount owed.

Obviously a short sale is not the best solution for a homeowner or the lender. No one wants to have to sell their home for less than what they owe, especially those who have been working hard for years to build up equity. However, this option is much better than allowing the property to go into foreclosure. A foreclosure will completely destroy your credit rating and will remain on your credit property for up to seven years. For most people a foreclosure will make financing extremely difficult

How Long Will A Short Sale Take?

Lots of times people think a short sale will be a short process . . . The reality is it's a very lengthy process. The process can take anywhere from two to six or seven months. But this timelines can be very different from one lender to the next, and even when working with the same lender from one property to the next.

Differences between Short Sale and Foreclosure

	Short sale	Foreclosure
1.	The lender that holds the mortgage must sign off on the decision to execute a short sale.	foreclosures are initiated by lenders only
2.	The lender, typically a bank, needs documentation that explains why a short sale makes sense	The lender moves against delinquent borrowers to force the sale of a home.
3.	Short sales tend to be lengthy and paperwork-intensive transactions, sometimes taking up to a full year to process	Foreclosures take place when the homeowner has abandoned the home. If the occupants have not yet left the home, they are evicted by the lender in the foreclosure process.
4.	A homeowner who has gone through a short sale may, with certain restrictions, be eligible to purchase another home immediately.	Homeowners who experience foreclosure need to wait a minimum of five years to purchase another home. The foreclosure is kept on a person's credit report for seven years.

What Is A Short Sale Hardship Letter?

A hardship letter is a letter that you write to your lender explaining why you are behind on your mortgage payments. The letter should give the lender a clear picture of your current financial situation and explain the circumstances that have led to your financial difficulties.

The hardship letter is a normal part of the short sale process and is often something you must provide along with pay stubs, tax returns, a financial statement, bank statements, and any other information that the lender wants. Some lenders prefer that you fill out their hardship form or a hardship statement instead of writing a letter, so check with your lender first before preparing a letter

Short Sale Tax Implication

If a short sale results in a deficiency, but the lender decides not to come after you for payment and forgives the debt, this means you are no longer under an obligation to repay the lender. The lender is then usually required to report the amount of the cancelled debt to you and the IRS (Internal Revenue Service) on a Form 1099-C. If this occurs, you may have to include the forgiven amount as income for tax purposes.

Example. As in the example above, let’s say you complete a short sale by selling your property for $250,000, but you owe the lender $500,000. The deficiency is $250,000. If the lender decides not to try to obtain a deficiency judgment and issues a 1099-C instead, then you have received a cancellation of debt in the amount of $250,000. This is generally considered taxable income to you.

In some states, the Notice of Default is also attached to the home, generally on the front window, like a big scarlet letter. It states that the borrower is in default, behind in the mortgage payments, and if the payments are not paid up, the lender will seize the home.

Please consult with Accountant to discuss further on tax implication of short sale.

The real estate market in Bowie ,Upper Marlboro and Fort Washington is still experiencing  negative equity and as result homeowners are unable to refinance to lower interest rate, unable to sell because there is no equity and many are faced with the difficult hardship of keeping their house or letting go. There are many solutions to assist homeowners to avoid the credit damaging foreclosure process. It is very important that homeowners reach out quickly at the first sign of trouble.

- Don't ignore the letters from the lender

- Don't know the phone calls

STOP NOW and call 301-613-2043 to get help with avoiding foreclosure or explore other options available. Use our quick and Easy form to request complementary consultation about avoiding foreclosure or learn more how short sale can help.

Short sale can provide a fresh start for struggling homeowners , a way to press the reset button.

Keji & Associates of Fair fax  Realty is a team of licensed agents working daily to get homes sold for our clients in Bowie,UpperMarlboro, Fort Washington and other parts of the metro area. We delight our clients by delivering  world class service every step of the way and we strive to create a win-win situation this  is all part of our values and beliefs. Contact us @ 301-613-2043 , email keji@metrohomesrealty.com or visit our website . www.metrohomesrealty.com