A short sale occurs when a financially distressed homeowner sells their home for less than the outstanding mortgage balance and has approval from their lender. You might notice a short sale in your area during difficult times when unemployment is high. However: is there a better alternative to a short sale?
A new payment plan, loan modification, and, in some situations, foreclosure of the property are the most typical alternatives to a short sale in Charlotte, NC. Short sales are often lengthy and paperwork-intensive deals that might take up to a year to complete. On the other hand, short sales do not negatively impact a homeowner's credit as a foreclosure.
During the recovery from the Great Recession of 2008, the short sale, sometimes known as a short payment, emerged as a trend. Short sales remained a common part of the house selling market as the property market slowly moved through the sluggish stage of recovery during 2009. Short sales are now less common as the economy enters a time of expansion. Nevertheless, financially submerged properties still exist in the housing landscape.
In a #ShortSale, you'll need to provide all your financial information with your agent, including all those overdue notices and other unpleasant collection documents, in addition to a hardship letter. https://t.co/K9qnkPmr5v pic.twitter.com/KZUQ0SQUl9— Showcase Realty (@ShowcaseRealty) August 19, 2021
What Is a Short Sale?
A short sale happens when a homeowner sells their property for less than the amount owed on their mortgage. This usually happens when the owner is in financial difficulties and has fallen behind on their mortgage payments.
The owner must sell their property to a third party, with the revenues going to the lender. Before a short sale takes place, the lender must authorize it. Due to the amount of documentation involved, a short sale might take up to a year to complete.
What Is the Difference Between a Short Sale and a Foreclosure?
The lender who holds the mortgage must sign off on the decision to conduct a short sale before the procedure can begin. Furthermore, the lender—usually a bank—requires documents demonstrating why a short sale is appropriate. That's because there's a potential the lending institution will lose a lot of money due to the transaction.
If a short sale is approved, the buyer first negotiates with the homeowner before requesting bank permission for the acquisition. The lender receives the sale funds once the short sale is approved and completed. On the other hand, the homeowner is still responsible for paying the deficiency—whatever balance remains on loan.
Foreclosures, unlike short sales, are initiated solely by lenders. If borrowers fall behind on their payments, their lenders may foreclose on their homes unless they make timely payments.
The types of notices that the lender must provide, and the choices available to the homeowner to bring the loan current, differ by state. The length of time a bank has to sell a property is likewise regulated by law.
To force the home sale, the lender first begins legal proceedings to seize control of the property. Once the lender has access to the property, it orders its evaluation and moves forward with the transaction. Because the lender is concerned with liquidating the asset quickly, foreclosures typically take less time to complete than short sales. When customers bid on homes at a public auction, trustees' sales may also be used to sell foreclosed homes.
What’s the Most Common Alternative to a Short Sale?
Short sales aren't usually the most practical choice. It could take months for a decision to be reached, and the lender may turn you down; furthermore, although both the buyer and the seller have signed the papers, only about 40% of short sales ever close.
You may be having financial issues if you're considering short-selling your home. It's critical to be aware of all of your alternatives if you want to remain in your home. Don't be afraid to contact your lender, and they might be able to work out a new payment plan or a loan modification with you.
Here are some alternatives to short sales for your home in Charlotte, NC.
1. Cure Your Mortgage Default (Bring Your Payments Current)
You are in "default" if you are behind on your mortgage payments. You can "cure the default" by paying the bank for all of the installments you missed. You will need to receive a notice from the bank stating that you have the right to pay the money you owe. The phrase "arrears" may appear in the notice. You can also say you're "in arrears" if you're late on your payments. This type of notice is called a Right to Cure Notice.
2. Attempt a Loan Modification That Adjusts the Terms of Your Existing Loan
When a lender modifies the terms of an existing loan, it is known as a loan modification. This might be in the form of a lower interest rate, a longer payback time, a different form of loan, or any combination of these options. These changes may be made if a borrower is chronically unable to repay the original amount. Furthermore, some borrowers may be qualified for government-backed mortgage loans.
Although a loan modification can be done for any loan, the most popular secured loans like mortgages, during a settlement procedure, or in the event of a prospective foreclosure, a lender may consent to a loan modification. In such cases, the lender has determined that a loan modification will be less expensive to the firm than foreclosure or debt charge-off.
3. Refinance Your Mortgage With Another Lender
If you refinance, you will acquire a new mortgage to pay off your old one. Refinancing operates similarly to obtaining a mortgage to purchase a home. However, you won't have to deal with the stress of home buying and relocating, and there will be less pressure to close by a set date. Furthermore, you have until midnight of the third business day after your loan closes to cancel the transaction if you change your mind.
By lowering your interest rate or lengthening your loan term, refinancing can lower your monthly mortgage payment. Refinancing can also reduce your long-term interest costs by lowering your mortgage rate, shortening your loan term, or both. It may also assist you in eliminating mortgage insurance.
4. Temporary Indulgence
A grace period (typically 30 to 60 days) may be offered to bring the mortgage current. If you ask for a temporary indulgence, you'll have to prove that the grace period is justified and that you'll be able to make payments once it's finished.
In the following scenarios, an indulgence is considered: First, a selling contract is waiting to be approved, and the closing date must be confirmed. The second is if a borrower is waiting on a settlement with an insurance company. Finally, an indulgence will be considered if the borrower has an approved funding pending receipt, such as refinancing.
5. Military Forbearance
While serving on eligible active duty, the Military Service Deferment permits you to defer your student/mortgage loan payments. Under the rules of the Service-members Civil Relief Act, military service members or civilian borrowers who later join the military are also eligible for military forbearance. Interest Rate Reduction: FNMA (Fannie Mae) and Additional Forbearance are two components of military forbearance.
Interest Rate Decrease: FNMA (Fannie Mae) policy requires a reduction in the mortgage interest rate from the time the borrower entered active duty until one year after discharge, at the current rate of 6% as of this publication date. If the borrower notifies the lender after beginning active duty, the benefit is retroactive.
In the case of Additional Forbearance, the service member may request special consideration in the form of a decreased monthly mortgage in certain instances connected to financial difficulty (typically associated with the loss of higher civilian income). "Arrearage" refers to the gap between the initial monthly mortgage payment and the lower payment. The borrower would be responsible for bringing the arrearage current once they were released from active duty.
6. Special Forbearance
Based on your financial condition, your lender may be able to give a temporary decrease or suspension of your payments, as well as set up a repayment plan for the unpaid balance (rather than having to pay it all at once). Regular payments must be resumed and a repayment plan established at the end of the relief period.
If your income has recently decreased or your living expenditures have increased, you may be eligible. You must provide evidence to your lender that you will be able to meet the new plan's obligations.
7. Partial Claim
This only applies to FHA loans. To bring your mortgage current, your lender may be able to work with you to secure a one-time payment from the FHA insurance fund. The US Department of Housing and Urban Development (HUD) will pay your lender the amount needed to bring your mortgage current if your lender makes a partial claim. A promissory note must be signed, and a lien will be put on your property until the debt is paid in full. This interest-free promissory note is payable when the initial mortgage is paid off, or the property is sold.
If your loan is at least four (but not more than twelve) months past due, you can resume making full mortgage payments, and you may be eligible for a partial claim.
8. Attempt to Get Your Lender to Accept a Deed in Lieu of a Foreclosure
A deed in lieu of foreclosure is not the same as a foreclosure. A deed in lieu of foreclosure occurs when you and your lender agree that you will be unable to make your loan installments. When you hand over the property in a friendly manner, the lender pledges not to put you in foreclosure.
In exchange, the lender relieves you from your mortgage responsibilities. Your lender may even provide you with some financial aid as a reward for keeping the property in good condition before you depart. A deed in lieu of foreclosure will appear on your credit record, but it will not have the same negative impact as a foreclosure.
9. File for Bankruptcy
There is usually no reason to continue with a short sale if you have decided to file for bankruptcy and are currently trying to sell a home via short sale. When a home is "underwater" or worth less than what is owed, a short sale relieves the borrower of the need to pay the difference between the sale price and the mortgage amount.
Bankruptcy allows the borrower to return the property to the bank with no further obligation under the mortgage and no tax liability associated with the debt forgiveness (usually a taxable event). In essence, surrendering a home in bankruptcy allows the borrower to hand over the keys and walk away, effectively putting the short sale out of business.
Another option involves private mortgage insurance (PMI). You would be paying PMI with each mortgage payment if you didn't buy your property with a 20% downpayment.
The PMI provider may make a cash advance to your lender to help you catch up on payments. They will, however, only do so if they believe your financial circumstances will improve in the future.
How Can I Avoid a Short Sale?
To avoid a short sale, make sure you're up to date on your payments. Banks want the money you owe them, not to lose money on the sale of your home.
Some mortgage firms want a lump-sum payment of the past-due total to stop the short sale, while others give a variety of options to help you catch up on your payments, such as spreading the past-due balance over several months.
Do You Still Owe Money After a Short Sale?
Your lender may contact you or send you letters after the short sale is completed to inform you that you still owe money. These letters may come from a lawyer's office or a collection agency, and they will demand that you pay the debt.
Your lender or collector may even try to persuade you to make payments. The creditor, however, cannot block your bank accounts, garnish your income, or place judgment liens on other property you possess unless a court has issued a deficiency judgment.
Do You Think Short Sales Are a Good Alternative to Foreclosure?
For a variety of reasons, a short sale is a viable option for foreclosure. When mortgage lenders may foreclose, sellers may consider asking for authorization to complete a short sale.
Although selling your property for less than the remaining mortgage sum is not ideal for either the homeowner or the lender, it is usually preferable to a foreclosure.
Can Short Sales Be Financed?
Your short sale transaction can be financed through a mortgage provider. You can acquire a pre-approval for finance before making an offer on the house, just like any other home.
Are Short Sales Cash-Only?
Short sales do not have to be paid in cash, and you have the option of paying cash or taking out a mortgage to buy the house.
On the other hand, lenders prefer individuals who can put down a substantial down payment or pay cash for a property because it is less risky.
Why Do Short Sales Take So Long?
Short sales take so long as when a homeowner applies for a short sale, the lender will require a large amount of documentation.
In particular, with short sales, the lender often requests more paperwork than when the borrower originally took out the loan. The longer it takes for the lender to process and approve the short sale, the more money it will lose.
What Is the Secret to a Fast Sale of a Property?
To fast-track the approval of a Charlotte NC short sale, the seller's real estate agent must be knowledgeable about the process.
The seller's representative will need to contact the bank seven days a week, 24 hours a day. Expect the procedure to take a long time if the agent is unfamiliar with short sales.
Nancy Braun, a seasoned short sale agent of Charlotte, NC, is familiar with how different banks operate and what to expect from them, and effectively managing the legal process. If a short sale is the only option, be sure you choose a professional Charlotte NC Short Sale Realtor. Nancy Braun of Showcase Realty, Charlotte's best real estate professional, can assist you.
If you need assistance with a short sale or more information about the process, call us at 704-997-3794. I will assist you in the sale of your Charlotte, North Carolina house.