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This is Part 1 in our 3 part series on Kansas City Short Sales. In Part 1 “An Introduction To the Short Sale Process” we provide insight into the Short Sale process and discuss reasons a borrower might consider a Short Sale. We also discuss potential alternatives to the Short Sale process. Since Short Sales have become more commonplace in today’s evolving real estate market, I felt it was an important topic and one from which many readers could benefit.
It’s important that I start by stating that I’m neither an attorney nor a certified public accountant. So borrowers should always consult with the experts in their field to be sure they understand their legal rights and the ramifications of selling a home in a Short Sale or other unconventional fashion. Also, for the remainder of this post, the terms “borrower”, “seller” and “homeowner” are used synonymously. So here goes with Part 1 in our series “Kansas City Short Sales”…
(Part 1 of 3) The Kansas City Short Sale Process: An Introduction To The Short Sale Process
(Part 2 or 3) The Kansas City Short Sale Process: The Selling Side Of The Short Sale Process
(Part 3 of 3) The Kansas City Short Sale Process: The Buying Side Of The Short Sale Process
The term Short Sale (also known as Pre-foreclosure) describes a lender’s acceptance of a payoff of a borrower’s outstanding loan balance that is less than the amount the borrower still owes on the loan. If a borrower has missed a mortgage payment or believes they are close to being unable to make their payments (and going into foreclosure) then a Short Sale may be an option.
Rather than accepting Foreclosure as their fate or potentially “throwing good money at bad” in trying to stay in their home, many homeowners will attempt a Short Sale as an alternative. A few reasons why a borrower may choose to switch their hat to being a Short Sale seller include (1) it’s a freely negotiated settlement between parties as opposed to a time consuming and potentially costly foreclosure court settlement, (2) a borrower’s future credit report may be bruised rather than battered, and (3) a Short Sale can prevent some of the personal embarrassment that often occurs when going through a foreclosure. Here’s some detailed Legal News On Foreclosures. You can also go here to view Kansas Foreclosure Statistics or here to view Missouri Foreclosure Statistics.
From 2005 to now, every year has seen a record breaking number of foreclosures. Rather than accepting another Non-performing Asset (foreclosure) on their books, many lenders have become increasingly willing to try and work out a Short Sale settlement with a seller. Federal Banking Regulations require that a lender put additional funds in reserve for every additional Non-performing Asset that a lender adds to its books. Lenders are in the business of lending money and making interest on their available dollars, so they do NOT want to be holding money in reserve that could otherwise be lent out to another borrower.
The amount of time it takes for a lender to take a home back in foreclosure is another reason a Short Sale may be beneficial to a lender. A Short Sale process usually takes a fraction of the time to settle than it may take for a lender to get a home back through the foreclosure process. Here’s a link to information about Kansas Foreclosure Laws and here’s a link about Missouri Foreclosure Laws – never take information you find online as gospel and always contact a real estate attorney to seek legal advice.
If a borrower has hopes of staying in their home – keep in mind some homeowners simply want out – then it could be worthwhile for the borrower to ask their lender for special assistance. A homeowner could ask their lender about the possibility of a Special Forbearance, which would allow missed payments (or soon to be missed payments) to be made up – and spread out – over an agreed number of upcoming payments. Another option is asking the lender if a Loan Modification is possible, which could mean changing the terms of the loan to allow the missed payments to be made up at the end of the loan. A borrower might also ask their lender if a simple, no-cost to the buyer, refinance to lower monthly payments is a possibility. If a borrower doesn’t ask, they’ll never know the answer.
Borrowers, who are still fighting to stay in their home, should first check and see if any of the following can help their situation…
HUD Approved Housing Counseling Agencies
FHA Hope for Homeowner’s Plan
Mortgage Forgiveness Debt Relief Act of 2007
Homeowner Preservation Foundation
Federal Government Loan Modification Program
Kansas Housing Resources Corporation
Missouri Housing Development Commission
HUD Tips For Avoiding Foreclosure
Freddie Mac Tips For Avoiding Foreclosure
$700 Billion Bailout Bill Put Into Law
Bank of America (Homeowner Retention Program)
Countrywide (Homeowner Retention Program)
JP Morgan Chase & Company (Mortgage Modification Program)
Washington Mutual (Mortgage Modification Program)
EMC Mortgage Corporation (Mortgage Modification Program)
CitiGroup & CitiMortgage (Citi Homeowner Assistance Program)
IndyMac (FDIC Loan Modification Program)
Wells Fargo (Alternative Repayment Options)
When searching for a solution to stay in their home, a borrower will want to get in contact with their lender to find out what options may be available. The specific division within the lender to speak with is the lender’s Loss Mitigation Department. A lender’s Loss Mitigation Department works daily to try and find solutions that will help keep (or get) a borrower current on their payments. If a borrower is already behind on their mortgage payments, they’ve likely received a notice from the lender of such. The phone number on that notice is the best place to start. If that number is unavailable or it’s not getting a borrower anywhere, they can check to see if their lender is present on this List of Lender’s Loss Mitigation Departments. Make sure you understand the Lender’s Point Of View and that the lender will always be looking for a solution that nets them the least amount of loss.
If a borrower is unable to put a plan together to get current on their payments, then a Short Sale can be a legitimate option going forward. Moving beyond being a distressed borrower, the homeowner can put on their “seller hat” and start working towards selling their home in a Short Sale. In Part 2 of 3 in our series Kansas City Short Sales, we’ll discuss the role of the Seller and the listing agent in the process and the ways that each plays a vital role in the Short Sale process.
DISCLAIMER: Jason Brown is a licensed Kansas real estate agent and a licensed Missouri real estate agent. Neither Jason Brown, Jason Brown Premier Realty Group or Keller Williams Realty Partners, Inc. are attorneys or Certified Public Accountants. The information found on this blog and on our web site is strictly informational and should NOT be considered legal advice or tax advice. Laws, regulations and tendencies are changing daily so be sure you contact an attorney and a CPA for advice and current information on real estate laws and tax implications of any real estate decision you may make. Buyers and sellers should seek representation from a qualified real estate agent. Without a signed listing agreement, a home seller is a customer and not a client. Without a signed buyer’s agency agreement, a home buyer is a customer and not a client.
Posted by Jason A. Brown
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