Don’t go into Foreclosure
By Mya L. Talasvera Realtor CBR GRI
Mr. Seller states so urgently that he needs to sell his house fast. I asked him if he is currently on his loan. He looks down and says, “No.” He has defaulted on his loan. He explains that he obtained a subprime loan when he bought his house in 2005. He secured an Adjustable-rate mortgage with zero down-payment. He and his wife had been divorced a year ago and, just recently, he had been laid off from work. These devastating events led him to default on his mortgage loan. Additionally, he has neglected maintaining his house due to an unexpected injury he suffered while lifting a heavy load at home. He desperately needs to sell the house fast.
My CMAs (Comparable Market Analysis) show that comparable homes in the area in good condition were selling way below in this declining market. Mr. Seller is upside down. He owes more than the home is worth.
What is a Short Sale?
In a short sale, a financially insolvent homeowner who is facing foreclosure sells his home for less than the value of his loan. The lender accepts the sale as payment in full for the loan. A short sale is the best option for home owners who can no longer afford to keep mortgage payments. Thus, they avoid going into foreclosure or face bankruptcy proceedings.
A short sale is a win-win for homeowners and lenders. Why? Lenders do not want to own homes. They are in the business of loaning, not owning. Real estate owned (REO) properties are expensive liabilities on their balance sheets. They are usually willing to work with the homeowner or the real estate agent to find a more financially advantageous solution than foreclosure. Foreclosure costs the lender time and money.
More than half of my sales in Maryland and Virginia over the past few years are short sales. That’s how prominent short sales have become.
Finally, Mr. Seller is happy to go to settlement. I was able to negotiate with the lender to accept the contract we received for the house. Mr. Seller escaped the emotional toll of foreclosure, but, he got no money out of the deal. This is only fair, if the lender is losing money, the seller shouldn’t be making money.
The seller won’t have “foreclosure” on his credit report, though it will show the missed mortgage payments. Foreclosures have been a tremendous hit on the credit scores, it is an automatic 100-120 point hit to a credit rating and stays on the report for 7-10 years. Short sales are not as bad as foreclosures, there could be a 40-50 hit for the short sale.
(Mya Talavera is a Realtor licensed in MD and VA, for questions or comments, email Myatalavera@realtyexecutives.com)
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Mya L. Talavera, Realtor CBR GRI DSC
(Notary Public, State of MD)
Realty Executives 2000
240-441-6941
www.homesdatabase.com/myatalavera