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Posts Tagged ‘lender’

Short Selling May Not Resolve Your Problems

January 13th, 2010 by Matthew C. Keegan | 4 Comments | Filed in Home Selling, Money Management

Consumers seeking to save their homes from foreclosure and the resultant long term hit to their credit ratings will sometimes put their homes on the market and accept a price for less than what they owe on their mortgage. If the lender agrees to this deal, then the original homeowner can get out from underneath his mortgage and be free of further obligation.

Well, not so fast.

housing crisisTheoretically, a short sell (short sale) should be final, a transaction whereby the lender forgives the loan deficiency, choosing to swallow a comparatively small loss up front, rather then a sizable loss that would probably be incurred had the house passed through foreclosure.

According to The Wall Street Journal (A Short Sale May Not Mean You’re Home Free), that theory isn’t always meeting reality. Sometimes lenders will go after the first homeowner in a bid to recoup some or all of the deficiency.

For example, let’s say you are behind on your mortgage and just a month or two away from foreclosure. You owe $295,000 on your home, but it is worth a bit more even though you have owned it for several years. A crummy real estate market is pushed down home values, yet you believe that you could get close to that amount for your home and pay off your mortgage.

Well, the tough market proves two things: buyers are tough too and are looking for bargains. You listed it for $320,000, but the best offer received was just $280,000 which you accepted pending your lender’s approval which you need in order to be released from your obligation. You see, when you seek to sell for less than what you owe in effect you are putting your lender in a position to take it or leave it. If this lender believes that your short sell is the best deal, then they may reluctantly accept the deal.

This is where things can get complicated.

Whenever performing any real estate transaction, you want to have a lawyer representing your interests. A real estate attorney will ensure that your short sell is up to snuff and includes one important provision: that the bank will not go after you for the deficiency.

If that provision is not in place, then guess what? Your lender can go after you for the loan deficiency, costing you thousands of dollars. And you thought that it was too expensive to get a lawyer!

Oh, by the way, if you think that short selling your home means you can automatically turn around and buy a new home within the coming months or year, think again. On future credit applications you will be required to state whether you have been involved in a short sale which is sometimes also called a deed in lieu of foreclosure.

Lying about it can cause serious legal problems for you. Telling the truth will keep you from getting a home loan. Regardless, a short sale is a serious matter, one that should be done as a last resort.

In fact, some lenders say that there is no credit advantage in a short sale versus a foreclosure, which means that your credit will likely reflect that information. (see MSN Money: Use a short sale to escape foreclosure)


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Your Obligations May Not End With A Short Sale

May 1st, 2009 by Matthew C. Keegan | 1 Comment | Filed in Consumer Tips, Home Financing

For most Americans, these are certainly challenging times.

Specifically, for the majority of people alive today, they have no remembrance of the last major recession, the sharp downturn of 1981-1982 being something they may have read about in their history books.  Having no experience with a deep recession, plenty of Americans are feeling uneasy if not downright worried about their personal financial situations.

Facing Foreclosure, Some Opt For A Short Sale

home loanHomeowners who have fallen behind on their mortgage payments are facing foreclosure, perhaps losing their homes within thirty days of receiving notice from the court that legal action has been taken against them. For some savvy homeowners, they’ve managed to escape foreclosure by arranging a short sale where a buyer comes forth to purchase the property for an amount that is less than what is still owed on the mortgage.

With a short sale, that deal must meet the approval of the lender who stands to lose thousands of dollars on the transaction. For example, if a home is sold for $195,000 and the homeowner still owes $230,000 on the home even though it may now be worth only $215,000, the mortgage company is out $35,000.  In normal times, a lender would likely object to a short sale but these days may accept one if the only alternative is a costly foreclosure.

Still Responsible For The Loan Deficiency

Yet, homeowners need to be careful when going with a short sale because they could still be held responsible for the deficiency. In the example I mentioned, that amount would be $35,000.

Even if the first mortgage is resolved through a short sale, a second mortgage may not be. According to The Wall Street Journal which covered this subject on April 30, 2009, D1 — A Short Sale May Not Mean You’re Home Free — separate negotiation with the secondary lender may still be required.

Check Your Contract, Familiarize Yourself With State Law

Just because a lender is out thousands of dollars in a short sale, they may have no legal right to pursue payment.  Homeowners need to check their mortgage agreement and also familiarize themselves with state law. One or both could forbid the collection of a deficiency.

But what if you are required to make up the difference? Do you have any recourse?  You’ll need to consult an attorney specializing in consumer finance to find out for certain. However, you may be able to negotiate a lower amount or, if you are unable to pay the deficiency, you could file for personal bankruptcy in a bid to discharge your debt.

Investors Lose Big Time With A Short Sale

Inasmuch as homeowners believe that they should be able to walk away from their financial obligations through a short sale, lenders often look at the hit that their organization takes when they accept such a deal. Ultimately, shareholders lose out as the bank or mortgage company must show the loss on their books, a hit that impacts the business’ bottom line and the value of company stocks and bonds.

Lastly, if you’re behind on mortgage payments, seek legal advice to make sure that your rights are preserved. Too many homeowners are falsely conclusion that a short sale ends their financial problems, when in fact they could just be beginning.

Adv. — Need recession coping tips? Visit SayRecession.com to help you manage your finances. Consider paying off your mortgage early too.


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Pending Foreclosure? Take Action!

April 30th, 2009 by Matthew C. Keegan | 2 Comments | Filed in Home Financing

If you have fallen behind on your mortgage, than you know that this isn’t a good thing, however it could be one problem that you simply could not have avoided. These days, the loss of a job or some other setback can work against you, causing you to miss several of your monthly mortgage payments in no time.

Out Of Your House And Into The Rental Market

home loanIf your home is foreclosed, then you will be faced with moving to a rental property and seeing your credit rating damaged. Yet, if you look a little closer, there could be a diamond in the rough that just may see you through your current plight.

What you don’t want to do if you have fallen behind on mortgage payments is to ignore the notices sent from the mortgage company demanding payment. Some homeowners become terrified when receiving these kinds of notices that they simply put them away as if putting off the problem will make it go away. Not a lot of good that will do!

Confronting Your Financial Problems Head On

Instead of ignoring the problem, facing it head on will actually help you in the long haul. It might even help you uncover that diamond in the rough I alluded to earlier.

For example, mortgage companies are not in the business of putting homeowners out of their houses. Instead, they will sometimes work with homeowners to see what options are available. This could mean that they’ll accept a deferment in payments or some other temporary easement to give you much needed breathing room.

Work With Your Lender

Lenders understand that you have a lot to lose if you cannot keep your home while they stand to lose tens of thousands of dollars if they must foreclose on your home. Therefore, a professional lender will explore every option available to help you stay in your home.

Although not required to do so, a lender may recommend refinancing your mortgage particularly if your financial condition shows sign of improvement (e.g., a new job, large tax refund, inheritance, etc.) She may recommend that you take out a thirty year mortgage even though only 25 years remains on your original loan. That way your monthly payments could be a lot lower and much easier for you to handle.

Remember, you still have some options available to you, but this isn’t the time for you to shrink back in fear. Contact your lender if you have fallen behind on payments and explain your situation. Avoiding the issue will work against you, but by weighing your options with the help of your lender, you may be able to get through all of this with your homeownership in place.

Adv. — Are you looking to refinance your home? Interest rates haven’t been this low in years! If you have very good or excellent credit, you could find a home loan with an interest rate of about 5% for a fixed rate, thirty-year mortgage.  Visit SayLending.com for more information!


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