About Short Sales

For many homeowners, there are many who have never been late on their mortgage payments. With the tough unemployment picture deteriorating in the United States and with so many home values slashed and underwater with loss of equity, it is commonplace for many homeowners to find themselves strapped for the first time.

Homeowner Brian whose full name remains concealed for privacy reasons, was always on time with his mortgage payments. He was of the opinion that paying down the mortgage balance was something he aspired to do. His opinion changed when he watched the value of his home falter thus making him question whether it was anymore worthwhile making mortgage payments.

Brian, a police officer together with his real estate wife, Kelly had purchased their 4 bedroom home in an upscale neighborhood of Phoenix in 2005 for $650,000. They forked out 20% down payment knowing that they got a bargain and got a 30-year fixed rate loan for the remaining balance. Anticipating increasing costs for their daughter’s college, home improvements including a wedding, they took out a 2nd mortgage against their home. Currently, they owe about $647,000 on the combined 1st and 2nd mortgage.

Average home prices in Phoenix have fallen 48% after peaking in the summer of 2006 as indicated by the First American CoreLogic Index. As a result, Brian estimates his home to be worth between $375,000 and $425,000 although it has a 4 car garage, a 1.2 acre lot that includes a swimming pool. Zillow.com, a web resource that estimates national home values based on the number of sales within its neighborhoods, estimated the house to be worth $374,000.

There are millions of homeowners in the United States who are currently underwater or indebted to their lenders for more than their homes are valued. They often beg the question whether to remain paying their mortgages and hope for things to recover or leave their houses with the undesirable end result of a seven year foreclosure injury to their credit records.

Thankfully, nobody attempted to remove them from the property as they manage to reach into their savings in order to continue making mortgage payments. As with many other American homeowners who are underwater, the equity in their homes have shrunk or disappeared thus providing them with nothing to fall back on in case of an hospital emergency or an unforeseen loss of salary. Many are stuck in a limbo as a result of fallen home prices. They wish they could sell their houses for adequate funds so as to settle with their lenders but not possible given the current climate. This dilemma makes many home borrowers very likely to experience foreclosure.

The only thing that could save them is a miraculous property rebound in home prices boosting the equity of their home. However, this is very unlikely to happen in the near term.

A number of residents in their town have performed strategic default or mailed in their keys and left their properties. It is convenient for Brian and his family to perform a similar act as it is so tempting for them to rent another dwelling for much less than their mortgage payments accounted together with property taxes, insurance and maintenance costs.

Brian says that he can’t rely on the quick housing recovery. He mentioned that he had to set his limit. If the family savings fell below a certain number, they would have to consider all options including a short-sale transaction.

The definition of a short-sale is when the property is bought by someone for less than the mortgage amount owed and the difference forgiven by the bank. Brian stated that they have always made their mortgage payments. They are frustrated as they are depleting their funds so as to continue making mortgage payments. He urged that at some stage, you will need to know when to stop before hurting yourself and losing all your money.

Learn how to avoid foreclosure by keeping informed on the latest government assisted programs. Read the original article Keep Paying Mortgage Payments Or Walk Away From Your Home?

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As horrible it is to lose your home to foreclosure, ex-homeowners may still be on the bait for the deficiency amount. This is simply the difference of what is owed on the mortgage and what the bank could sell at an auction. “Deficiency judgments” can haunt borrowers, years after they have lost their home.

It can happen to homeowners who have achieved short-sales where the bank had approved selling the home for less than what it was worth.

Vanessa Corey who performed a short-sale on her Fredericksburg, VA home in Apr of 2008 is a genuine illustration. After remodeling her place in 2004, unexpected events which led straight to a sour divorce and the burst of the housing bubble, compelled her to sell her home via a short-sale.

As a property agent, she assumed the lender had agreed to disregard the difference in amount owed after the short-sale. Late last year, her legal representative produced a letter from her lender with a demand to pay an owed amount of $65,000. As she didn’t have the money, she declared bankruptcy.

Many lenders refuse to comment regarding the issue of ‘deficiency judgments’. In the case of Corey’s lender, BT&T clearly indicated that they were pursuing more homeowners with deficiencies.

Are You Protected From A Deficiency Judgment? Whether banks can pursue such a feat depends on several factors including what state the borrower lives in. Other factors include whether there is a second mortgage or other liens involved. It can certainly haunt borrowers if they chose to ignore the possibilities of deficiencies.

Real-estate attorney, Mr. Zaretsky mentioned that if your financial lender has achieved a judgment on the borrower, they can target you despite of your location. They have the power to ask for your financial records, hold your wages and put you in jail if you continued to turn away from their requests.

Financial firms can legally impose deficiency judgments in more than thirty states with the inclusion Fla, NY and TX states.

Luckily they do not allow ‘deficiency judgments’ in California and Arizona. Other states that prohibit these judgments include Wisconsin, South Carolina, Washington, Pennsylvania, Oregon, N. Dakota, Alaska, Iowa and Montana.

Although lenders are willing to forgive the deficiency amount, many borrowers are not aware that they are required to request for a release. To avoid any unforeseen surprises, ensure that your attorney requests the bank to release you of any future obligations.

According to Zaretsky, people should not have a false sense of security thinking that a deficiency judgment will not come back and haunt them. He expects many of the deficiency judgments will be filed over the next few years as many of these accounts were sold at discounts to numerous collection agencies and third parties. These organizations would not have bought these accounts if they were not planning on recouping their initial investments.

Banks or collection firms do not act in obtaining judgments right away. As a strategy, they may act patient and allow debtors to financially improve prior to filing with the legal system. For example, banks have up to five years to file in Florida state. Once judgment is obtained, the bank has up to twenty years to pursue the debt with interest.

Lenders and collection agencies can come after borrowers regardless of how small the debt. Case in point, Richard Varno and his wife short-sold their Nashville house in 2004 when he became unemployed. Four years later in 2008, the second lien holder was after him for $25,000. He argued by informing them that they had released the title and he was no longer liable.

Unfortunately, that was not the case. The release of the title does not mean that the debt will be extinguished. Due to the diverse variations in state laws, in general, a mortgage responsibility consists of 2 parts. The first part is the collateral in which the pledge is the asset or house. The second part is the promise and agreement to pay back the loan.

Lenders may release property liens so as to enable a short-sale transaction but not necessarily releasing borrowers’ obligations to pay back the loan based on the promissory notes. Upon the sale of the home, the secured debt can transform into an unsecured debt.

Zaretsky claimed that one of his clients’ who was so excited in obtaining a short-sale, carelessly signed all the documents that his real estate agent provided him including a confession that clearly made him still legally liable for the debt.

He was unaware that the financial institution could take that document and transform it into a deficiency judgment through the legal system.

Lenders can also be unreliable. Zaretsky had another client who was willing and financially able to pay off the deficiency but the bank did not bother asking as they reserve the right to pursue the deficiency judgment at a later point.

Property agent Mr. Tolchinsky from Florida, mentioned that banks can sometimes pursue borrowers who abandon their home with the knowledge that they may have money or other assets they can pursue.

Financial institutions may conduct due diligence to see if the home was abandoned due to real reasons of the borrowers’ financial hardship. It this was not the case, the financial institution will come after the borrower for the remaining debt.

If in doubt, it is advisable to seek legal advice to ensure that your short-sale or deed in lieu agreement does not contain any deficiencies therefore allowing your lender to pursue you in the future. To alleviate any risks, it is important for your attorney or counselor to negotiate the deficiency out of the short-sale or deed in lieu contract.

Receive free foreclosure prevention information by learning about the latest announcements on government programs such as HAMP and HAFA. Download the Free Podcast about Can My Lender Pursue A Deficiency Judgment From A Short Sale? for your own use, blog or website.

When looking for a place to call home, it is always best to buy the property you like than to look for a great foreclosure deal. However, it is even better if you can find a good mix of both.

There are many ways to buy a foreclosed property, all of which have their own good and bad points. Some give you the highest financial gain but with the highest investment risks while others could place you on a safe playing ground but with the lowest financial benefit.

First let’s talk about buying a pre-foreclosed property. This method gives you the least amount of money output with the highest available information on the property. Pre-foreclosure happens during the first few months of foreclosure ( 2 to 3 months after the first default). Usually, the bank or the lender will allow the homeowner to sell the property to help him come up with money to pay off the mortgage default. The “sale by owner” is a medium for the homeowners to prevent their properties from being foreclosed. In most cases, this is done by owners who see sale as their last option and by those who have some equity on the property.

This method gives you the least risk. You are free to inspect the house and to make your search for the title deeds. You could also uncover all liens if you like and know the underlying problems. Usually, a real estate broker or the owner of the property will show you the house. If you are interested and you have the money to buy the property, the owner will sign you a deed and will handover the property. You would then own the property, and it is yours to do with as you please.

In exchange though, you will get hold of the mortgage that will come with the house. In short, you will have to make the mortgage payments current along with all the fees and charges that come with the property. You will also be left with upgrading and repairing the house.

However some states give the original homeowners a redemption period though. This allows the previous homeowners to get back the property during a certain period of time, usually several months up to a few years, to buy back the property. Thus, all the investments of the current homebuyer will be invalidated.

Buying a pre-foreclosed property is actually safe if you are talking about checking the entire condition of the house but if you don’t want the financial responsibilities that go along with it, this method of buying is not really an option for you.

Doc Schmyz has worked with investors all over the US and Mexico. He owns a free website that shares Real estate investing information for all over the US. Find real estate information by state