Avoid Forclosure - Sell Your Edwardsville IL Home Short Sale

Edwardsville Real Estate SHORT SALE -
By Brad Wallace Who Holds: FSS-Accreditation Certification
"Foreclosure & Short Sale Certified"

 

WHY A SHORT SALE?

A short sale is a situation in which the real estate seller owes more money on the loan(s) secured by the real estate than the sale of the property will likely produce on the market.
The seller is in a distressed situation, but the bank/lender has not yet taken title from the seller through the foreclosure process. At this point, there might be a window of opportunity for the seller to put the real estate on the market and try to sell it in order to at least partially satisfy the lender who holds the mortgage.

How Is It Different From A Normal Sale?

The property must be priced competitively - must not be over priced. The Seller[s] must be willing to "walk-away" without any monetery proceeds. Seller lists the home on the market as usual, the home is avertised as a Short Sale. Then prospective buyers tour the home and hopfully a buyer makes an offer... [see Edwardsville SHORT SALE chart]

THE SHORT SALE PROCESS
Is it true some lenders won’t approve the transaction initially?
While it is probably true that most lenders don’t really want the property back, they seem to want everyone to share in the “loss.” [see talking points below]

The lender’s intent will be to realize as much money out of the sale as possible. So one may find that the lender asks the listing broker, to reduce their commission.
If there are junior lien holders, there may be more negotiations of amounts that might satisfy them in order to get them to sign releases of their liens.

The lender will want to know more about the home owners other resources that might be available to reduce the deficiency. Commonly besides a letter of explanation, to consider a short sale, lenders are requiring last 2 years tax returns, current pay stubs, and recent bank statements.

Can the seller make a side deal of some sort?
Only if the seller and all the parties involved want to commit bank fraud.
Some sellers will try to make a “side deal” where the buyer agrees to purchase personal property or pay seller’s expenses in order that seller might walk away with some cash at closing.

Example, the seller does not want to disclose this “side deal” to the lender. This could be a legal problem for the seller. The seller may have some obligation to inform the lender as to all sources of money related to the transaction. If seller, buyer, real estate agent is aware of any "side deal" they may become complicit in loan fraud.

As a matter of fact, in other residential real estate transactions, where personal property is being sold as a part of the transaction but not as part of the purchase price of the real estate this must be disclosed on the Real Estate Transfer Tax Declaration form. Indeed if the value of the personality is above a certain threshold, the seller must attach an itemized list of the property with values to the Real Estate Transfer Tax Declaration form.

The right buyer for a short sale
The right buyer in a short sale transaction must be patient and have money ready to proceed once the seller’s lender does review the transaction.
Many times, obtaining lender approval will take quite a bit of time. A recent article indicated that the average time for a lender response on a short sale contract was 5 weeks. So a buyer should not be in a hurry, not need to move into a home right away and not be making offers on other properties without the advice of legal counsel.

In addition, the buyer should be well qualified financially or have their financing arranged.
Think about this. If a buyer’s contract shows that the buyer is ready to close at any time with no issues on buyer’s loan, this will likely make the contract “package” more attractive to seller’s lender than another contract where buyer’s financing may be in doubt.

LENDER BENEFIT TO A SHORT SALE
Non-performing loans chip away at bank reserves. Shaky loans on lenders’ books have risen at a faster pace than the reserves that banks are setting aside to cover potential losses.

The U.S. banking industry has been weakened, and regulators have been urging financial institutions to build capital.

The Federal Reserve is reviewing regulations that limit investment firms’ stakes in banks to help raise capital for the U.S. banking system.

Banks’ finances, including reserves protecting against bad loans, not only have repercussions for investors in their stocks, but financial institutions that lack adequate cushion against bad loans are less likely to loosen up on lending, hurting consumers looking to purchase homes, cars, and other big ticket items.

Building reserves does affect banks’ ability to lend to consumers in that money that would normally be used to find new loans is instead being put aside to cushion against future losses. The reserve shortfall is one of the biggest challenges facing the U.S. banking industry.

Reserves for non-performing loans which include credits no longer generating interest income for banks come right off of a lender’s pretax earnings.

The FDIC considers a loan non-current when it’s 90 days or more past due or when it’s not accruing interest for the bank. For all these reasons lenders want to get non-performing loans off of their books as quickly as possible.

Talking points ~ Short sale (pre-foreclosure):
With a short sale in Edwardsville you can:
1. Avoid a bankruptcy, which stays on your credit for 10 years. If the bankruptcy includes the home and is a re-structuring of debt where you make monthly payments to a Trustee and you miss a payment, the lender can request the Trustee to step aside and allow the lender to foreclose on the property before the completion (discharge) of the bankruptcy. The end result if this occurs is you end up with BOTH a bankruptcy AND Foreclosure on your credit which BOTH stay on your credit for 10 years.

2. Avoid a foreclosure on your credit, which stays on your credit for 10 years. In addition, the Lender can and will pursue you for the deficiency.

3. Avoid a Deed-in-Lieu of Foreclosure which stays on your credit for 7 years.
I like to make you aware of all these options, because you have ALL these options available to you , which most people don’t realize. All the options have punitive consequences as noted above except the short sale. Therfore if you have the option of a short sale available to you why not “go for it” to mitigate the damage to your credit.

4. When we negotiate a short sale we also negotiate they will waive the deficiency and that it is written in the short sale approval letter.

5. When we negotiate a short sale we make sure they write “paid as agreed” or “full release of the mortgage” in the short sale approval letter. That means they will reflect that on your credit those words vs “partial satisfaction” of the mortgage at time of payoff /release.

6. The Lender has a choice of either pursuing the deficiency against you or issing a 1099-C for “forgiveness of the deficiency”, which makes it a taxable event. However, not all banks do this. The trend I am seeing is that banks are NOT pursuing the deficiency, but tend to issue 1099’s for the “forgiveness of the deficiency”.

GOOD NEWS!!
There is a way to avoid this becoming a taxable event if the Lender issues a 1099-C.
If you receive a 1099-C at tax time, all you have to do is call us and we’ll send you background information about the Mortgage Forgiveness Debt Relief Act of 2007. We also send you the link to the IRS to be able to print IRS Form 982, which enables you to offset the 1099-C
A new law has removed that for homeowners whose home being foreclosed on is their primary residence. So the bank will still issue you a 1099-C that shows forgiveness of debt. And you will turn that into the IRS with your taxes paperwork. But you will also submit IRS Form 982 to offset or negate the 1099-C. This is provided by the Mortgage Forgiveness Debt Relief Act of 2007, which was passed by both chambers of Congress as of December 14, 2007 and was signed into law by the President. Currently this is in effect through 2012.

NOTE: This page does NOT intend LEGAL ADVISE - seek your own...

IMPORTANT NOTICE:  Brad Wallace - Metro MLS Realty is not associated with the government, and our service is not approved by the government or your lender.  Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage you credit rating.


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