Short sales can have a major impact on average sale price for homes in a market. For many years, short sales were as high as 30% of all homes sold for some markets in southeast Michigan. Homes sold through a short sale can sell for much less than the market value of similar homes in the community. At the same time, short sales tamp down the average sale price of all homes. This makes for a cycle of downward trends in a market if it continues.
A short sale requires that the homeowner realize they are at risk of losing their home and take action to prevent foreclosure. While lenders abhor short sales, it is the lessor of the two evils. So, not only do they often provide for it in the mortgage contract, depending on the circumstances of the short sale, they will offer the homeowner a bonus for maintaining the home in salable condition at closing.
A short sale in real estate is a home that is sold for less than the value of the mortgages and subordinate liens on the property. That is, a sale that is short of the funds needed to pay off the balances owed.
In some cases, a seller brings money to the closing table to make up the difference. In other cases, the seller will rely on the lien holder to accept less than what is due. When the lien holder accepts a short sale, it doesn’t mean the debt is forgiven. A lien holder can request the seller to sign a promissory note and take action to collect the debt. Lien holders, in other cases, do accept the lesser amounts releasing the seller from their obligation. It is important to note here that there can be a tax obligation on the "phantom income" that the cancellation of the debt creates. Some of it depends on outcome in congress of the extension of the "Mortgage Forgiveness Debt Relief Act of 2007."
In most cases, the short sale process is more complicated than this, but for this definition, it has been kept simple.
In some cases, a seller brings money to the closing table to make up the difference. In other cases, the seller will rely on the lien holder to accept less than what is due. When the lien holder accepts a short sale, it doesn’t mean the debt is forgiven. A lien holder can request the seller to sign a promissory note and take action to collect the debt. Lien holders, in other cases, do accept the lesser amounts releasing the seller from their obligation. It is important to note here that there can be a tax obligation on the "phantom income" that the cancellation of the debt creates. Some of it depends on outcome in congress of the extension of the "Mortgage Forgiveness Debt Relief Act of 2007."
In most cases, the short sale process is more complicated than this, but for this definition, it has been kept simple.
For the homeowner, a short sale is a better alternative to foreclosure. Of all credit problems, including short sales and bankruptcies, a foreclosure is deemed the most troublesome credit issue by mortgage lenders. So, by the homeowner taking action to get the home approved for short sale and move through the process to its close, the reward will be less damage to their credit rating. In fact, in as little as three years, many lenders will approve a mortgage for an individual with a short sale in their history, provided they have a clean record since.
Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan. He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods. Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce. You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.
No comments:
Post a Comment