So, you are looking for a house and you fell in love with a home that is offered as a short sale. What does that mean for you? What is a short sale and what is the difference between a short sale and a foreclosure?

To sum it up, a foreclosure happens when mortgage payments are not made and the banks takes over the home. The bank takes over not only the home, but also the title to the home and evicts the person who used to be buying the house. For this reason foreclosed homes are usually empty.

A short sale happens before a forclosure. Its when the home owner has fallen behind on their payments or they can see it coming in the near future, and they think that if only they could sell the house, not only would they be saved from a total foreclosure, but they may end up with some money in their pocket also. So they list the home and it doesn’t sell. So they lower the price, again and again, until finally, they can’t lower it anymore and pay all of the realtor commissions, closing fees, and the bank. So someone needs to start cutting their pay. Realtors aren’t in the business of working for free, so they may give a little and the bank ends up giving the most. Since the bank will be taking a loss, they now get involved with negotiating the deal. In fact, they can really stick their nose in things now.

When you submit an offer on a short sale, it goes straight to the bank and they decide whether they will accept it or not. This can take up to four months of your offer sitting on a desk, thousands of miles away. Unfortunately, its out of everybody’s hands at this point. The seller can’t do anything, neither can the realtors, the lender or you, the buyer.

At this point you are just waiting to find out whether you even have an offer or not. Sometimes the bank is considering multiple offers, which makes the game even more confusing for the buyers.

What kind of deal are you going to get? Will it be pennies on the dollar? Probably not. The bank has a good idea of what the home will appraise for, and they don’t want to loose any more money than they have to. So the probability of them lowering their payoff, while giving you the equity, is pretty slim.

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What is a short sale?

In the real estate world, a short sale is a transaction in which you sell your home for a lower price than what you owe on your mortgage. “Why would I do that?” you might be thinking. When you sell short, the difference between what you owe and the sale price is usually forgiven by your bank or other lending institution. It is a great way to avoid foreclosure when you just can’t seem to make the payments any more.

A short sale is usually allowed based on certain economic conditions (an example would be right now!) and the homeowner’s financial situation. It offers both the homeowner and the lending institution to mitigate the losses they would incur in the event of a foreclosure.

Remember that a lender or mortgage company will only approve a short sale if they will lose less money on it than on a foreclosure. With so many people going into foreclosure due to the economy and poor lending practices these days, selling short is quite a popular move.

Benefits of Selling Short

Selling short can greatly reduce the negative effect that a foreclosure would have on your credit score. It is also faster, cheaper and easier than a foreclosure (not to mention less embarrassing and stressful!).

If you are struggling to make your loan payments, you might consider selling short on your home. It is of great advantage over allowing your property to go into foreclosure for the aforementioned reasons, and believe it or not, if more people sold short rather than the alternative, it could help improve the economy!

If your home is worth less than you owe on it, take a little time and see whether a short sale can get you out of trouble. After doing some research (great job on that step already!), talk with your lender to discuss your options; they are sure to appreciate your up-front approach and are more likely to work with you than if you just gave up and let your payments slip.

Facts:

It takes five years after a foreclosure to quality for an FHA-backed loan. It takes seven years after a bankruptcy! But in only two years after selling short, you can already qualify for an FHA loan. Are you starting to see all the advantages?

Banks and mortgage companies are approving short sales now more readily than before, when the market was stronger. Thus, there is more competition, and you need to have your ducks in a row in order to improve your chances of everything going smoothly and saving yourself a lot of money, time and frustration.

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With the present economic slump, people are predicted to downsize their expenses and learn to control their finances. Bankruptcy is often the bane of all financial problems. It can affect the possibility of buying a home since an individual who filed for bankruptcy does not have the capacity to shell out big bucks for real property in full. Certainly, filing bankruptcy will have cutting and ill effects on a person’s credit card rating.

When it comes to how bankruptcy affects viability to purchase a home, it is certainly worth pondering about how to deal with real estate expenditures. Obtaining investments, like a new house, seems to be very unlikely during this time. Victims of bankruptcy have to stay on their toes not to get pressured and vulnerably duped by the huge interest fees that lenders give. A victim of bankruptcy will have misgivings even if he or she has enough savings to acquire a house. Let’s say that the money can be used on other essential needs rather than buying a property. Liabilities should still be settled first before engaging into another financial obligation or else the situation will only get worse by immersing oneself on monthly mortgage.

One of the most damaging ways of how bankruptcy affects home purchase viability is by draining one’s emotional and mental reserves. Disappointment, frustration and even fits of rage all put a particular strain of pressure on people. Constant thinking about the bankruptcy problem will just accumulate enough stress. Another way of how bankruptcy affects home purchase viability is creating skid marks on an individual’s payment history. Lenders will be suspicious enough to investigate financial assets if an individual had ever filed for bankruptcy. They will insist on huge amounts of cash in the form of inflated interest rates and inflexible penalties should a person fall short in paying a mortgage. Apart from assessing a person’s recent financial situation and past credit report in case of bankruptcy, the lenders will also investigate the time spent after the bankruptcy file was discharged. It is always recommended to apply for a new loan after a minimum of two years of filed bankruptcy discharge. This will grant an individual enough time to work on his or her credits and save decent funds for down payment.

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According to RealtyTrac.com, 1 out of 84 homeowners received at least 1 foreclosure filing during the first half of 2009, and for the 4th straight month, more than 300,000 foreclosure filings were reported nationwide. The FDIC reports that the 2 most common reasons for foreclosures are job loss and health crisis. Despite the media seemingly blaming a subprime loan program that affected 3-5% of the population for our foreclosure woes, the reality is that the combination of job loss and dropping home values have created a perfect storm of financial disasters for many normal families. Now with a slower real estate market translating into falling home values, more homeowners who opted for adjustable rate mortgages are finding that their mortgage rate is rising as their home value is lowering. Therefore, unfortunately, the foreclosure crisis in America is likely to continue.

In years past, if you lost your job, couldn’t pay medical bills, or moved out of state, you had a decent chance of selling your home for a profit, or at least breaking even. Now, many people are tens of thousands of dollars upside down on their loan and are unable to downsize to a smaller dwelling without suffering a foreclosure. According to homebuying.com, a foreclosure will damage a consumer’s credit score, lowering it on average 200-300 points and making it difficult to get another home for 5-7 years. Bad things happen to good people, and the purpose of this article is to provide people with options available to them during the foreclosure process:

• Option 1- Bring loan current. According to the FDIC, most homeowners in foreclosure have no savings and no available credit. And since the number one reason for foreclosure is due to job loss, there may be no way for the homeowner to catch up the loan. However, if you as a homeowner struggling with a foreclosure have the reasonable expectation of income coming in sometime in the near future, it may benefit you to talk to an extended family member or friend about a short term loan.

• Option 2- Loan modifications. According to a Freddie Mac / Roper Poll, most homeowners fail to contact their lender because they are embarrassed, don’t believe the lender can help, and/or believe it would cause them to lose their home more quickly. However, this option may be a viable. Loan modifications occur when the bank agrees to reduce principal, interest, and/or payments. Unless you have experience with the Loss Mitigation Dept. at banks, I would recommend working with a legitimate, experienced loan modification company who can prepare an effective argument for the banks because loan modifications do not have a high success rate. According to the Office of Comptroller Mortgage Metrics report of April 2009, “…In 2008, only 41.85 percent of all modifications reduced monthly principal and interest payments for homeowners. For delinquent borrowers – - a loan modification resulted in an INCREASED or EQUAL payment amount 58.15% of the time!!” As stated earlier, the number one reason for people going into foreclosure is due to job loss. If no income is coming in from a traditional job, then there is little chance that a mortgage company will reduce your loan principle, interest rates, or payment.

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When a person is young, they are vibrant and indestructible. Nothing can keep them down. Inexperience is what contributes to this myth. As this person gains more experience, time tempers the myth and belief that every aspect of the world is awaiting them to discover and conquer. Thoughts turn from the present to that of what the future holds.

Hindsight being what it is, if the average 22 year old had only financially planned for the future instead of just focusing in on the present, the future would be much brighter. Instead, the average middle aged man or woman is finding themselves jockeying debts and living from paycheck to paycheck with little relief in sight.

With mounting credit card debts, car payments, the expense of raising children, and a sizable death pledge, also commonly referred to as a mortgage, most of the country has not experienced this much financial stress in over 50 years. Bankruptcy then was an extreme taboo. To declare bankruptcy then was completely ruinous and few if any ever recovered. Fortunately today, that same stigma of absolute failure and worthlessness has been replaced with understanding, but tempered with caution. A bankruptcy will stay listed on a person’s credit report for 7 to 10 years depending on the type of bankruptcy declared. In other countries such as Britain or Australia, the period is a shorter 6 years and 7 years respectively.

It is still a very realistic expectation to succeed and prosper after claiming bankruptcy, however, the majority will find it challenging to adhere to a disciplined financial regimen where once the youthful carefree approach reigned supreme. Very few individuals or families can do this alone without some financial advisor or planning.

A large number of financial advisors will say to pay off enormous debts through debt consolidation and loan counseling assistance. Depending upon the type of debt and amount, it may not be a logical or realistic endeavour. Reputable bankruptcy attorneys also may recommend paying off one’s debt if possible.

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Many people think that, since a bankruptcy stays on your credit report for ten years, they’ll be unable to get any kind of credit. Not true.

The truth is, a bankruptcy will continue to affect you until it drops off your record… but not as profoundly as you might think. As time passes after your discharge, it will become less important in the eyes of potential lenders… as long as you manage your finances responsibly.

The first year after bankruptcy will be the hardest. Lenders will see that you have had recent financial troubles, and will often be hesitant to issue a credit card or lend you money. Getting an unsecured credit card could prove quite difficult, although there are a few lenders that may be willing to give you a low limit card (usually $200 to $500).

If you can’t get an unsecured card, it’s important to at least get a secured credit card. You’ll be limited to what you pay in, but this will at least allow you to pay bills online, book hotel rooms, and travel without cash. Plus, as long as you make timely payments, many secured card lenders will report your account as current on your credit report. This helps you improve your credit score more quickly, reducing the effect of bankruptcy on your life.

You might be able to get a car loan after your bankruptcy has been discharged for a year. Be prepared for a substantially higher interest rate than you’re used to, though. The longer you wait after your bankruptcy, the lower your interest rate will be.

Bankruptcy will also keep you from getting a mortgage loan for two years. After that, if you have taken steps to rebuild your credit, you may be able to obtain an FHA loan with down payment as low as 3% of the purchase price.

In some respects, bankruptcy will affect you for the next ten years. By being financially responsible, though, you can minimize these effects, and get back to a normal life surprisingly quickly.

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Since there are so many homes going into foreclosure and many others already bank owned, the savvy home buyer has a very real likely hood of finding out that their perfect home is in foreclosure, or is a short sale. Here is what you absolutely MUST know before you start thinking of putting in an offer on a short sale property.

First of all, be aware that to get an accepted offer could take any where from four to six months. Your real estate agent, the listing agent and the seller have no control over how long the bank takes to accept or reject your offer.

The reason that this part of the process takes so long is that usually there isn’t a local person involved. Most likely, the offer is being review by people getting paid minimum wage hundreds, if not thousands of miles away. They have never seen the home you want to buy, and they really don’t have any reason to hurry. They get off work at five, and they’ll be back to work on Monday. This is actually one of the reasons that we have such a foreclosure mess, banks operate in their own time frame and bank employees have no incentive to get you in your home.

Secondly, be prepared to pay your own closing costs in addition to what ever money you are putting down. By definition, a short sale means that the bank is already coming up “short” in other words there isn’t enough money to pay off the sellers loan. The bank is already taking a loss and typically they won’t want to pay your closing costs on top of what they are already losing.

Third, Don’t get your heart set on any home until you have the key in hand and are moving in. Don’t burn any bridges like screwing over your landlord thinking you’ll be moving next week. Short sales are notorious for having last minute delays and extensions for no understandable reasons. It is also common for a sale to fall through at the last minute because of mysterious bank red tape. Let closing on your home be an unexpected, pleasant surprise.

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The Chase loan modification program is offered by JP Morgan Chase Bank, which is JP Morgan Chase & Company. They work through 24 Chase Mortgage Centers. This program, which was announced on December 31, 2008, gives person-to-person help for those not only with Chase Bank loans, but also Bear Stearns and Washington Mutual, who they acquired… Chase calls themselves “the largest bank by market value.”

Of course, you can’t just walk in and they’ll touch you with a wand and all your troubles will be over. This is work. It is hard work for those who are not used to working with forms and finances. Just the fact you can meet face-to-face with a loan officer says a lot during these troubled times. Not everyone would agree with that. Some consider help as “you do everything for me.” Welcome to the real world. Chase plans to help 400,000 homeowners with 170 billion dollars in loans. Yes, that is a “b” in front of that word.

They also offer a web site so you can do everything on-line. It is at chase.com. You then need to go to “keeping-your-home.” The site is easy to navigate and offers forms in the .pdf format. It begins with a 16 items checklist of what you need. It even has Form 4506-T, Request for Transcript of Tax Return, with instructions. That’s Section 1. Section 2 is the three page financial information form. It requires borrower, property, loan and employment information. Also required is your bankruptcy status. Next is your monthly income and expenses, along with a list of your assets. Section 3 is your hardship affidavit. You can fill all this out and send it to their address, they specify it on the form, including if you use private expedited service. They say it takes one or two weeks. Each case is different. Sometimes, complex cases take longer.

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Significant Changes to the Bankruptcy Code under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA): The Presumption of Abuse and Qualification for Chapter 7 Discharge.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) represented the most sweeping change to the Bankruptcy Code since the modern bankruptcy code was enacted in 1978. It was roundly criticized and opposed by the bench and bar, consumer advocates, and legal commentators, but a potent lobby by creditors, led by credit card banks were able to convince the Congress to enact the significant amendments which were viewed as largely business friendly changes to the law.

Perhaps the most significant change to the bankruptcy code under BAPCPA was the “Presumption of Abuse.” Under the pre-BAPCPA bankruptcy code, debtors could file for bankruptcy under Chapter 7 liquidation or total discharge, regardless of their income level. Under the BAPCPA amendments, debtors had to prove that they qualified for Chapter 7 bankruptcy. BAPCPA creates a method to calculate a debtor’s income, and compares this figure to the median income of the debtor’s state. If the debtor’s household income falls below the median income for the state, then the debtor automatically qualifies to file for Chapter 7 bankruptcy.

If the debtor’s income is above the median income amount of the debtor’s state, the debtor is subject to a “means test.” The means test works roughly like this:

The debtor first calculates the “current monthly income” comprised of all sources of income for the household. The debtor’s current monthly income is then offset by a set of deductions specified by the Internal Revenue Service. In general, the allowable deductions applicable in the means test include:

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Many people are conflicted between short sales vs. foreclosure. This article provides a summary of the two financial options available to borrowers who can no longer afford to make their mortgage payments. Individuals facing foreclosure or considering applying for short sale approval should consult with a real estate attorney to determine which option is best for their situation.

Short sales vs. foreclosure require borrowers to adhere to certain protocol established by their mortgage lender. Neither option allows homeowners to remain in their home. Short sales gives borrowers the opportunity to sell their home for less than is owed on the mortgage note, while foreclosure forces borrowers to return the keys to their lender and relinquish the property.

Short sales generally offer the best financial solution for borrowers who have become delinquent on mortgage payments but have not yet received foreclosure notice from the bank. This type of real estate transaction requires approval from the lender. Both borrowers and their property must meet certain criteria before short sale approval is granted.

With short sales, borrowers must contact their bank’s loss mitigation department. Delinquent mortgage accounts are assigned to a loss mitigator who works with homeowners throughout the process. When lenders agree to enter into short sale arrangements, borrowers are required to undergo financial examination.

Borrowers must submit a short sale packet consisting of numerous financial documents. Lenders generally request copies of banking and investment statements, payroll records, tax returns, list of income and expenses, and real estate related expenses such as property tax records and homeowners’ insurance premiums.

Most banks require homeowners to submit a short sale hardship letter outlining events which caused them to become delinquent on their mortgage note. Lenders prefer handwritten letters of hardship providing dates and details of events that caused their financial demise, along with actions taken to rectify the situation.

Mortgage lenders usually require borrowers to have a qualified buyer lined up before approving short sale transactions. Some banks will give borrowers time to list their home through a realtor and locate a buyer. This is usually two or three months. If a buyer is not located, lenders commence with foreclosure action.

There are two types of short sale agreements. The first is Payment in Full without Pursuit of Deficiency Judgment. This is the preferred choice for borrowers because lenders accept the sale price of the property as payment in full toward the mortgage note.

The second agreement is a Deficiency Judgment. Some lenders hold borrowers responsible for the deficiency amount between the sale price and loan balance. If borrowers are unable to pay the deficiency at the time of closing, the lender issues a judgment which remains on borrowers’ credit history until full repaid.

Foreclosure generally takes between three and twelve months to complete. Banks initially issue a Lis Pendens, which gives borrowers time to work with their lender to obtain a loan modification.

Loan modifications are sometimes offered to borrowers who have encountered a temporary financial setback. When banks modify loans they alter the terms of the note to help borrowers get back on track. This can be accomplished by temporarily reducing or suspending mortgage payments, or by rolling the delinquent amount to the end of the loan.

If borrowers do not qualify for a modified loan or do not possess the financial ability to continue making payments, the bank has no choice but to foreclose on the real estate. When property is foreclosed, the bank first places it for sale through public auction. If the house does not sell through auction, it is returned to the bank.

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