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Myrei.team A boutique home builder, we buy, renovate, and manage rental homes, in close collaboration with our network of investors and real estate professionals.

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05/20/2018

Reasons to choose a short sale:

A short sale represents a dignified measure against a bad mortgage. It represents a transaction where both the homeowner and lender can reach an outcome, that is negotiated and agreed upon by both parties. Here are the reasons that portray why a borrower might opt for a short sale transaction:

i. If you choose short sale over foreclosure, you can preserve your credit rating. Foreclosure generally costs 200 to 300 points, when compared to short sales, which cost a mere 50 to 100 points.

ii. If you stop investing in a sinking ship, it will aid your long-term financial stability. Even if you face foreclosure, a short sale can be the perfect strategy to unburden such debts. It’s about minimizing the damage.

iii. Preserve your dignity, to avoid the stigma of facing foreclosure. Having your home repossessed or sharing the fact that you failed to pay your debts with your family and friends is never a good feeling.

05/20/2018

Short Sale Listing Agreement:

The listing agreement for a short sale transaction is similar to a normal real sale. However, there are a few specifications that the borrower needs to be aware of.

Some listing agreements state that, when the borrower takes the house off the market for any reason, he or she will still owe the agent a certain amount of fee. A borrower must not agree to this type of transactions, because, if they suddenly inherit some amount of money, they might decide to retain the property instead of selling off. Also, the borrower won’t be obligated to pay any agent fee under such circumstances.

Agent commission is only payable upon completion of sale, not simply because the agent acquires a willing buyer of the property. It’s important to remember that a short sale is subject to the lender’s approval. Again, the borrower is not obligated to pay agent fees for a sale that didn’t take place.

05/19/2018

Choosing your short sale negotiator:-

Short sales are complex transactions. It may fall apart if paper works are mishandled, or if deadlines are not met. So, it’s important to do the homework before choosing a short sale specialist or negotiator. Check:

i. Number of short sale approvals have they negotiated, including their success rate.
ii. Documentation that verifies their short sale claims.
iii. References that you can contact, especially homeowners who they have worked with, or client testimonials.
iv. Previous success rate of short sale approvals from your specified lender.

The result of a short sale request will define the life of a borrower for the forthcoming future. In a short sale transaction, time is money. So, it’s crucial to get the most experienced negotiator out there, with a reliable track record of closing off deals.

05/19/2018

Short Sale Valuation: A lender’s perspective:

The lender will commission a Broker’s Price Opinion (BPO), i.e. a real estate broker’s estimated value of the property. The price considers the condition of the home, recent sales in the neighborhood and the current market conditions. The lender will be expecting a price around and above the BPO. However, if a purchase offer is received below the lender’s BPO, the short sale may not be approved. Also, a homeowner can challenge the lender’s BPO on appropriate grounds, i.e. if they find the value too high.

05/18/2018

Mortgage Insurance:

A mortgage insurance allows high-risk borrowers to get a loan, who, without such insurance, wouldn’t receive such an approval. Mortgage insurance may seem like an unfair cost on borrowers who lack sufficient cash-in-hand to pay off their debts. Earlier, the presence of mortgage insurance (MI) in a loan was considered a step towards the approval of a short sale, if such a circumstance presents itself. All loans where the down payment by the buyer falls below 20% requires mortgage insurance.

However, there are situations where the lender purchases MI without communicating with the borrower even when the latter’s proceeds for down payment exceeds 20%. In such cases, the homeowner seeking approval for a short sale might be surprised to find out of the MI policy.

Recent changes to FHFA short sale guidelines state that mortgage insurance will no longer be an obstacle to a short sale transaction. The changes implemented in the short sale approval process on November 2012, authorizes loan services to provide approval themselves. They won’t have to experience the hassle of presenting the case to the mortgage insurer or investor.

05/18/2018

Foreclosure:

Foreclosure is a legal procedure where the lender accesses their right to the security interest they have in a property, albeit, the borrower has defaulted on their payments on the loan. It is a strategy of loss mitigation, i.e. cutting off the losses, not fully recovering them. The judicial process requires filing a lawsuit to obtain the court order to foreclose. When the court declares foreclosure, the property is auctioned off to the highest bidder.

05/17/2018

Alternatives to a Short Sale:

A short sale is a viable alternative to foreclosure. However, it is important that homeowners investigate all the available options before arriving at the decision that favors them the most. Let’s check them out:

Renting out the property - if the rent exceeds mortgage payments.
Refinance - replacing the existing mortgage with a loan that offers more favorable terms.
Loan modification- permanent adjustment made to one or more terms of a borrower’s existing loan.
Forbearance - temporary suspension or reduction of loan payments.
Repayment plan - creating a payment schedule to make up for missed payments.
Deed In Lieu (DIL) - the homeowner voluntarily transfers the deed of the property to the lender.
Taking no action - do nothing and wait for the inevitable, i.e. foreclosure.
Bankruptcy - the best way to put old debts behind and opt for a fresh start.

05/17/2018

Strategic Default:

When a homeowner fails to accumulate enough income to pay-off their monthly bills, they become delinquent on their mortgage payments. However, some owners may choose to default on their mortgages. This is known as “strategic default”.

Strategic default involves the lender into the situation, providing them with ample incentive by creating an artificial situation. The moment a borrower defaults, they become “non-performing loans” to the lenders. Suddenly, the lender faces a situation where, instead of acquiring interests on the loan, they must figure out how to decrease their losses. They have two options, foreclosing the borrower or suffering a calculated loss by approving short sale. And more and more lenders are choosing short sale in such situations. So, a strategic default may arise when a non-delinquent borrower can convince the lender that they are “at imminent risk of default”.

05/16/2018

Difference between Short sale and Pre-foreclosure sale:

The terms short sale and pre-foreclosure are basically two sides of the same coin. Pre-foreclosure sale belongs to a specific class of short sale, where the borrower has failed to pay off the mortgage and is facing foreclosure. However, in a short sale, a borrower may or may not be delinquent, and the lender settles for a payoff that is less than the balance owed on the mortgage. In general, pre-foreclosure sale is used mainly with respect to FHA loans.

A short sale that is not a pre-disclosure sale, may also take place when a borrower realizes that they will become delinquent if they fail to sell off their home. A short sale can also be used as a preventive measure. For example, consider a situation where you, as a homeowner, is facing reduced income due to decreased work hours. So, you will need to initiate a short sale, or face foreclosure.

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