First of all, I must apologize to my readers. I have been assuming you know the difference between a short sale and a foreclosure. I am mistaken! Please allow me to clarify.
A short sale occurs before the bank has foreclosed on the property and taken title to the property. The homeowner still has title to the property and is the legal owner of the property. Although the borrower may be in default (due to missed payments), they will still have the option to sell the property until the actual foreclosure. If the borrower sells the property for less than what they actually owe, they will be short the funds for a payoff, thus the term "short sale".
A foreclosure is when the property is "repossessed" by the bank. In Daviess County, KY, the court orders the sale of the property to settle the debt. This auction is conducted by the Master Commissioner at the court house. Many lenders purchase the property back in hopes of selling it for more than what is owed. The property then becomes what is known as an REO or real estate owned property in the bank's inventory. The average REO property ends up costing the bank around $40,000, so working with a borrower to prevent foreclosure is in the lenders best interest. If you are struggling to make your payments and the words "short sale" or "foreclosure" are not in your vocabulary, here are some alternatives you might consider:
•1. Enter into a Forbearance Agreement with the lender. This allows you to make a lower or partial payment until your loan can be modified to a more affordable payment. (see #2)
•2. Loan Modification - allows you to enter into an agreement with the lender to modify the terms of your loan to effect an affordable payment. I spoke with a fellow REALTOR the other day who had gotten a payment modified from $3000 month, (interest only) to $1700 month,( principle, interest, taxes and insurance)! It can be done! Forbearance agreements and loan modifications are typically only available to borrowers who intend to continue to occupy their home, however in some markets; they are available for investment and vacant properties as well.
•3. Have the lender file a partial claim on your FHA private mortgage insurance (FHA loans only).
•4. Refinance using additional collateral and extend the term
•5. Enter into a repayment plan with the lender (another form of modification)
•6. Consider a Deed in Lieu of foreclosure - surrender your property to the lender and forego the cost of foreclosure. (You may be protected from further liability by the Mortgage Debt Relief Act - consult your attorney or tax professional) If you have more than one mortgage, deed in lieu is not an option for you.
Don't wait until you are late on a payment to talk with your lender. Ask them about options for forbearance, loan modifications and short sales. The U.S. Treasury Dept. has updated guidelines to streamline the short sale process. Some of the proposed changes will require lenders to respond to offers in a timely fashion and may impute financial penalties on lenders who do not cooperate. I'll have more on this next week. In the meantime, contact me if you have any questions. If you are in a State or Commonwealth other than Kentucky, contact a REALTOR there who has experience working on short sales.
For all your questions about real estate in Owensboro, KY, call Karen Pannell, 270-903-2167
Text or Phone: 270-903-2167
Owensboro, Kentucky 42301