 | Randy Vickers is the owner of Priority Mortgage Corp of Wichita, which opened in Jan. 1989, is the oldest locally owned mortgage company in Wichita. Randy has been in the real state business since 1983 and is a licensed real estate broker as well as a licensed mortgage broker. Priority Mortgage Corp of Wichita KS Lic #1996-0122. Randy can be reached at 316-721-7700 |
Real Estate
2007-10-01 11:09:00
What is a short sale, and how does it work?
I keep hearing of people getting their lender to accept a “short sale” on their homes...what does that mean exactly?
Answer: In the real estate news today, there is a lot of discussion concerning foreclosures, as many families are now facing the payment adjustments from adjustable rate mortgages taken out 2 to 5 years ago. Some of these consumers are contemplating whether or not they can even afford to stay in their home with the interest rate adjusting upwards. As mentioned in some of my earlier columns, these ARM’s (adjustable rate mortgages) were ok to get families into the ownership position on their homes, but can be overwhelming when the interest rate adjustments make the payments more than they can afford. If a person finds themselves faced with this dilemma, it is very important to be pro-active.
The first step is to check with a lender to see if your current mortgage can possibly be refinanced. National mortgage experts expect many millions of people to refinance these adjustable mortgages in the next year. This is the best option for most people, but it should be done before the interest and payment jump up. The next option is to try to sell the home if you don’t think you are going to be able to afford to stay in the home. This can be a good option as long as you have some equity in the home, either from the loan balance being reduced by your payments, or the market having increased enough to bring you some equity increase. A phone call to a Realtor can help you to decide if this option is one that will work for you.
If a homeowner falls behind on the payments, and is actively working to sell the home, sometimes the lender will consider taking less than the full payoff on the loan in order to help the homeowner get the property sold. This helps the lender and the homeowner to stay away from foreclosure action, and will generally be better for the homeowner’s credit rating, as well as keeping the lender from adding another property to their REO (real estate owned) file through foreclosure, thus adding one more property for them to have to manage. The tricky part is determining if the homeowner really has any other options. The lender is going to request a copy of the contract for purchase, as well as other financial information to determine if the homeowner has the ability to pay the loan. Only in the situation that the lender determines that it is in their best interest financially, will they consider a “short sale”. In a short sale, the homeowner must be prepared and understand that they will not receive any money from the sale of the home. Additionally, they can also be liable for tax consequences for the amount of debt that has been forgiven by the lender.
In most cases, a “short sale” is the last chance to consider before a foreclosure. The most important thing for a homeowner is to be pro-active in managing your mortgage and real estate. Keeping your property in tiptop shape and staying up on the changes in the real estate mortgage rates can help you be prepared for any risks that may come with owning real estate. Owning real estate is still one of the best ways to accumulate wealth, but like anything financial, it requires some work. The last 50 years have proven that if you have time on your side, real estate will treat you well. Real estate is still the largest financial asset for the majority of the American public. Everyone should attempt to own, at a minimum, their personal residence. But that also requires some management, including keeping up with the mortgage rates and payments required to stay current and well informed. More next month...
