Selling Your Home - Short Sales
When does foreclosure on my Waterford home begin?
Lenders will initiate foreclosure proceedings when borrowers miss three payments. What I mean by that is that you owe three months of payments, not if you miss one payment 3 different times. The lender will then notify the borrower in writing that he or she is in default. The lender can then request a sheriff's sale in which the property is sold at public auction. Usually if nobody bids what the borrower owes the bank the bank buys the house back themselves. This is what usually happens at 90% of foreclosure sheriff sales. So the bank usually owns the home after the sheriff sale.
In Michigan then the borrower/owner of the home has six months to redeem the property or pay back the back to keep the house. Very rarely does this happen because no other lender is going to loan money to someone that is in foreclosures unless there is a lot of equity in the house. The bank cannot list or come into the house until after the six month period. So the borrower can live in the house for six months for free. Borrowers should do everything they can to avoid foreclosure, which is one of the most damaging events that can occur in an individual's credit history.
How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven to ten years. Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through a bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.
Short sale explanation
How does a home seller sell a home for less than what is owed on the mortgage? Yes, in some case you can sell your home for less than what you still owe on the mortgage, but this is complicated and depends on the lender. This situation is known as a "short sale." Sometimes a lender will be willing to split the difference between the sale price and loan amount, which must still be paid. A short sale may be more complicated if the loan has been sold to the secondary market, because then the lender will have to get permission from Freddie Mac, the two major secondary-market players. If the loan was a low-down payment mortgage with private mortgage insurance, then the lender also must involve the mortgage insurance company that insured the low-down loan.
How long does it take to do a short sale?
It can take anywhere from 3 months to 7 months on the average. Short sales take a long time to accomplish. You have to be very patient. Lenders take their time to get a short sale done. They have to assign a negotiator, they have to have multiple documents from you, and they have to do an appraiser get a value on your house. They need all that information before they make a decision. It takes about three months to get that basic information. Many times it will take them days to return an email or phone call. You can go sometimes two or three weeks at a time hearing from them.
Who qualifies for a short sale?
Lenders usually agree to do a short sale if you:
- Have lost your job
- Now have reduced income
- Are getting divorced and neither party can afford the home
- Medical issues
- Death of a partner and you can no longer can afford the home
Normally the lender wants a good reason why you can no longer afford you Metro Detroit home. Though every once in a while some homeowners get a short sale approved without a good reason.
Will I owe money after the short sale?
There are two institutions that you could owe money after a short sale.
1.) The bank or lender you owed the mortgage too. When you do a short sale you need to get a release of deficiency letter. That letter releases you from the whole debt of your mortgage. Some banks require you to repay some or all of the short sale difference. Lets say you owe $200,000 on a White Lake home and you short sale the house for $170,000. The bank could ask you to pay the $30,000 difference back. With a release of deficiency letter you will never have to pay it back. So ask for one.
2.) Uncle Sam's IRS. If we use the example above you would normally get a 1099 from the bank for $30,000. You would then owe taxes on that $30,000. However a few years back President Bush signed into effect the Debt forgiveness act that forgave those 1099's if the home was your primary residence. However that expires in 2014 and it may not be renewed. So you could owe money to Uncle Sam if you do a short sale. Ask me what the situation is when you want to short sale your home.
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