Types of Short Sale Foreclosure Agreements

Two types of short sale foreclosure properties exist. The first refers to real estate returned to the bank because the borrower became delinquent on their mortgage note. When real estate reverts to the bank it is referred to as 'bank owned' or 'real estate owned' (REO) properties.

Banks are limited on the number of short sale foreclosure properties they can hold. With the constant influx of foreclosure homes, many lenders are at their threshold. Selling distressed properties allows lenders to liquidate a portion of their real estate holdings.

The second type of short sale foreclosure refers to property that is on the brink of foreclosure, but is still in the possession of the borrower. Short sale means the lender agrees to accept a discounted sale price in exchange for selling the property quickly.

Mortgage lenders only engage in short sales after all other options to prevent foreclosure have been unsuccessful. Short sales can be extremely beneficial to borrowers who do not qualify for refinancing or loan modifications. However, certain criteria must be met and borrowers must adhere to specific guidelines throughout the process. Otherwise, the lender can commence with foreclosure proceedings.

There are several reasons mortgage lenders engage in short sales. The most predominant is the fact that foreclosure is quite costly. According to Freddie Mac, the average cost per foreclosure ranges between $60,000 and $80,000 and take about eighteen months to complete.

Once lenders foreclose, the property is listed for sale through public auction. If the house does not sell at auction, it is returned to the mortgage lender. Banks must maintain the property until it is sold.

Another reason banks will engage in short sales is because they receive funding from the Federal Treasury based on their performance. Many banks are currently holding a large number of non-performing loans; meaning borrowers are not making payments. When mortgage lenders hold too many non-performing loans, the Feds can withhold credit and prevent banks from lending additional funds to customers.

Borrowers facing foreclosure can request short sale approval from their lender. If approved, borrowers will be assigned to work with a loss mitigator throughout the process. Each lender handles short sales according to their established protocol. Some require borrowers to submit a short sale hardship letter outlining the circumstances which led to their financial demise.

Others will request a short sale packet which includes financial records and various other documents. Loss mitigators review the information to determine if the borrower qualifies for a short sale. Not all borrowers or properties qualify for this type of real estate transaction. Unfortunately, it can take upwards of two months before the borrower will know if they can short sell their property.

Some banks require borrowers to have a buyer in place before granting short sale approval. Others will allow borrowers to list their property through a realtor and are given two or three months to locate a buyer.

There are two types of short sale foreclosure agreements. The first is known as Payment in Full without Pursuit of Deficiency Judgment. With Payment in Full, the lender accepts the sale price of the property as payment in full toward the mortgage note. The borrower can walk away from their home without owing additional money. This is by far the best short sale arrangement.

The second type is referred to as Deficiency Judgment. When banks issue judgments, the borrower is responsible for paying the difference between the sale price and mortgage note balance. This amount is usually several thousand dollars and can take a lifetime to repay.

Deficiency judgments remain on borrowers' credit reports until paid in full. They can prevent borrowers from obtaining any type of credit for years to come. Those who are able to obtain credit will certainly pay higher interest rates.

Engaging in short sale foreclosure does impact credit ratings. 'Payment in Full' short sales are the least detrimental. Although short sales remain on credit reports for seven years, borrowers who overcome financial challenges might qualify for a mortgage loan within two years.

There are many aspects and options to short sale foreclosures. It is important to become educated about the various types of short sales and the pros and cons of each. Being armed with knowledge is the best defense and places borrowers in a better position to negotiate with their lender.

Real estate investor and short sale specialist, Simon Volkov, recently released an upgraded version of his popular, "Short Sale Hardship Letter eBook Course"; a concise, step-by-step guide for obtaining short sale approval. In addition, Simon offers a unique short sale program in which he negotiates with lenders on behalf of borrowers.

If you are facing foreclosure, submit information about your property via the "we buy houses" form. Simon offers complimentary consultations to review properties and determine if they fit the criteria. If you desire a positive short sale experience, contact Simon Volkov today.