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Ever considered a short sale?

By: 14 March 2012 One Comment

It’s a tale we’ve heard far too many times – a home owner gets sick or loses a job, falls behind on his mortgage payments and is looking at the very real prospect of losing a home through foreclosure.

When a home is foreclosed upon, no one involved in the process wins. The home owner loses the house he or she had planned on staying in for years and will have to deal with a bad credit score for a few years. The lender always loses money when a home is taken through foreclosure as it is very rare to recoup what was owed on the property.

The question, of course, is whether there is a viable alternative for home owners when their finances are such that they simply can’t meet their mortgage obligations. Of course, there are times when borrowers and lenders can work out ways to avoid foreclosure and that is always the preferred route to take.

In fact, borrowers are encouraged to get in touch with their lenders at the first sign of financial trouble. It is far easier to head off a problem rather than wait until a genuine financial hardship develops.

Still, the reality is some people go through such a dramatic financial change that they simply can’t stay in their homes. Louis Butler, a Realtor with Short Sale Your Home in Little Rock, said a viable alternative to foreclosure is a short sale.

Under that transaction, the lender agrees to forgo foreclosure proceedings by accepting a sales price for less than is owed on the home. Of course, short sales are nothing new and Butler said a good number of lenders in Arkansas do try to inform sellers of that option prior to starting foreclosure proceedings.

However, Butler said there is a problem in that a lot of borrowers aren’t too keen on reading letters that come from lenders even if they are helpful. He pointed out that people in financial trouble tend to view letters from creditors as bad news and generally discard them.

He said borrowers are also a bit leery of short sales because of what he says are myths surrounding them. For example, it is true that a short sale can only happen if the borrower agrees to a sales price.

However, Butler said the thing to keep in mind is that a lender will likely accept a short sale offer if the institution’s loss mitigation department determines the transaction will net more money for the bank than a foreclosure would. In other words, structuring the offer is very important and must convince the lender it’s a better deal than a foreclosure.

Butler said there’s also a good deal of paperwork involved in a short sale, but each lender has its own procedures and providing the required information requires a familiarity with what each bank requires in the process.

Butler says both borrowers and lenders come out in better shape after a successful short sale than they would through a foreclosure. For people facing the prospect of going through a foreclosure proceeding, a short sale may well be a viable alternative. His advice for all facing foreclosure is to get in touch with a professional who is familiar with the process and to pay attention to information on the subject sent by the lender.

A short sale might not work out for everyone, but Butler said it is an option well worth exploring.

Got a short sale-related question for Butler? Drop him a line at househomebuyers@yahoo.com
or call him at (501)240-6068.

Home Sweet Home is written by Ethan C. Nobles and is sent weekly to publications throughout the Natural State on behalf of the Mortgage Bankers Association of Arkansas.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.

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