Foreclosure or short sale?
This week, Maggie Dew & Margaret Williams of Stewart Title hosted continuing education for Realtors, and Stewart Title’s regional president Richard Evans made the presentation at the Old Frisco Recreation Center.We had the opportunity to participate, and want to pass along some important information about a subject that is often difficult to discuss, let alone resolve.This information is from a brochure created by Richard C. Evans, and is not intended to be used as legal or tax advice.Perhaps you, or someone you know, has been threatened with foreclosure by a lender. Or, maybe you’ve received a “Notice of Election and Demand for Sale” or NEC, which is what starts the foreclosure process. You may want to consider a preforeclosure short sale as an alternative to foreclosure. This alternative is typically used when a property owner owes more on a house than the fair market value, and the owner has minimal or maybe no cash flow or assets. There are several advantages to a short sale vs. foreclosure – you may benefit from one or all of these items.1. Potential waiver of further liability on the debt owed to the foreclosing lender.2. Obtain a fresh financial start by stopping the foreclosure action.3. Avoid potential bankruptcy.4. Commission of Realtor and cost of sale to be paid from proceeds of the lender.5. Lender gets fair market value sooner – less costly than foreclosure.There are a few keys to a successful short sale.1. Use a competent real-estate agent. An experienced real-estate agent will guide you through the process of listing and selling your property, including working with the foreclosing lender to accept a purchase contract for fair market value of the property. In the short sale process, the real-estate agent’s commission is paid as an expense of sale, by the lender.2. Convince the lender of fair market value. The lender must be convinced that they will be receiving the current value of its collateral (your house) without the additional time and expense of a foreclosure. A real-estate agent is the best choice for establishing the fair market value and sales price of your home.3. Convince the lender of financial hardship. A short sale requires establishing that the property owner has little or no cash flow or assets, and that a long term financial hardship or insolvency exists. You must complete a Financial Statement supported by income tax returns, pay stubs, and bank statements.4. Negotiate with junior lien holders. Junior lien holders must be convinced to voluntarily release liens on the property to allow the short sale to be completed. Note: Unless canceled in writing, you remain liable for debt.5. Convince the lender to approve the sale. The lender must agree that the proceeds of the short sale as shown on the HUD-1 settlement statement is as much or more than will be realized through the foreclosure process. Your real-estate agent will obtain the written approval from the lender, includingany cancelation of debt (canceled debt may be taxable; however, taxes maybe eliminated if you are insolvent or meet the requirements of theMortgage Debt Cancellation Relief Act).Homeowner To-Do List1. Choose a competent Realtor familiar with Short Sales to assist you.2. Execute all Colorado Real Estate Commission Forms provided by theRealtor, including the NEW Short Sale Addendum.3. Execute written authorizations for Realtor, Title Company, orTransaction Management Company (Stewart Title provides this service) towork with lien holders.4. Keep and organize all written correspondence from the Lender andAttorneys.5. Compete a Financial Statement, supported by: pay stubs, tax returns,and bank statements.6. Document any/all hardships which affect the ability to make furtherpayments such as medical illness, divorce, loss of job, or reduced income.7. Document serious problems and/or costs of repairs to the property.8. Keep the property in marketable condition.9. Make copies of all pertinent documents and keep them organized!Don’t wait! If you think your home ownership is threatened by a decliningeconomy or the loss of your job or other crisis, do something about itnow. Don’t wait for things to get better; make preparations now with thehelp of your lender, a competent Realtor, an attorney and a title company. Steps now can help you avoid foreclosure or even bankruptcy!
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