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How a Short Sale Prevents Home Foreclosure

Johns Wu Posted in Foreclosures by Johns Wu
July 23, 2007 03:57 AM - 8 Comments

SHORT SALE FORECLOSURE The loss mitigation department of your mortgage lender is charged with handling short sale properties. During a short sale, you will be selling your property to an interested buyer for less than the amount you actually owe on your mortgage. Short sales are thoroughly investigated by the mortgage company and the process can be long an arduous, but the result is that you, your mortgage lender, and your buyer each gain something from the deal. Short sales are one of many ways of stopping foreclosure of your home.

Many loss mitigators are paid a bonus related to how many defaulted loans they are able to clear from the mortgage lenders books. With this in mind, the mitigator assigned to your case is as motivated to approve the short sale as you are, assuming it is in the best interests of the lender. Before they approve the sale however, you, and your buyer, will probably be required to submit a mountain of information to help the mitigator determine the value of the sale.

After you have submitted all of the documentation the lender asks for to determine the viability of your financial situation; documents such as a hardship letter, paystubs, medical bills, bank statements, and any other evidence that proves your predicament; and, assuming that the lender agrees that you are likely to be unable to repay your loan, the mortgage company will order what is called a brokers price opinion.

BPO (Broker’s Price Opinion) is Key to a Short Sale

The Broker’s Price Opinion, or BPO, is the process which gives the lender an idea of the market value of your house. This is one instance where you want the value of your home to be low. If the broker’s price opinion is high, the mortgage lender may elect to foreclose on you home and put the house on the market themselves, where your property will be snagged up by home foreclosure buyers. So, the lower the BPO, the more likely it is that your lender will approve the short sale.

Finally, your buyer will need to submit documents indicating the costs involved in the sale and where financing for the sale is coming from. After they have reviewed all of the required documentation and determined that a short sale is in their best interests, the lender will give permission for the sale. Although the process is long, frustrating, and somewhat intrusive, you avoid foreclosure, your mortgage lender gets the best deal they can, and your buyer gets a home for less than market value.

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  1. Nathan said:
    on July 24th at 03:21 pm

    I think foreclosures will becoming more frequent and thus house prices will be declining.

  2. KJones said:
    on July 26th at 05:38 pm

    My aunt did something very similar to this. Her household bills were too much and she grew further in debt and further behind each month. This went on for about 18 months.

    Her mailbox was filled with letters from her creditors threatening to turn her over to the collection agencies.

    She was prompted to find out more information to sell her house for less than the mortgage value when she was sharing her financial woes with a friend of hers. Her friend told her that she thought the house was not worth what she owed to the finance company and that she should consider finding a broker to help her with the arrangements of getting a buyer for the house and an estimate on the value.

    Finally she found an agent that set up a plan for her to get out from under her mortgage and still be able to save her credit rating and what was left of her dignity.

    She came out of the entire mess without much damage at all. She spent the next two years in a duplex type home until she saved enough to buy another house.

    I would recommend only using this type of service as a last resort and that is what it is intended for. Of course you can only hold your head above water for so long, but you should always consider asking help from your loved ones before worse comes to worst, but main thing here is avoid the foreclosure your property by seeking alternatives. Do your homework.

  3. Amadeus said:
    on July 27th at 08:46 pm

    Probably the best place to start if you’re seriously considering a short sale is to do a simple analysis yourself. This can be summed up as:

    (Estimated selling price at foreclosure) - (Estimated transaction costs of selling property at foreclosure) - (Proposed short sale price)

    If the number you arrive at ends up to be negative, then you have a compelling argument to take to your lender for taking a short sale. To get the estimated selling price and transaction costs you can either do the research yourself or hire a real estate broker.

  4. James said:
    on July 28th at 04:13 am

    One of the attractions of a short sale is that it may not have the lethal effect on your credit rating that foreclosure has. However there is a problem here in that this is not guaranteed. One of your negotiating points with your lender should be that you do not want an adverse credit report to be sent to the rating agencies. If you ask this has a reasonable chance of being granted, and frankly it has a higher chance of being granted if you do not ask. One thing that you should be aware of is that there may be a policy by the lender that they have to report all defaults to credit rating agencies.

    You may still need to sell your home for other reasons - but keep your wits about you if you want to get a decent credit rating in the future.

  5. ciscogrove said:
    on August 1st at 01:43 pm

    Short sales are indeed a good deal, sometimes. One thing most people don’t understand is the lender’s risk. How lenders insure against risk is with government insured loans.

    You’ve heard of them - VA, FHA, etc. The chances of a lender accepting a short sale with an insured loan are slim to none.

    Why?

    Duh! They get paid either on the court house stairs by a foreclosure investor or, if it doesn’t sell, immediately after the sale closes.

    The best advice w/a short sale is to start as early as possible in the process. By early I mean the minute you even suspect you won’t be able to meet your payments.

    Talk w/your lender about their short sale procedures. Believe me, they will tell you. This is definitely one of those areas where you will need to do your homework.

  6. gkr said:
    on August 5th at 02:27 pm

    There are more chances for the mortgage lender to approve a short sale than to not. The foreclosed homes cost money to maintain. The court costs also go up to thousands of dollars. In this scenario any reasonable short sale deal not less than 50% of the market value of the home will be accepted by the lender.

    Some people can prevent foreclosure by working with their current lender and creatively finding a way to remain in the same home. There is also way to get out of this by taking a second mortgage. This is better only for those who have chances of bettering their financial situation atleast in the future.

    As the credit history of the homeowner is important it is always better for him to choose a short sale to prevent home foreclosure.

  7. Tim said:
    on August 25th at 12:15 am

    As one who’s been there, if you’re involved in a short sale on your home MAKE SURE THAT ANY FUNDS COMING FROM YOU ON THE HUD FORM ARE MINIMIZED! In a short sale, the seller CANNOT receive any proceeds from the sale, so any funds coming out of the seller’s column will not be refunded to you if they are overpaid. In our case, they took out county taxes and an escrow for settling with the utility company; we later found out that the taxes had already been paid by our lender and the utility company settlement was less than half the escrow…and we cannot be refunded those monies even though we brought them in cash to the closing table. In particular, if you’re working with Bank of America, watch out for their deceptive loss mitigation department…they’ll put charges on your HUD form that don’t need to be there, extorting money from you they know they’ll get back.

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