Matthew R. Plummer, Esq.
Third Quarter, 2010
Although the economy and Florida’s real estate market show glimpses of recovery, distressed properties remain abundant. The Federal Government had hoped to curtail this real estate epidemic through numerous mortgage modification programs, however, their projected goals of modifying eight million mortgages have fallen short. The Federal Government has now turned to a new short sale program as an alternative to the mortgage foreclosure crisis (Home Affordable Foreclosure Alternatives Program.) While mortgage modifications remain the first avenue for relief, countless Floridians continue to face the startling reality that they cannot make their mortgage payments, even with mortgage modifications. Property owners facing this situation are left with limited choices, do they try to work with their lender, or do they simply walk away. While it may seem easier to walk away, this unfortunately could result in negative repercussions in the future. Short sales, deed-in-lieu of foreclosures, and bankruptcy are all alternatives that will often leave an individual in a better position than if they just walk away.
Plummer
First Quarter, 2009
The basic definition of a short sale is the sale of real estate in which the proceeds from the sale fall short of the balance owed on the property sold. Lenders will agree to take discounted payoffs for outstanding loan balances, sometimes (but not always) in full satisfaction of the debt, because of an economic or financial hardship on the part of the mortgagor. On its face, this seems beneficial to both
buyers and sellers. Buyers are purchasing properties at ideal prices, and sellers are receiving discounted payoffs on mortgages to avoid foreclosure. Despite this appearance, it should be noted that the short sale process can and is often troublesome for both buyer and seller to complete.
On the buyer’s side, not only is the buyer competing against other offers, but the buyer’s offer is subject to lender approval. And because of this approval requirement, the buyer’s deposit will often be tied up as the parties wait for lender approval. Few short sales close within thirty days or less, and as in all real estate transactions, “time kills deals”. The process can further be complicated by junior liens or code violations on the property. Buyers should be cognizant that when pursuing a short sale, the property in question may have additional creditors with whom the seller has become delinquent with.
On the seller’s side, the seller faces a precarious situation in which the foreclosure process has likely started. Through a short sale, the seller will sell their property without seeing a financial return. This can be compounded by junior lien holders who may require the seller to sign a promissory note in order to complete the sale. In some instances, junior lien holders may only release their liens, as they retain their ability to pursue sellers for deficiency judgments. Sellers should recognize that not all short sale approvals provide for the full satisfaction of the mortgage, as some approvals only release the lien on the property.
Hopefully, this brief synopsis has provided insight into some of the pitfalls which may arise in short sales, but if done correctly, a short sale can be a powerful tool for both buyer and seller. No deal is alike, but should you desire we can assist in navigating the shortsale process, whether you are buying or selling. If you have any questions regarding the short sale process, or other real estate issues, please contact our office.
