SKM Title & Closing Services, P.C. - We Close the Loan Massachusetts Real Estate Attorneys | Conveyance Lawyers | Sharaf, Kelley & Maloney, P.C./SKM Title & Closing Services, P.C. is a Massachusetts law firm focused on providing regional closing and title search services to national banks, loan officers, mortgage companies, and consumers with real estate interests throughout the New England region. Locacted in South Easton, Massachusetts. www.weclosetheloan.com


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Short Sales

Business Opportunities

Hard Work With Uncertain Results

One of the many consequences of the increase in mortgage delinquencies is the emergence of "short sales." A short sale occurs when a lender agrees to accept from the homeowner (seller) less than the full amount of the loan due (shortage) in order to release the mortgage lien from the property and thus allow a sale to occur. When a homeowner can no longer afford the mortgage payments, they have several choices:

(1) Sell their house in the usual manner;
(2) Refinance to obtain a lower rate of interest that they can afford;
(3) "Work out" with the lender an arrangement to catch up on missed
     payments and agree upon a new payment schedule;
(4) Lose their house to foreclosure;
(5) File Bankruptcy in order to delay a foreclosure while attempting to
     do a work out with the trustee in bankruptcy and the lender.

Unfortunately for many homeowners there are no options other than to loose their homes to foreclosure. In fact throughout the country there are thousands of homeowners who are just mailing the keys back to the bank and leaving homes that they can no longer afford. These are cases where the outstanding loan amount is higher than the value of the property therefore the property cannot be sold or refinanced.

These circumstances result from purchases in which the homeowners have put little or no money down and the value of the property has declined. They have no equity in the property and no ability to make payments. In other cases where property was purchased more than several years ago, the values have increased, but homeowners may have refinanced their properties up to the increased market value and can not afford the higher mortgage payments.

Homeowners are suffering the loss of their homes at an alarming rate and lenders are losing billions of dollars from these mortgage defaults. Once the property is foreclosed, it is either sold at auction, often at a price below even the current market value or the bank is the highest bidder at the auction and it takes ownership of the property at the foreclosure auction. The lender then has to secure the property, manage it, sometimes with tenants and or former homeowners, renovate, hire a real estate broker and sell the property.

Many real estate brokers have developed relationships with Lenders and portfolio managers and are having some success in the marketing of REO (Real Estate Owned by banks) properties. A future article will discuss working with REO properties.

An alternative to foreclosure that may benefit lenders and homeowners is the short sale. In a short sale, the broker presents the best offer in the current market to the homeowner. The homeowner, with their attorney, presents this offer to the lender and requests that the lender accept their offer which may not allow the loan to be paid in full, but does permit the orderly sale of the property in a non-foreclosure environment and allows for a market sale of the home.

The advantage to the Lender is that it recovers a greater payment on the mortgage than it would receive at an auction and it avoids the expense of foreclosure and the potential carrying cost of an REO property. The advantage for the homeowner is that the debt against the home will be either paid in full or negotiated to an amount and term that the homeowner can afford post sale and the credit while tarnished by a "compromised " sale will not show a foreclosure. In a foreclosure once the home is sold, any loss incurred by the lender remains an unpaid debt of the homeowner and the credit report will show a foreclosure.

If short sales were more accepted in the lending industry, homeowners and lenders would have an orderly method of selling properties when the value is exceeded by the mortgage and the homeowner cannot afford the payments. For a number of reasons, short sales negotiations with the lender are very difficult to conclude.

When the broker is working to obtain a listing it is import to confirm that the property is worth more than the outstanding obligations. If not, then the seller is facing a short sale, a foreclosure, or coming to the closing with additional funds to pay off the balance of the loan. If the broker finds himself/herself in a situation either when the listing is obtained, or during the sales process that a short sale is required, it is important that the homeowners obtain legal counsel. The broker may also need to inform the buyer that the consent of the sellers lender is a condition of the sale. Certainly this requirement will be a material part of the purchase and sales agreement between the parties. The role of the brokers, closing attorney for the potential buyer and attorney for the seller is still evolving and confusing.

The biggest obstacle to concluding a successful short sales is knowing with whom to speak. Since most mortgages have been sold on the secondary market, the homeowner often does not know who is authorized to negotiate a short sale. Secondly, one of the main, if not the only reasons, for the owner to negotiate a short sale is to protect his credit, but most commonly the lender will not even discuss a short sale until a homeowner has missed at least one loan payment.

Assuming the homeowner can find someone to speak with, they will have to supply a detailed financial statement, an appraisal (either from a broker or the lenders vendor) and an explanation as to the cause of the loan delinquency.

If the lender is then willing to consider a short sale, they will review a signed offer, or more often a signed purchase and sales agreement with a specified closing date and a mortgage commitment for the buyer. The lender will then want to see a title report showing the outstanding obligations on the property and a proposed settlement statement.

The lender will always impose conditions on the short sale. The broker's commission may be limited, usually to no more than 5%; seller concessions will be restricted; attorney fees will be limited; if there are junior lien holders they would be wiped out in a foreclosure, but in a short sale, they will demand some compensation. The lender in order to avoid a foreclosure may offer junior lien holders pennies on the dollar to release their lien and allow the sale to got through. In the junior lien holders will not accept a settlement offer, then the short sale will not occur and the first lender will foreclosure which usually wipes out the junior lien holders. For this reason, many junior lien holders will settle for a drastically reduced payment.

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Brookline, MA 02446
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South Easton, MA 02375
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