Stop Foreclosure with a Short Sale
 A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage.
 This situation is a common option for homeowners that are "upside down" in their homes loan to value ratio. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.
To persuade the lender, the home owner will need to submit a letter
detailing their hardshipconditions, along with a detailed schedule of what is owed,
the proposed sale price including any real estate commission, etc.
Since the IRS may consider any forgiven debt as actual income,it would be wise to consult
with a CPA and real estate attorney when considering short-selling your home.
It can be a very difficult situation when one finds oneself in a position of being unable
to make the mortgage payments. This situation can come about because of accident
or illness or layoff which has reduced one's income and ability to pay debt.
It may have arisen due to an increase in the interest rate on an
adjustable-rate mortgage known as (ARM) they are involved in.
Formerly, the only answer short of renegotiating their mortgage terms with the lender
was to face foreclosure and loss of the home and the ruin of one's credit rating.
Lenders are now becoming increasingly amenable to accepting partial payoff of the mortgage
rather than taking possession of the home via a foreclosure and adding one more home
to their inventory of REO - real estate owned - properties.
The remainder of the outstanding debt that such a short sale does not retire is usually
re-assigned to the homeowner in the form of a note, in hopes that, down the road,
when circumstances improve, the debtor can pay it off.
Meantime the homeowner gets out from under a burdensome mortgage payment
and his credit rating does not suffer as severely as would occur with a foreclosure.
Not all lenders will accept a short sale. Sometimes it makes better financial sense
to the lender to go ahead and foreclose upon the property, especially in cases where
the debt to value ration is low,in other words, when the lender can auction off the property
for enough to get back 100% of their loan.
In any case,
It is very possible that one of your relatives may be able to finance your property
as a second home depending on his credit. It is likely that he will have better credit
than you because of your mortgage default and late loan payments.
The potential beauty of your relative financing your property is that he may
be able to purchase it at 60% to 80% of the current mortgage by doing
a short sale with your current lender.
A short sale is where your lender discounts the money due on your mortgage
to a new buyer so the lengthy foreclosure process and subsequent market
risk can be reduced or completely avoided.
The interest rate for a second home mortgage is about 1/2% to 3/4%
higher than a typical mortgage but it doesn’t matter since you will be paying
the mortgage anyway. Make certain any pre-payment penalty is kept to a minimum
because if you sell your house later you don’t want to be surprised at closing
by losing a chunk of money to your relative’s lender.
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