According to the National Association of Realtors, an increasing number of lenders are going after borrowers who sell their homes for less than they owe – known as a short sale – in order to recover more of the difference between the amount owed and the sale price.
In order for short sale sellers to protect themselves from lenders trying to recover lost money in the future, it is essential to have a note satisfaction and/or lien release and verbiage that the loan amount is paid in full. This release should be in the short sale approval letter. If there is no such verbiage in the approval letter, it should be requested. If there is more than one loan on the property, there should be a satisfaction and/or lien release from all lenders involved.
Short sales are not for everyone. Lenders say the factors that they consider when they decide to seek more money are:
How large was the unpaid debt? Lenders are more likely to go after a large loss than to bother with a small one.
Was the property an investment or a personal residence? Lenders have less tolerance for short sale sellers of investment properties. They are more likely to forgive a primary residence short sale seller.
How much money does the borrower make and what other assets does he have? If the short sale seller has other assets to go after, the lender will be more inclined to make an effort to recover their lost money. This also brings up the question if the seller could have some how made the payments, or just sold as a short sale to cut their losses?
What is the policy of the mortgage insurer or the holder of the second lien? When there is a second lien involved, the second lien holder usually will only get pennies on the dollar and will take a big loss in a short sale.
A PMI Group Inc. spokesman says the mortgage insurer “primarily target[s] borrowers who are not experiencing hardship – but those who simply elected to walk away from the property due to its decline in value.”
If you are considering selling your home as a short sale in South Lake Tahoe make sure to speak with your accountant first. For more information regarding short sales in South Lake Tahoe, South Lake Tahoe real estate, or foreclosures in South Lake Tahoe, give Brent and Jill Johnson a call today!
Source: The Wall Street Journal, Ruth Simon (04/30/2009)