For many, the word foreclosure has a negative connotation. People think that the house is in bad condition and that the folks who lived in it were horrible people but more times than not, that’s not the case at all. Usually, the owners just fell on hard times and the houses actually are in decent shape. So get the negative out of your mind. Think positive because you are about to learn why buying a foreclosure can be a real estate investor’s best decision.
Understanding the Short Sale
Short Sale: In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagee. Continue reading What is a Short Sale defined
Foreclosure is the equitable proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner’s failure to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust.” Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that “the lender has foreclosed its mortgage or lien.”
A short sale is one of many ways a homeowner can prevent a foreclosure. Whether you are an investor or homeowner faced with a foreclosure we believe you should know and understand all of your options. A short sale is often the best option available to the homeowner but knowing all options is in the best interest of all parties so an informed decision can be made.
A deficiency judgment is a judgment lien against a debtor, defendant or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or non recourse loan.
The fuller, statutory definition as defined by New York is: “the whole residue, or so much thereof as the court may determine to be just and equitable, of the debt remaining unsatisfied, after a sale of the mortgaged property and the application of the proceeds, pursuant to the directions contained in such judgment, the amount thereof to be determined by the court as herein provided.
A Deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e., the borrower) conveys all interest in a real property to the mortgagee (i.e., the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
The deed in lieu of foreclosure offers several advantages to the lender but is a bad deal for the borrower. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy.
When doing a short sale the debtor may receive a form 1099-C for the amount of the lender’s losses. This is considered loan forgiveness in the eyes of the IRS and the lender may issue a form 1099-C.
Bankruptcy is a legally declared inability or impairment of ability of an individual or organizations to pay their creditors. Creditors may file a bankruptcy petition against a debtor (“involuntary bankruptcy”) in an effort to recoup a portion of what they are owed. In the majority of cases, however, bankruptcy is initiated by the debtor (a “voluntary bankruptcy” that is filed by the bankrupt individual or organization).
Which is worse: foreclosure or bankruptcy?
Bankruptcy and foreclosure are both derogatory legal actions in the public record portion of a consumer’s credit report. As such, they will each have a significant impact on any person’s credit standing. How much either would impact your credit would depend on ALL the factors showing in your credit. You should consult with a knowledgeable attorney to discuss the implications prior to proceeding with either action.
What Can An Investor Guarantee A Homeowner Facing Foreclosure That Wants To Do A Short Sale?
Answer: Absolutely nothing! Continue reading What Can An Investor Guarantee?
Nothing. If the seller is compensated in any way for doing a short sale you risk a felony conviction for mortgage fraud.
Mortgage fraud is a term used to describe a broad variety of actions where the intent is to materially misrepresent information on a mortgage loan application, in order to obtain a loan or when one or more individuals defraud a financial institution. A mortgage fraud conviction is a felony. Continue reading What Can The Investor Legally Pay A Seller When Doing A Short Sale?
Lenders require a Financial Statement be submitted with short sale packages to show the borrower is financially unable to pay on the loan. Always ask the seller to complete the financial statement to the best of their ability.