Complexities of Short Sale Transactions by Samantha Taylor

June 27, 2010 by · Leave a Comment 

Short sale is often the best choice for the distressed homeowners (the mortgage borrowers) to avoid foreclosure on the property. It is a process by which the lender agrees to accept less than the outstanding mortgage balance. Apart from benefiting the homeowners, a short sale is advantageous for the lenders, too. A foreclosure is often time-consuming and expensive for a lender. However, there are often complexities and difficulties associated with a short sale.

One of the major complications of a short sale is its long waiting time. Often banks take several months to respond to a short sale offer. Moreover, a short sale involves dealing with several parties because of which the process may take about 2-6 months to get completed, as compared to about only a month in case of a normal sale.

The situation worsens more when the homeowner has to deal with more then one lender. It happens when there are two or more liens on the property. The success of a short sale also gets reduced in such situations. This is because the second and other lien holders must agree for a short sale to happen. All the lien holders need to agree on accepting an amount less than the balance owed.

The lenders become more hesitant to agree on a short sale especially when it is a non-recourse mortgage loan. In case of such home loans, the lenders cannot go after the homeowner to recover the deficit amount. In case of a recourse mortgage loan, the lender usually can file a lawsuit and if the court issues a judgment order, the mortgage borrower has no other alternative than to pay back the deficit amount or else he/she has to face legal issues.

Moreover, the real estate agents need to follow various guidelines that are incorporated by the mortgage companies and the investors on the mortgage notes. The operating rules vary from one mortgage company to the other. This makes the process even more complex and difficult. It may happen that several investors situated at different parts of the world own a specific mortgage note. In such a circumstance, multiple negotiations are required so as to come to a conclusion regarding a loan payoff amount.

However, the homeowners can opt for a short sale under the HAFA (Home Affordable Foreclosure Alternatives) program. It helps minimize certain complexities as well as the homeowners can avoid foreclosure on the property that has damaging effects on their credit record. The program is beneficial for the lenders and investors as they receive financial incentives to participate. However, not many lenders allow the homeowners to opt for HAFA. This is because the lenders have to calculate the minimum net proceeds (eligible for HAFA) before allowing the homeowners to take help of the HAFA program.

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Samantha is a writer for various finance related Communities. She is a financial writer by profession and has specialization in dealing with financial problems and its solutions. She is well equipped to write articles on debt consolidation, savings, planning, frugality, debt settlement etc.

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