Real Estate Blog - Fred Krawczyk & Associates.
A Short Sale is the process of negotiating with a Lender to accept an amount less than what is owed in order to release the mortgage lien against a property.
If the Borrower (the current owner) owes the Lender more than what the Borrower can sell the house for then, as long as the Borrower can demonstrate a financial hardship, most Lenders will entertain the idea of a Short Sale.
The Lender will require a detailed set of documents from the Borrower including Tax Returns, Bank Statements, Pay Stubs, and a Hardship Letter. The house will need to be listed with a REALTOR and, once an offer is made, the Lender will need a HUD1 or preliminary settlement statement and a Purchase Agreement with a preapproval or proof of funds from the Buyer.
Have you ever heard someone say "I'm getting a mortgage"?
They're not actually getting a Mortgage; they're giving a Mortgage. When financing the purchase of a home, the Lender gives the Borrower a Note (a promise to repay) and the Borrower gives the Lender a Mortgage which puts the home up as collateral against the Note.
This is why you can get a big loan, like a house loan, for 4% and a smaller car loan for 6%, but your Credit Card debt is often at 10% or more because this is considered an un-secured debt. A house doesn't just walk away and, usually, the owner is living in it so it is much more personal than a piece of plastic.
Banks can lend you money to buy a home and, in this capacity, they are a "lender" but, typically, the Bank is facilitating the transaction or "Servicing" the loan for an underlying investor such as Freddie Mac or Fannie Mae. Some Lenders, like Credit Unions, keep the loan in-house and are not merely servicing the loan for the Lender.
Bank owned properties consist of REO (Real Estate Owned), HUD or VA Owned properties.
When a Foreclosure house goes to the Lender at a Sheriff Sale, the Lender will perfect the title (strip off any liens against the property) then list it for sale. If the loan was a conventional loan, it will be an REO property and, if the original loan was an FHA or VA (Veteran Affairs) insured loan, it will be listed as a HUD or VA Owned property respectively.
A Sheriff Sale is a court ordered event that happens after the Lender is awarded a Foreclosure Judgment.
The Lender's law firm will file a praecipe (an order requesting a legal document) for a Sheriff Sale after which the property has to be publicly advertised for sale for at least 30 days. Most houses go to the Lender at a Sheriff Sale because no one bids or no one bids high enough.
Foreclosure is a process, not an event.
When the Borrower is unable to make loan payments, usually after 3 or more missed payments, the Lender will hire a local law firm to file a Foreclosure Law Suit against the Borrower (the current owner).
The Foreclosure Process takes a minimum of 6 months and it ends with a Foreclosure Judgment, if you don't do something like a Loan Modification, Short Sale or Deed in Lieu of Foreclosure befor the Foreclosure Judgment. The Foreclosure Judgment is a non-monetary judgment and it will prevent the Borrower from getting another home loan for at least 3 years.
Most people don't realize that, when you get a loan to purchase a home in the state of Indiana, you actually get the Deed to your home after the closing.
The Deed is mailed to the Borrower 30 to 60 days after the sale is recorded at the county court house. This is unlike financing a car where the bank holds the vehicle title until the loan is paid off. This is why a bank can repossess a vehicle, but will have to file a Foreclosure Law Suit to get possession of the home.