Finance and Credit Professional

Many homeowners are finding themselves upside-down, meaning that they owe more on their home than the current market value. What factors have resulted in many owners finding themselves in this position?

For some, simple hardship results in being upside-down. Perhaps one our both spouses have lost their job or have had to take another position at a lower income. Perhaps due to an adjustable rate mortgage the monthly payment has increased to an amount that is difficult for the owner to pay. Other reasons include interest only mortgages where payments are applied only to the interest and no payments are made to reduce the base cost of the loan.

Some older adults find themselves in a position of planning for long term care and simply needing to move while their mortgage balance is greater than the value of their home. For them, it is simply a matter of timing versus a personal need for care. There are as many reasons people find themselves in this situation as there are people in the world.

So, once a home owner is in a position where making monthly mortgage payments become difficult, what is the best course of action? The obvious is to address the hardship issue if possible. However if this is an unrealistic solution, a short sale can avoid the route to foreclosure and damaging a credit rating. The time to consider a short sale is long (at least 6-8 months) before a home owner approaches foreclosure and when a valid hardship can be documented.

An experienced realtor can guide you through the short sale process. This includes gathering information about the requirements of the loan holder relative to the sale. In a short sale the skill of the realtor in the negotiation process is extremely important as the goal is to market and sell the home at the best price possible in order to close the gap on the amount of the loan and the net proceeds from the sale. Because of the process there are many more details than in a regular real estate transaction.

For example, a home with a loan value of $145,000 that can sells for $140,000 would result in a net proceed of approximately $130,200 (the cost to sell a home averages 7% of the sales price). Thus the difference between the loan amount and the net proceed is $14,800. This amount can be addressed in three ways: 1) it is forgiven in total, 2) the seller is asked to sign a loan for the amount due or 3) the seller is issued a 1099 at which time a tax specialist should be consulted.

The benefit of a doing a short sale versus allowing a home to go into foreclosure is that a credit record is not affected provided mortgage payments are current. The seller also remains in control of the transaction. Which means that the owner can occupy the home until is it sold and has time to make plans for new living arrangements. Take control of your real estate needs today and avoid foreclosure by looking into doing a short sale.

About The Author :

Pamela D.Wilson, specializes in planning, counseling and advocacy for older adults. Contact her at The Care Navigator For real estate info related to this article visit Wilson Real Estate

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