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Future shock

National Mortgage Professional
May 26, 2008

Grow your business—understand the short saleNathan Pascalforeclosures, bankruptcies, credit, attorney fees, legal notices At this point, it should come as no surprise that there is an influx of foreclosures and bankruptcies due to the volatility in today's real estate market. With lending institutions folding and financing options drying up, many borrowers have found themselves in the position of having no other options than either going into foreclosure or engaging in a short sale. As a real estate professional, it is extremely important to understand this scenario and be prepared when a short sale transaction opportunity arises. Who knows, you may even develop a specialty niche for yourself. What is a short sale? In its most basic sense, a bank will opt to work with the homeowner to sell the property in lieu of foreclosure. This is what we call a short sale. The "short" refers to the shortage in the sale proceeds when the sale of the property goes for less than what is owed on the mortgage. Is a short sale a good option? To many people facing this difficult situation, a short sale is an excellent option. A short sale will allow a homeowner to avoid further blemishes on his credit profile or face a potential barrage of lawsuits and judgments. A short sale, in many cases, can help a homeowner escape from filing for bankruptcy. Although the situation is not ideal, it gives the homeowner a chance to save some face on his credit and hopefully become a homeowner once again. It is important to remember that banks are in the business of selling money, not property management. They do not want to acquire a property and become a property owner, with all the burdens that it entails. Additionally, the obligation a bank assumes, known as "real estate owned," represents a loan that went sour, which is not something bankers want showing up in their statements. A short sale is most favorable to the bank because it can report the debt is paid. Many times, a bank will even set up favorable terms for a short sale balance. In addition, a bank is able to waive the costs of attorney fees, legal notices, auctions, advertising, collections and other expensive costs associated with foreclosing on a property. Short sale considerations Short sales are not much different from most purchase transactions; however, there are some important considerations. It should be noted that it is not uncommon for a short sale to take anywhere from 60 to 90 days to close. Closing cost help is usually not furnished; there are income tax considerations, and a poor appraisal may stymie the process. A would-be buyer would also be highly encouraged to employ the help of a strong home inspector before moving forward, as many of these properties have been subject to neglect. With many potential obstacles to face, it would also be highly advisable to associate with a strong, attorney-owned title company that will be able to quickly, efficiently and thoroughly facilitate all lender requests. Prepare More of these potential situations are looming on the horizon. The more research and preparation you do now, the more you will be prepared to grow your business in the future. Align yourself with a title company that is seasoned in these transactions and is willing to educate and work with you. It will be worth the time you invested in yourself and future partnerships. Nathan Pascal is president of sales and marketing for Huntington Title & Escrow LLC. He may be reached at (443) 738-1708 or e-mail [email protected]
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