To best explain the process of a Short Sale, an overview of the foreclosure procedures here in Florida will give you better insight to what is commonly referred to as “Short Sale”.
Pre-Foreclosure
In Florida, when a homeowner misses 3 mortgage payments, the lender will mail a letter to alert the homeowner that unless a payment is made, the home will fall into a “pre-foreclosure” status where foreclosure procedure is initiated. At this point, the lender files court action and records a notice of a pending lawsuit (Lis Pendens) against the borrower. The lender notifies the borrower and any other affected parties in person or in some cases by mail or publication. If the borrower does not respond to the court action within a specified amount of time, the County Clerk can find the borrower in default and the lender can ask the court to make a final ruling. If the court rules against the borrower (they usually do), the ruling will include the total amount owed to the lender, and the foreclosure sale date. The borrower can stop the foreclosure up until the date of the sale by paying the total amount owed to the lender.
Notice of Sale / Auction
The sale date is typically 30 days after the court ruling, but this may vary depending on the individual court. The Clerk of Court issues a notice of sale containing the location, date, and time of the sale. The notice is published once a week for two weeks, with the second notice appearing at least five days before the sale. Within 10 days after the sale, the Clerk transfers ownership to the winning bidder if no one disputes the sale. In most instances, a borrower has no right of redemption after the certificate of sale is issued. At this point, the homeowner has lost his/her home to foreclosure, their credit will usually take a 250 point drop and show a foreclosure on their record for the next 10 years. However, the foreclosure does NOT mean the homeowner is free and clear of the debt that is owed. The lender may pursue a deficiency judgment! The entire process from the time the homeowner misses the first payment to the day of the courthouse auction is typically about 5 months.
The Short Sale
The Short Sale is when the lender, prior to the home being auctioned off, agrees to a lesser amount than it is owed, and agrees to accept this amount without further action to the homeowner. This is easier said than done. The lender must be convinced that the homeowner has done due diligence in trying to sell the home; he/she must show they can’t afford the payments and have a valid reason satisfactory to the lender. Financials must be prepared on behalf of the homeowner, contracts, bank statements and various other documents as is required specifically by each lender. If the lender agrees to the amount proposed in the short sale package, then the sale is made at the lesser price, the foreclosure is avoided, and the remainder of the unpaid mortgage balance is excused by the lender. This acceptance of an amount which is less than what is owed the lender constitutes the “Short Sale”.
There are generally three options that the homeowner can take when faced with a foreclosure:
Option 1
Refinance – It may be possible to refinance your home. Yes, the interest rates will probably be higher than what you are currently paying, but if you can afford the higher payments, you may be able to refinance your mortgage to pay off the foreclosure, existing debts and even end up with some cash.
Option 2
Bankruptcy – Once the lender files the “Lis Pendens”, homeowners will most likely receive offers from attorneys and questionable investors to help you file bankruptcy. But, will this help you in the long run? Bankruptcy is not a cure-all that will save your home; it will only postpone the inevitable. Be aware that if you file bankruptcy, your home could still go to auction, thus resulting in both a bankruptcy and foreclosure against your personal credit. Bankruptcy delays the foreclosure because a lender can’t auction the home until the bankruptcy debts are resolved. Bottom line is, if you don’t pay the mortgage, you don’t keep your home; otherwise everyone would file bankruptcy, stop paying the mortgage and live mortgage free for the rest of their lives.
Option 3
Sell Your Home – Many people in foreclosure cannot refinance. The good news is that up until the day of the courthouse auction, you have the power to sell and avoid the foreclosure. We at Florida Auctioneers & Realty, LLC have a team of professionals, and a network of investors and specific buyers who are looking for homes at wholesale prices. Our combined resources assure you a service commitment that prevents your home from going to courthouse auction thus avoiding foreclosure altogether.
CLIENT QUESTION:
"We purchased a home in 2006 from a developer in North Port, and now my wife and I have a major problem. We paid $245,000 for the home, but today, the builder is now offering the same home to prospective buyers for $175,000. We owe the bank approximately $240,000 - what can we do?"
ANSWER:
"Rather than a "Short Sale", contact the lender and ask them to reduce both your interest rate and monthly payment amount. Support your request with a copy of some recent comparable sales in your area at the lower prices. Tell the bank that you are willing to offer them a Deed In Lieu of Foreclosure - where you would deed them the property, and they would agree not to pursue you for the balance owed on the loan. Or, you would be willing to continue to make the monthly payments if the bank can lower them significantly. I have had some success recently with this approach in helping others hold onto their homes."
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