A short sale on your home could save you from foreclosure

By Amy P. Lookingbill

The AVENUE NEWS STAFF

With the state of the economy many homeowners are finding it difficult to make their mortgage payments.  Whether they have been laid-off or their adjustable mortgage rates have increases, home foreclosures are on the rise.  However, there is help out there for homeowners facing foreclosure.

“Fore people facing foreclosure it can be an embarrassing situation,” explained Dan Grady, a Certified Distressed Property Expert with ExecuHome Realty in White Marsh.  “But thousands and thousands of people are in the same position so there’s nothing to be embarrased about in getting help.  But going to foreclosure without any help is a tragedy.”

In 2008 there were 41,485 total foreclosure filings in Maryland and 32,338 total properties with filings.  This is a 71.29 percent increase from 2007 and a 945.18 percent increase from 2006.  Last year Maryland ranked 18th in the nation in foreclosures.

“This is only the tip of the iceberg,” explained Grady.

One way homeowners can possibly avoid foreclosure is with a short sale.  A short sale can occur when a borrower owes an amount on his or her property that when combined with closing costs and commission is higher than the current market value of the property.  A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company or companies to accept less than the full balance of the loan at closing.  A buyer closes on the property and the property is “sold short.”  However, short sales can only be negotiated to homeowners who meet certain requirements.  Short sale candidates must have a financial hardship and no signigicant assets to assist in paying down the mortgage.  Financial hardships include loss of income, loss of job, divorce, death of wage earner, relocation, illness or incarceration.  Short sale candidates must complete or provide all necessary documentation, keep the property presentable and ready to sell, and be available to communicate with the mortgage company if necessary.

Although 70 percent of homeowners go into foreclosure without visible intervention, there are many reasons to avoid a foreclosure.  A foreclosure is the only credit item that will continue to affect your rates even after it is off your credit report.  It is also the most devastating credit issue you can have in relation to your future credit availability and you will always have to disclose it on any mortgage application and many job applications.  People who lose their homes to foreclosures will be ineligible for government insured loans for five to seven years afterwards but they will only be ineligible fore those loans for two years following a short sale.  Since many employers now run credit checks on potential employees, a foreclosure is one of the top items that will put a potential new hire in jeopardy.  A foreclosure can also affect a person’s ability to get a security clearance and/or a government position.  A homeowner’s tax liability is higher in a foreclosure than a short sale as well since in most cases the cancelled debt will be higher.

Deficiency judgements are another issue.  As Grady explained, in 100 percent of foreclosures, the homeowner is exposed to a deficiency judgment.  A deficiency judgment is a court order authorizing the lender to collect the difference between the amount the home sells for and the amount that is owed on the property.  In some short sales the lender waives the right to deficiency and in almost all cases a short sale will result in lower possible deficiency judgment.