September 22, 2008

Short Sales and Loan Modifications in Real Estate Foreclosures Explained. What Are Short Sales and Loan Modifications?

Filed under: Uncategorized — americanforeclosures @ 4:55 pm

A short sale happens when a lender such as a bank accepts a sale from a borrower or homeowner. This is usually the best option for home owners who know that they are going to lose their home. A Real Estate short sale enables the homeowner in trouble to “cut their losses.”

In order to meet the criteria for a short sale, it has to be proven that the market value of the homeowner’s house is comparatively below market value, the mortgage is close to or in default, and the short sale seller has to write a letter acknowledging that they are in hard times and explain why. The reason for your short seller status has to be a good one. You can’t just say “I don’t like my neighbors anymore.” The short seller’s assets will be checked in financial statements. If the short seller is found to have assets, then the seller may be required to pay back the difference after the sale, or not even become considered for the short sale at all.

The lender has to accept the short sale or else it will not occur. A buyer also has to buy the short sale in order for it to take place. After the short sale, the lender might be able to issue a 1099 form and demand that the difference be paid. However, many homeowners are now exempt from this because of the Mortgage Forgiveness Debt Relief Act of 2007. A homeowner who sells their home in a short sale will bear the consequences of having the sale show up on their credit report. Short sellers need to be careful because creditors may see the short sale as a “foreclosure,” and drop your FICO score the same amount as an actual foreclosure would.

Loan modifications occur when a lender modifies the loan so that the borrower is able to pay it. If a borrower has fallen behind on their loan, but thinks that they have a good chance of paying it back, then this is a good option for the borrower.

With foreclosures on the rise, and no slow down in sight in the near future, it’s important for homeowners to stay abreast on these issues and know what to do in case of crisis. If you’re a buyer looking to make a profit from short sales, you can visit to get comprehensive pre-negotiated foreclosure short sales listings and information across the country in every state in the U.S.


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