What is the difference between foreclosure and short sale?
Back in the day, the only option a Lake Charles Home Owner had when they couldn’t pay the mortgage was to simply abandon payments and the home and walk away. The bank would then takeover your home and sell it at a price closer to what was owed and not necessarily at Lake Charles real estate market value. The result to your credit was disastrous and felt like “the end of the world” for many people. Many Lake Charles homes were often left in horrible condition as owners were so unhappy that the bank could not “work with them” and show leniency. Home owners would move out but not before stripping the home of anything of value: appliances, light fixtures, hardware, wiring! Anything they could get their hands on!
Fast forward to today, where there are several new options for Lake Charles home sellers which in turns provides options for Lake Charles home buyers. The Lake Charles Home sellers can now contact their bank (and most banks have a whole department for this) and apply for either a loan modification or short sale.
Loan Modification
Loan modification is when the Bank indicates they will work with a Lake Charles seller, if they are behind or about the behind, on the mortgage. The bank will restructure the loan and allow the seller to keep the house. However the Short Sale process is different.
A new Senate Bill was announced February 2012 which would speed up the process of Short Sales.
In addition to putting a ticking clock on short sales, the bill would allow a homeowner, buyer or perhaps even a real estate agent to sue the servicer for “equitable relief” and up to $1,000 per violation. The “aggrieved individual,” however, would be required to pursue the penalty in court.
This section of the bill appears to be among the first to address home buyers, who can expend money to inspect a home while waiting for a short sale approval that might not come.
The bill, however, will not impact homeowners with inexperienced agents who market homes at lowball prices or fail to provide a “full package” for the mortgage servicer. These issues continue to be a major reason why half of short sales fail.
Qualifications for a Short Sale Home in Lake Charles
Deciding on a short sale vs foreclosure is a serious decision. It is important for Lake Charles homeowners to have a better understanding of Lake Charles short sales vs foreclosure to understand what the Lake Charles home owner’s options are in order to make the choice.
Some times homeowners experience financial hardship due to various situations such as: relocation, divorce, loss of income, unemployment, or a major illness. This can cause Lake Charles homeowners to fall behind on their home mortgage payments.
- Are you a Lake Charles home owner close to falling behind or have you missed mortgage payments for 60-90 days or more?
- Has your bank contacted you about default or foreclosure on your Lake Charles home?
- Is your Lake Charles home worth less than the amount owed on your mortgage(s)?
- Do you have little savings, if any, in the bank?
If you answered YES to any of the above, you may qualify to sell your Lake Charles home as a short sale.
Short Sales
Typically, but not always, the Lake Charles Seller is in a hardship position. They have likely had a change of lifestyle and cash flow (divorce, relocation, job loss, death) which causes them to have issues paying their monthly mortgage. They are either behind on the mortgage or about the be behind. And they are upside down in their mortgage which means what they owe on their mortgage is MORE than the current market value. So they can’t refinance the home, they have no equity in the home and the home will not appraise with enough income for them to pay off their mortgage. That is why some sellers apply for a short sale with the bank, the seller is essentially asking the bank for “forgiveness” or sympathy regarding their situation.
How much will it cost to do a Short Sale?
It costs nothing. All fees including title, escrow, closing costs, and real estate commissions will be paid by your lender at closing. In order to proceed with applying for a short sale of your Lake Charles home you will need to provide your lender with the following paperwork and be prepared to write a hardship letter and authorize your REALTOR to communicate with the lender.
- -2 months most recent mortgage statements (for all mortgages)
- -2 months most recent checking account statements
- -2 months most recent savings account statements
- -2 most recent paycheck stubs for borrower
- -Tax returns for last 2 years
- -Financial Worksheet
- -Hardship Letter
MISUNDERSTANDINGS WITH FORECLOSURE
1. The bank wants your home back. It is not the home that the bank wants, but really the money which was lended out to purchase the property. Foreclosure is a long process for lenders and they will work with the homeowner to try to avoid it.
2. I’ve already received foreclosure papers and there is nothing that I can do. Depending on how much time you have left before the date of foreclosure sale, you may still be able to attempt a Short Sale.
3. Filing for bankruptcy will get rid of the foreclosure. While a bankruptcy will cause a temporary delay in the foreclosure process, it will NOT stop the foreclosure. Bankruptcy will also have an effect on your credit.
4. Most foreclosures happen when homeowners just walk away. Out of homeowners with a mortgage, only a small percentage said walking away from their home would be their first choice if they were unable to pay their mortgage. Majority of mortgage-holders said they wouldn’t walk away from their home – no matter how upside down they were on their mortgage. Most foreclosures happen when the owners lose their jobs or their mortgage adjusts to the point where they absolutely cannot pay the mortgage, no matter how hard they try. Voluntary ‘walk-away’s are simply not as popular as many people think.
5. I’ve only missed one or two mortgage payments, I can catch up. The most important thing to remember when playing catch-up with your mortgage is you owe any delinquent payments plus the current month’s payment. So, if you’re a month behind, you actually owe two payments – last month’s and this month’s.
6. I will let the property go to foreclosure because I do not have any money to pay for help. Have you thought about a short sale option?
What does this mean for you? As a Lake Charles Home Seller, you have options when it comes to selling your home, modifying a loan, short sale or foreclosure.
Make sure you utilize a REALTOR in any real estate transaction!
Marilyn Boudreaux is a Full Time Licensed REALTOR in the State of Louisiana affiliated with Century 21 Mike D. Bono & Co.’s.
Copyright 2012© Marilyn Boudreaux
Marilyn Boudreaux, REALTOR® 337-499-9592
Century 21 Mike D. Bono & Co.’s
4410 Nelson Road
Lake Charles, LA USA 70605
337 478-1578
