Shorting It

June 17, 2010

I woke up at 5am this morning for no apparent reason. Feeling and looking it all day, for sure. Yikes!

I had seen the term “short sale” in all of the reams of paper I’ve read about the financial crisis, but I had never really known what it meant. Here to tell us is guest blogger Rebecca. Or should I say guest blogger Rebecca’s intern:

The past two months there has been a local graduating high school senior interning in my office.  The manager in the office seems to have no idea what to do with him.  So, the other day I was doing my desk time, which is when I have to man the phones in the office and field calls which lead to potential business.  It’s like Glengary Glenross.

Back to the intern…he was shadowing me during my uptime.  What did I have for him to do? Recently; I had an accepted offer on a house that is in a short sale.  In addition, I am always being asked what a short sale is, so I asked the intern to do a little writing for me.  The intern is going to Syracuse in the fall and told me he loves writing.  So folks, I found the perfect task for him.  Let me know what you think.

Short Sale vs. Foreclosure

There are two ways to deal with homes that one struggles to make their mortgage payments. They can take the traditional route and let their home go into foreclosure or they may be able to qualify for a short sale. What many people fail to recognize is that there is a big difference between the two. To start off a short sale allows the mortgage lender to accept a price that is less than what the homeowner owed. However there are some rules about short sales, such as it only is allowed for homes that have more than a $729,000 mortgage. The other way a person struggling to pay back their mortgage can deal with a home issue is letting it go into foreclosure. A foreclosure, allows the bank to gain some security on the mortgage they let the homeowner borrow. It means that the homeowner won’t have any responsibility of the sale of the home and the bank can auction it off for any price. In many ways, one might think this is the better solution because the bank takes care of the issue. However, the negativity of a foreclosure is it makes it harder to obtain real estate in the future because it leads to a 200 point hit on the FICA score. It makes sense — why would a lender want to give out more money to someone who struggled to pay back their first loan?  That is why for many reasons a short sale makes sense, because it gives the homeowner the ability to allow their home to be sold like any other home and avoids the long dreaded consequence that is associated with the word “foreclosure”. People know this, banks know this and that is why in 2009, the treasury department created the program HAFA, in order to keep people out of foreclosure.

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