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Northern Colorado Real Estate Info
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As the number of borrowers falling behind on the payments of there homes in the last five years the number of “short sales” is increasing.
In a short sale of a property a lender allows the home to be sold for less than the total amount due. In many situations the lender forgives the remaining debt.
Short sales fell out of favor when mortgage delinquencies were low and rising home prices made it easy for borrowers who ran into trouble to sell their homes or refinance their mortgages. But as the housing market cools, interest in short sales is increasing.
Economists attribute the increase in delinquencies in part to a weaker housing market and the widespread use of adjustable-rate mortgages, many of which now are resting at higher rates. In addition, as demand for mortgages softened, lenders lessened their standards and made riskier loans.
For a lender, short shale can be appealing because the process can be shorter and less costly than foreclosing, especially in a declining market. Lenders can avoid the costs of property maintenance, utilities and homeowners’ association fees. Properties that go into foreclosure can take longer to sell, particularly in a declining market.
For Borrowers, a short sale is a way to avoid having a foreclosure on their credit report. A short sale can be less of a black mark than a foreclosure on a borrower’s credit record because it indicates that the borrower was working with the lender.
But there can be downsides as well. Under certain circumstances the debt forgiven by the bank may be taxable to the borrower. What’s more, convincing a lender to go along with a short sale can be difficult. Borrowers who have a mortgage and a home-equity loan may also have to negotiate with two lenders or two departments of the same bank.
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