Short Sales are a Way Out for Homeowners

Nearly 5 million people around the country are seriously delinquent on their mortgages. Some may be able to save their homes if they can negotiate a loan modification with a lower payment from a lender. But others simply don't have enough income even for that.

For many of those troubled homeowners, a "short sale" is a better alternative than foreclosure.

Here's how a short sale works: A bank agrees to sell a house at the current market value without foreclosing, allowing the owner to simply walk away because the bank forgives the rest of the debt.

The federal government is launching a new program Monday to encourage more short sales. The Treasury Department will offer lenders and homeowners incentives totaling more than $3,000.

A Short Sale In Boston

On a busy street in Boston's Dorchester neighborhood, real estate agent Curtis Howe walks up to a brick townhouse that was rehabbed about 10 years ago. It's in a part of town where properties got way overvalued during the housing bubble. Howe says the outstanding mortgage was about $540,000; the property eventually sold for $275,000 in a short sale. That is a huge drop in value, and the lenders who were on the hook for that loan lost a ton of money. But there's still an upside for lenders.

"When a property goes into foreclosure and becomes vacant, it's vandalized, you have plumbing issues if the property isn't winterized, and there's nobody to maintain the property," Howe says. And, he adds, a short sale typically gets a higher price than a foreclosure.

A Complicated Short-Sale Process

Banks can cut their losses by doing short sales, and homeowners can do less damage to their credit. A homeowner also avoids the ordeal of a foreclosure, which can include eviction.

But often obstacles can derail short sales or make the process drag on. With the house in Boston's Dorchester neighborhood, Howe says, "It was a long process and it was just a little less than two years to get short sale approval and sale."

Laurie Maggiano, a director of policy at the Treasury Department, says: "There have been many, many delays and lots of complications with the short-sale process."

Some people don't like the idea of more bailouts for banks — or for homeowners, some of whom bought houses that they just couldn't afford.

"We're not here to make moral judgments about borrowers; we are here to stabilize the mortgage market," Maggiano says. She says the major cause of default and foreclosure right now is unemployment. Short sales, she adds, are less damaging to the housing market than foreclosures because there aren't vacant homes blighting neighborhoods.

If your worried about foreclosure American Eagle Realty can help you with solid answers about your rights and options before your house is foreclosed on! We are experts in the Short Sale Process and have the experience needed to work with your bank! Contact us we can help.....

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