Generally getting behind on your home payments is not your fault. Some unforeseen life event comes out of left field and takes the wind out of your sail. Before you know it, your income no longer is at a level to sustain making those hefty mortgage payments that have always been a struggle but now seem impossible to find funds for. This is known as a hardship. A hardship can include any of the following but is not limited by this list: job loss, pay reduction, divorce, relocation, business failure, medical issues, or death.
Once this life event happens, the feelings of hopelessness settle in quickly. Your first instinct is to protect your family by downsizing your expenses. This is an easy process if you have equity in your home. In the event that your home is worth less than you owe, which is very common in today’s marketplace, you will not be able to complete a normal home sale. Though letting the bank take your home, otherwise known as foreclosure, seems like the only logical solution, I'm here to tell you it is not.
When a foreclosure occurs, the bank takes possession of the property. This is a huge expense for a bank. They are now responsible for maintenance, taxes, insurance, and legal fees. Their first step is to attempt to sell the property for the most money possible. The bank will hire a real estate agent to list the property at a price that is equivalent to current sold prices minus any repairs that may be needed. Once the home sells, the bank takes the original mortgage balance when you defaulted, they add in their expenses and fees, and subtract the final sales price. The difference between the banks total and the final sales price is known as the deficiency balance.
Here's a quick example of how a deficiency balance might be determined. You currently owe $250,000 on your home. You have not paid the mortgage for a few months, making the current balance $265,000. The bank forecloses on the property and sells it for $175,000, which represents the current fair market value. The bank has 3 months in NJ to pursue the deficiency balance. In this case, it is roughly $90,000 which you still owe, but is not attached to any real estate.
If the bank is awarded a deficiency judgment, you might be forced to do a bankruptcy at a later date, make small payments every month, or payout a large sum of money in the future. None of these are ideal, especially if you hope to improve your situation and purchase another house in the future.
A short sale is selling a house for less than is owed on the mortgage.
In most cases, it makes more sense to conduct a short sale as opposed to allowing the bank to foreclose. By volunteering to do a short sale, you are helping the bank by not forcing them to take possession of the property. In return, they may be willing to allow you to sell the property and walk away without a deficiency balance. They also may put “Paid as Agreed, Settled for a Less Amount” on your credit report which is substantially less damaging than a report of “Foreclosure”.
The short sale process will depend on the bank or banks involved. Generally, the bank will review your hardship, a financial statement, bank statements, tax returns, and paystubs. They will also want a contract of sale with a potential buyer as well as proof of the buyer’s ability to buy your home at a negotiated price.
It’s very important to work with a real estate agent and/or an attorney that has a lot of experience completing short sales for sellers. You should ask for references from people they have helped complete the process. If you cannot verify their past successes, you should look elsewhere for help. A short sale not handled correctly can be damaging to your finances and morale. Experience is the most important factor in completing a successful short sale.
Keep in mind, not all banks will allow a short sale or agree not to pursue a deficiency balance, but if you have already decided to allow the property to go to foreclosure, you have nothing to lose by trying this first. If it doesn’t work, you can always revert back to letting the bank take the property. The majority of banks do have departments and systems in place to process a short sale quickly and effectively at the time this article was created.
Collingswood's housing market appeared strong this September with 16 units sold. In comparison, only 3 homes settled in September of 2011.
09/04/12 647 Linwood Ave $147,900
09/07/12 36 E Wayne Ter $157,500
09/08/12 251 E Knight Ave $192,000
09/13/12 605 N Atlantic Ave 217 $205,000
09/14/12 109 E Wayne Ter $155,000
09/14/12 419 Woodlawn Ave $163,000
09/14/12 409 Virginia Ave $265,000
09/17/12 206 Lincoln Ave $175,000
09/19/12 319 Sloan Ave $85,900
09/24/12 136 E Knight Ave $145,000
09/26/12 38 E Zane Ave $270,000
09/27/12 26 E Linden Ave $290,000
09/28/12 22 E Palmer Ave $294,900
09/28/12 115 Coolidge Ave $145,000
09/28/12 30 Ardmore Ter $220,000
09/28/12 29 E Knight Ave $225,000
The information provided in this report is for informational purposes only. Although the information provided on this report is deemed to be correct, and attempts are made to keep the information current, no warranty as to the accuracy or completeness of any information in this report is offered.
Ed Barski is the Broker/Owner of Barski-Katinsky Real Estate, a real estate company servicing Camden, Gloucester, & Burlington Counties.