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The following is an example of when you might seek a short sale:
$225,000.00 Property Value
$300,000.00 First Mortgage
$100,000.00 Second Mortgage
$30,000.00 Equity Mortgage
$430,000.00 Total Debt
$225,000.00 Sales Price
$205,000.00 Amount of Deficiency
This is not uncommon anymore. When the value of homes seemed to be on a never ending upward spiral, many homeowners were allowed to purchase homes with no money down and/or with mortgages that contained adjustable rate clauses. Over the past few years, however, the values of most homes have been declining, while the monthly payments due under the terms of many mortgages have been rapidly rising. As a result, many homeowners are not in a position to either sell or refinance their home, since they no longer have any equity in the residence.
A Short Sale may help relieve the homeowner from the financial burdens they are experiencing and may also salvage their credit score.
A short sale may also be beneficial and in the best interest of a lender as well. A lender or bank is not in the business of selling houses.
By accepting a Short Sale, a lender can save itself the time and expense of in conducting and completing the foreclosure process. If a mortgage is worth more than the value of a home, the lender is faced with the decision of either taking a financial hit now with a Short Sale, or later following the foreclosure. By approving a Short Sale, the lender is able to save many of the costs associated with a foreclosure, such as attorney fees, the payment of taxes and insurance, the costs of maintaining and repairing the residence, and also the costs of reselling the home. The lender will also not have to worry about the value of the home continuing to decline in value.
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