Long Island short sales are on the rise. The numbers are staggering. According to the Long Island Board Of Realtors, short sales will continue to rise and real estate agents will be scrambling to assist homeowners in danger of losing their homes to foreclosure.
However, in my travels as a professional real estate salesperson, I find that many homeowners do not know anything about "short sales". A short sale occurs when the seller's lender (the bank that holds the mortgage on the house) accepts a discounted pay off in order to release the existing mortgage. Basically, the bank agrees to take less than what is owed on the property and the homeowner is able to walk away from the property without having any further debt owed to the lender.
On Long Island, short sales are becoming increasingly "popular" with homeowners who cannot pay their mortgage due to mortgage resets on adjustable rate mortgages.
The main reason why short sales are the most viable loss mitigation alternative is because the effect on the homeowner's credit is much less damaging than a foreclosure. On a FICO score, the average loss is 300 to 400 points when a homeowner goes through the process of foreclosure. However, if the homeowner chooses to negotiate a short sale, the drop in FICO score may only be 80 to 100 points, assuming their mortgage is the only debt they can't pay.
The short sale "package" that many homeowners will need to submit to the bank will include...
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You're absolutely right about sellers sometimes lacking awareness. If sellers can limit their missed payments to the house only, there's a benefit. The word will have to really get "out there" so that people act as SOON as they recognize an upcoming financial problem. Easier said than done, but worth promoting, with resources worth pursuing.