Government Cannot Afford For You to Lose Your Home at Foreclosures

mortgage refinance The short sale by itself is a sophisticated game. It is even more interesting when a second mortgage is involved. Often, both mortgages are with the same lender. In this case, it is processed as one and the negotiator will apply all of the paperwork and actions on both loans. If the second mortgage is with another lender, then there is more work involved.

I was surprised on several occasions when negotiating with second mortgage lenders. The negotiators did not know about the rules and the priorities of differed lien holders. Here is the most important rule: at the public sale the second mortgage is completely wiped out. They get nothing. The real estate market is experiencing the lowest point of the bell curve. Almost 80% of the houses in foreclosure are upside down, which means that the fair market value is lower than the amount owed on the first mortgage. There is nothing left over for the second and the following mortgages, if any.

All of the contracts involving a short sale are subject to the lender’s approval. The first mortgage allows the second mortgage to receive some funds, but usually no more than 10% of the balance on the loan. Here is how to proceed:

real estate1. Start the negotiation process with the first mortgage holder. Request the short sale package and provide the information required. It includes the following: purchase contract, preliminary HUD (net sheet), hardship letter, financial sheet (income and expenses), prove of income, tax returns, bank statements, preapproval letter from the buyer’s lender.

To show the government’s eagerness, to preserve one of their main resources of tax revenue, the recent 8,000 tax credit has been initiated for people to purchase a new home. In addition, because of the sheer numbers of potential foreclosures forecasted for 2010 there is talk that Fannie and Freddie Mac may allow homeowners to refinance up to 150% of their homes current value. These are and there is more to come of the government’s commitment to protect their most prize possession: tax revenue specifically tax revenue from homeownership.

3. Make sure that the first mortgage holder is aware of all of the liens and other mortgages. This is the reason they require a preliminary HUD to go with the contract. The Title Company usually prepares the HUD. It is a settlement or net sheet that shows the lender how much they are going to net. On this sheet there should be the pay off for the second mortgage. The first mortgage holder must approve it.

If everything goes smoothly, the second mortgage gets paid something in order to release the lien. They are required to provide this release to the title company in order for the closing to happen. Both lenders will send you forms 1099-A or 1099-C. The amount forgiven is considered an income and should be included on the tax return. There is an exclusion if the house was a primary residence You can be published without charge. You can to republish this article in your website or blog. Please provide links Active.

Carlos Sagastume

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Posted by Carlos Sagastume on December 1, 2010. Filed under HUD Homes. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry