Also, the homeowner typically has negative equity or no equity in the home. In other words, the total balance owed on the mortgages is equal or greater than the price at which the house can be sold. This situation is growing increasingly common due to the easy availability of 100% mortgages (no money down) as well as the recent decline in prices. This is particularly prevalent in the Southern California area, which has a large glut of homes for sale and where prices have declined 10%-30% in the past year.
In addition, the homeowner must have some type of financial hardship that is preventing him from paying the mortgage. This is commonly job loss, medical bills, disability, or some other hardship.
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A typical situation for a short sale is this:
-Homeowner purchases a home for $600,000 in 2004 with 5% down payment, the mortgage balance is $570,000.
- By 2005, the home's value has increased and interest rates have declined so the homeowner refinances to pull cash out. Home value $660,000, new mortgage $660,000.
- In 2006, homeowner gets laid off and continues to make payments from savings, hoping to land a new job soon.
- By 2007, savings are gone and still no job. Homeowner begins to miss payments and decides to sell the home for $660,000.
-As the months pass, the home has not sold because values have dropped back to $600,000 and the foreclosure process has begun. The Real Estate Agent presses to lower the selling price to entice a buyer, however that would require the homeowner to come up with cash at closing to cover the mortgage shortfall.
-Homeowner is stuck in the house and the foreclosure is proceeding.
If your situation sounds at all like this one, you might benefit from a short sale, e-mail us at Info@PGcoastal.com or call direct at (949) 309-2400.
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