Foreclosures Short Sales

WHAT IS "FORECLOSURE"? WHAT IS "SHORT SALE"?           

Foreclosures:  The Reality of the Present Residential Market
By Lawrence R. Steiner and Amy R. Steiner

    Residential property values in the Orlando market continued to decline in the first quarter of 2008, following the trend which has occurred over the past year. A recent study indicated that the decline in values in the Orlando area during the first quarter of 2008 was greater than the national average, with the average residential property (home or condo) declining approximately 6.4% since the end of 2007.

    According to recent studies, more homes than ever are entering the “negative quality” stage, wherein the owner owes more on their mortgages than the house would likely sell for if it had to be sold at this time.  More than half of these properties were those purchased during the peak of the market in 2006. Although present negative equity is not a major concern for anyone planning to remain in their home for the next several years, it is certainly of concern to those who for any number of reasons may be forced to sell during this market, or for would like to refinance. Unfortunately, it does not appear that the end of decline is near or in sight.

    As one of the results of the present economic conditions, the number of late mortgage payments and resulting foreclosures have risen rapidly. In Florida, the rises in mortgage payment delinquencies have occurred during a period when unemployment -ncreased and the value of homes declined. However in other parts of the country, where delinquencies have been tied to various unintended life events, such as job loss or an illness, mortgage companies commonly approach such situations with a temporary adjustment in mortgage repayment or a blending of missed payments into the remaining principle balance on the mortgage.  

    However in a market such as Orlando, where there has been a widespread decline in property values, mortgage companies are looking to develop other solutions to this problem, short of foreclosure, since an increase in the number of foreclosures only adds to the glut of unsold homes on the market, thereby adding more downward pressure on prices, and further aggravating the slumping housing market.

    Most readers have heard the term “foreclosure” more often lately in the present housing market. Many do not, however, truly know nor understand the basics of foreclosure, nor how the process generally works.
Foreclosure is the legal process by which a mortgage holder or other third-party lien holder attempts to gain ownership of the property and/or the rights to sell the property and use the proceeds to pay off the mortgage if the mortgage or lien is default. 

    Prior to commencing the filling of the actual Complaint for the foreclosure, lenders typically serve the homeowner who has failed to keep the account current and fails to make payments on the promissory note, with a  Notice of Default.  The Notice of Default advises the homeowner (borrower) that unless the borrower pays a specific amount of fund to the lender by a certain date (amount delinquent), the lender will commence legal proceedings for default under the note, and for foreclosure of the mortgage which secures the note. 

    At any time during the foreclosure process, until the property is actually sold at the foreclosure sale, the homeowner can sell the property, at which time the mortgage holder would be paid in full, Including all costs and expenses of the foreclosure action, including attorney’s fees.

Or, the homeowner can attempt to refinance the property, if there is sufficient equity in the property, in order to pay off the mortgage holder; or, with the approval and cooperation of the mortgage holder, the homeowner can secure funds from another source to pay off all amounts due the mortgage holder; or, with the approval and cooperation of the mortgage holder,  the homeowner can “cure” the default ( delinquencies) by tendering payment of all delinquent amounts, plus attorney’s fees and costs which the mortgage holder may have incurred to that point, in which later event the mortgage will be considered current and reinstated. 

    In the present Orlando market, as well as in many other markets with serious delinquency rates, the term “short sale” has become a popular term for discussion as an alternative to foreclosure, or more accurately, to prevent the foreclosure sale. A “short sale” is a negotiated settlement for a reduced payoff of the mortgage balance due on the homeowner’s property. 

    Often referred to as a “short pay”, a short sale occurs where the mortgage holder agrees to accept from the homeowner who is attempting to sell his home, the net proceeds from the sale which are less than the balance remaining due on the homeowners mortgage, in order to avoid the foreclosure proceeding. Many mortgage holders, however, have been reluctant, if not outright denying, the “short sale” process, and elect to proceed to foreclosure if the homeowner is unable to resolve the delinquency in one of the manners discussed above. 

    Finally, due to the rapid rise in mortgage delinquencies and foreclosure filings, and the adverse impact which foreclosures have on the general economy, the government is taking a greater look at the problem, and attempting to discuss alternatives, through legislation, which would temporarily slow down the rate of foreclosures in order to prevent homeowners from losing their properties and the roof over their heads.