A short sale is a procedure that allows distressed homeowners to sell their house for less than they owe on their mortgage. Banks use this procedure to mitigate losses they incur through foreclosures.
Since the housing crisis, the average American home lost about a third of its value. If a homeowner loses a job, gets transferred, or has some other type of hardship, it is likely he or she will struggle to pay the mortgage. Homeowners choose to sell their home “short” of what is owed on their mortgage (note, short sales take a long time, not a short time!).
In theory, banks reward homeowners for not simply abandoning their homes. They do this by often waiving the “deficiency,” or the amount owed above the net proceeds of the short sale. However, it is in the best interest of homeowners to hire a professional to negotiate their short sale. Many homeowners complete short sales and are not told by their real estate agent that their deficiency was not forgiven. Under Virginia law, banks can still collect on the amount of debt left after the short sale. Fortunately for distressed homeowners, banks will pay a large portion of an attorney’s fee for negotiating and closing a short sale.
What most people don’t know is a huge majority of mortgages are insured or owned by the Federal Government. In 2009, 97% of mortgages were government backed. Some of the main government agencies that back mortgages are: Fannie Mae, Freddie Mac, FHA, VA, and Ginnie Mae. Public Policy has created avenues for homeowners with all types of hardships to successfully sell their homes without a deficiency judgment.
Hanger Law has negotiated hundreds of short sales that resulted in full deficiency forgiveness since 2011. Some of these homeowners had deficiencies of over $600,000, and this debt was forgiven as a result of the short sale. The key to a successful short sale, and what Hanger Law is great at, is knowing the policies of the “investor” (whether it is a government investor like the ones mentioned above, or a private investor like Deutsche Bank, Bank of NY Melon, E-Trade, Bank of America in house, Chase Mortgage in House, etc.). Each investor has different underwriting standards used to determine whether a homeowner qualifies for a short sale and whether or not the homeowner will have to make a cash contribution or set up a deficiency repayment plan.
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