Foreclosures
22% OF HOMES SOLD IN THE U.S. WERE “SHORT PAY”!
IN DECEMBER 2008, 22% OF HOMES SOLD IN THE U.S. WERE “SHORT PAY”! IN CALIFORNIA,
THE NUMBER WAS ABOUT 28% AND IN THE EAST SAN GABRIEL VALLEY
AND INLAND EMPIRE ABOUT 31%
Should a homeowner who cannot make mortgage payments consider “short pay”? There is no best answer since each householder’s circumstance is different. To know if homeowner should put his or her home on the market as a short pay, this summary of how the process works may be of some help. The “rules” and the market change constantly; consultation with a real estate professional can keep a homeowner up to date.
Although there is some variation in the policy among lenders, the basic rules are very much the same:
1. The property must have a lower true market value than the total of the encumbrances and closing cost..
2. That value must be verified by broker price opinions (BPOs), sometimes by fee appraisal.
3. The owner/borrower must have a “hardship” circumstance. (e.g.: lost employment, disabling injury or illness, unavoidable job transfer, death of a spouse, sometimes even divorce).
4. The owner/borrow must be able to demonstrate the hardship and that there are no resources available to “cure” or otherwise satisfy the mortgage obligation. Ownership of a second property may result in rejection of short pay by the lender.
5. Oddly, the loan must almost always be in default before “short pay” consideration will be given. If a Notice of Default been not recorded, there may need to be at least two months of delinquency before a lender will consider short pay.
Perhaps it will help the homeowner understand the concept of “short pay” if it is thought of as a “reverse qualification” for the original loan. That is, a sort of “loan disapproval” by the lender. When the owner/borrower was a buyer/prospective borrower, a number of proofs had to be presented to the lender to show qualification for receiving a loan. Now that same lender must be shown that the owner/borrower is no longer qualified for that same loan due to a change in circumstances.
It is always frightening for an owner to be faced with the loss of a home; often it is a source of embarrassment too. If faced with foreclosure, the owner of a home who owes more to the lender than the property is worth should certainly consider “short pay” and will be very happy to provide you with a free consultation at any time.
One last point: an owner must never, never distort the facts, conceal assets or to commit any act that might lead him or her to be accused of defrauding a Federal lender in a short pay-off transaction.
Revised 01.09.09
