Short Sale vs. Foreclosure

Q: What is the difference between a short sale and a foreclosure?

A: A short sale involves the sale of an “under water” property, whereby the proceeds of the home sale will be LESS than the total mortgage balance and the owner cannot afford to pay the balance of the debts against the property. Purchasing such a property requires that the bank agree to accept less than the amount owed on the property, releasing the lien on the property. According to realtor.org, ” A short sale is a sales transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan”

Houselogic.com explains foreclosure as “The process whereby a lender, such as a bank, seeks to repossess a property where the owner has failed to comply with the terms of the mortgage or promissory note, such as not making a payment. Once the property has been foreclosed, the bank can then sell the house, using the money to pay its costs.”

AOL Real Estate offers an explanation to help distinguish one from the other, in that,  “Short sales can also be referred to as ‘pre-foreclosure sales’ which, as the name implies, precedes the home being officially repossessed or foreclosed on by the lender. That is, the property is sold much earlier than the months it typically takes to reach foreclosure, allowing all parties to move on from the transaction sooner.”

Weigh In on the CFPB’s Draft Monthly Mortgage Statement

If you have a hard time making sense of everything included in your monthly mortgage statement, you now have a chance to help get that changed.  Earlier this week, the Consumer Financial Protection Bureau (CFPB) announced that they are seeking public input on a draft monthly mortgage statement designed to make it easier for homeowners to understand their loans and help avoid any extra costs or fees.

According to CFPB Director, Richard Corday:

“This draft statement shows consumers the breakdown of their mortgage payments – what money goes to the loan principal, interest, and fees…This information will help consumers stay on top of their mortgage costs and hold their mortgage servicers accountable for fixing errors that crop up. Given the widespread mortgage servicing problems we’ve seen over the past few years, consumers need clear disclosures they can count on.”

The draft, pictured below, is also available via CFPB’s website.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, most borrowers must receive periodic statements with specific information about their account, most typically typically from their mortgage servicers.  According to CFPB. statements must include information regarding:

  • the principal loan amount
  • the current interest rate
  • the date on which the interest rate may next reset
  • a description of any late payment and penalty fees
  •  information about housing counselors
  • a telephone number and email address that may be used to contact the mortgage servicer

Currently the CFPB is testing out a prototype monthly statement with consumers to make it as user-friendly and useful as possible. In a press release posted on their website, the CFPB explained:

“In order to broaden the input it receives as it develops a standard statement, the CFPB is also posting the prototype online to solicit general feedback from consumers, industry stakeholders, and other interested parties. The public will have further opportunity to provide comment on a version of the draft standard form when CFPB proposes a rule on it later this year. The development and publication of a consumer tested and publicly-vetted monthly statement will benefit consumers and facilitate compliance by mortgage servicers and creditors.”

The prototype is scheduled to become available for public comment sometime this summer.

For more information about the draft statement and how to comment, visit: http://www.consumerfinance.gov/a-model-form-for-mortgage-statements/

What to Do when Faced with a Short Sale

If you have to sell, but you owe more money than your home is worth, it’s important to get every possible dollar from the sale.  Thankfully, the experts at HouseLogic.com put together their tips to help underwater sellers navigate the short sale process in order to get the best price.