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With so many Nevada homeowners facing default these days, real estate agents and others in the know tend to throw around a lot of terms relating to the current market situation.
The meanings behind these terms are not always clear to home sellers and home buyers. It's important to learn at least some of these terms to understand what is happening in the Nevada real estate markert today.
Here are a few definitions to words we often hear over and over in the news and words that relate to real estate transactions here in Northern Nevada:
1) Short Sale ~ A short sale occurs when a property is sold for less than what is owned on the property. The lender agrees to release the lien that is secured to the property upon receipt of less money than is actually owed.
A short Sale is an alternative to foreclosure. The foreclosure process is usually far more costly than the discount the lenders takes on a short sale.
2) Foreclosure ~ A foreclosure is the legal process when a lender sells your property, or terminates the borrowers rights to the home. This usually occures because you've fallen behind on your mortgage payments. The foreclosure process begins when you default on loan payments.
The foreclosure process varies depending on the state but proceedings can begin as early as one missed payment. The time frame for Nevada foreclosures is typically 120 days. Before this process can begin, the lender must serve the borrower a notice of default, after which the borrower has 35 days to try to remedy the default by filing a "intent to cure" (short sale or make up missed payments) with the trustee's office. You can stop or delay a Nevada foreclosure in court or by filing for bankruptcy.
3) Deed-In-Lieu Of Foreclosure ~ A Deed-In-Lieu Of Foreclosure (DIL) is when a lender accepts a deed to a homeowners property in foreclosure instead of continuing the foreclosure process. This is a way for the bank to save on costs incurred during foreclosure when they are getting the deed anyway.
The services willingness to approve and accept a DIL is contingent upon the borrower's ability to provide marketable title, free and clear of mortgages, liens and encumbrances. A borrower might consider the DIL after attempting a short sale. The goal of the borrower seeking a DIL is to get a full debt release from the servicer without having to sign a note or face a deficiency judgment.
4) Deficiency Judgment ~ A deficiency is the amount that the lender is unable to recuperate through a foreclosure or short sale. A Deficiency Judgment is the difference between the mortgage payoff amount and the amount the lender is able to "net" in a short sale. In some states, the lender can pursue a deficiency judgment for the amount that they dicoundted or wrote-off during the short sale.
5) Lender ~ Banks, mortgage companies, loan companies and investment trusts who hold the note, own the mortgage or loan papers.
6) Lien Holder ~ A lien holder is anyone who has a lien or claim on a property. The lien is created by an agreement, such as a mortgage, that created a debt secured by the property. A mortgage lien occurs when the borrower defaults on the mortgage loan, them the lienholder can foreclose on the property and sell it to pay for the note.
7) Second Lien Holder/Junior Lien Holder ~ The second or junior lien holder is a bank, trust or investor or other entity that currently owns the second mortgage and has a right to collect a deficiency on a second mortgage. So just like the first lien holder, they also loaned money to the property owner.
When considering a short sale on a property with more than one mortgage, not only do you need approval from the first lender but you will need a loan release from the second lender as well.
It doesn't matter if you took out a second mortgage to buy the property or took out a Home Equity Line of Credit after you moved in, the first always has the right to collect from foreclosure or short sale proceedings. When a short sale occurs, you must negotiate with both the first and second lien holders. Generally, the junior lien holder will drastically discount their loan amount to ensure the receive something back rather than being wiped out completely by foreclosure.
8) Arm's Length Transaction ~ An Arm's Transaction means the parties involved in are independent, not related and are looking out for their own personal interests. Buyers and sellers are acting independently and are on equal footing.
What is the reason for a Arm's Length Affidavit on a short sale?
When a family member or a good friend is facing financial hardship and is no longer able to afford their current monthly mortgage payment, isn't it natural for us to try think of ways to help?
One way would be to purchase their home at current market value and then sell it back to them at this new lower price or maybe rent it back to the seller until a later date when they are in a better financial situation and would be able to buy back the home.
Banks require "all" parties involved in the short sale process to sign a arm's length affidavit to prevent family members or friends from buying the property and then selling or renting it back to the seller. The main reason for this is to prevent the seller from profiting from the short sale. Because banks make the rules, they say sellers have to leave the property after it is sold. Selling to a relative or friend is considered mortgage fraud by most lenders. Having all parties involved in the short sale process is a way for the bank to prevent mortgage fraud from occurring.
9) Cash For Keys ~ Cash for keys is a way for homeowners facing foreclosure to receive cash in exchange for surrendering the keys and vacating. Banks are generally willing to pay occupants of foreclosures to leave the home in good condition and on a certain date. It is a quick and solution for banks to take back a property with out having to spend to much money doing so.
There are times where the homeowner cannot reach an satisfactory agreement to the terms of the short sale and decide to let the lender foreclose on their home. The home seller should ask the bank to get "Cash For Keys." The amount of cash varies, but most banks are willing to pay.
Short sales are a huge part of the Nevada Real Estate market and they can be very confusing. If you would like to learn more about the short sale process I am happy to answer any questions you have. I am here to help. Please call my cel at 775-846-5424. Email me at Terrie@terrieleighton.com.
Terms & Definitions To Help Get You Through The Nevada Short Sale Process