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Short Sales Help California Home Owners
Avoid Foreclosures
California homeowners look to short sales to help them avoid foreclosures as mortgage ARM rates rise.
Consumer groups have warned of an impending wave of mortgage resets in the next two years and many home loan defaults are likely to follow. Home owners that got into home mortgages in the last four years under more lenient mortgage guidelines are likely to discover that they cannot afford their monthly payments. The California foreclosure situation is getting graver.
Rise of the short sale
Three-fourths of the nation's foreclosure actions filed by lenders in August were in California. The state has also been responsible for 40 percent of the nation's decline in home sales since 2005. Worse, California is the home of large lenders, such as Countrywide, whose subprime mortgages caused tremendous strain on the lenders. In fact, Riverside County leads the nation in foreclosures and short sales are becoming more common across the state.
What is a short sale?
If a borrower cannot make his or her mortgage payment and the house is no longer worth what is owed on it, foreclosure is usually seen as the only option. However, in California, short sales are becoming a better option for some. A short sale is where a lender allows the home to be sold for less that it is worth and then forgives the remainder of the note. Short sales used to be an option reserved for those with major catastrophes in their lives, but now lenders are looking to them as a solution to adjustable rates that are no longer affordable.
Natalie Lohrenz, director of counseling for the Consumer Credit Counseling Service of Orange County in Santa Ana, California states, "A lot of people in the last couple of years have just stretched themselves to the limit and you have people with mortgage payments where even when they got the mortgage, the payment was half their income or more," Lohrenz says. "Now that rates are adjusting, it's two-thirds or three-quarters of their income and it's just not possible."
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Set up a Home Equity Credit Line now because usually when people need it…it is too late.
A short sale can have an impact on the Sellers credit, but nothing as bad as a foreclosure.
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Other Options
If there is equity in a borrower's home however, it may make more sense to try and save their home by getting cash with a second mortgage to avoid foreclosure. If you know your rate is going to reset soon and your payments will be rising, it is far better to get into a better financial situation now than to wait until you are in a dire situation. As more homes go into default, short sales will increase and there is no guarantee your home will sell on a short sale. Consider refinancing to fixed mortgage rates or consolidating debt now before you have bad credit. Southern California foreclosures are sure to continue to increase, but that doesn't mean that you have to be one of them.
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