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The Short-Pay Solution

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There are several programs available to homeowners that will avoid the loss of their homes through foreclosure such as repayment plans, forbearance plans and loan modifications.  “Short Sales” have also become a popular solution to avoid foreclosure but “Short-Pay” solutions are emerging as the best option available to help families keep their homes, lower their mortgage payments, and avoid foreclosure even when the homeowner owes more than their homes are worth! What is a Short-Pay? A Short-Pay, or also known as a short-refinance, is a transaction, where a current lender agrees to accept less than the full amount owed to them.  This process is similar to a short sale but, instead of selling the home to a third party, the homeowner keeps their home by refinancing with a new lender with a new loan based on the current market value of the home.  The Short-Pay allows the homeowner to keep their home, and avoids a foreclosure or possible bankruptcy.

Why a Short Pay? Homeowners that want to keep their homes, but don’t have sufficient equity to refinance their loan through conventional methods, should use the Short-Pay option as a tool.  The lender considering the Short-Pay would have to be willing to accept a short payoff on the existing loan or hold a second mortgage to make up the difference needed to payoff the existing mortgage at the home’s value, and the homeowner must qualify for the new loan. Throughout 2008, many lenders were reluctant to approve a Short-Pay, holding fast to their traditional notions that a homeowner shouldn’t “benefit” or be able to continue to own the property if the lender is paid less than they are owned on the debt, but as the economy continues to spiral downward and the record number of foreclosed homes (REOs) entering the market, we are seeing a heightened interest from lenders.  Although a Short-Pay may not be an ideal situation for some lenders, it may be the best and, quite frankly, the only alternative in many cases.  The existing lender may net significantly more funds than they would though a Short Sale or through a distressed sale in a declining market after protracted foreclosure proceedings.  More importantly, the community and the real estate market in general will benefit from not having to endure the negative impacts associated with an additional foreclosure. Who should use a Short-Pay? Homeowners that are experiencing financial challenges where a default on their loan obligations may be imminent, are “upside down” on their homes (meaning they owe their lenders more than their homes are worth!), have not been late on their mortgage payments and otherwise qualify for an FHA loan refinance (maximum loan amount for Broward, Palm Beach and Miami-Dade Counties is $345,000 starting January 1, 2009) based on the current market value of their homes, should contact us immediately to see if a Short-Pay is a viable solution. Contact Alejandro E. Jordan, Esq. [BIO] of Becker & Poliakoff, P.A. at 954-364-6067 or at ajordan@becker-poliakoff.com for more information.

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