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Today’s Real Estate terms are ways to handle your home when you are behind on your payments are or will be behind in the near future:

Short Sale: A type of pre-foreclosure sale in which the mortgagee agrees to let you sell the property for less than the full amount due, and accept the proceeds as payment in full. The sale of property at a fair market price that’s lower than the loan balance(s).

Foreclosure: Foreclosure is the legal process whereby a lender (bank or secured creditor) terminates the owner’s right to a property that was pledged as security for a debt. The lender usually then forces a sale of parcel of the real estate or home, often at a public action, to satisfy the debt after the owner defaulted to comply with the agreement between the borrower and the lender.

Deed-in-Lieu of Foreclosure: Used by owners to voluntarily convey the title of their property to the mortgagee/beneficiary (lender) to avoid the negative credit consequences of a foreclosure. Lenders are generally reluctant to accept a “deed in lieu” unless the title is free and clear of any other encumbrances junior to theirs and the owners execute an estoppel affidavit acknowledging that they are acting volitionally, with informed consent.
A homeowner can qualify for a deed-in-lieu of foreclosure if:

• They are in default and do not qualify for any of the other options;
• All attempts at selling the house before foreclosure were unsuccessful; and
• There is no other mortgage in default.

Debtor In Possession: A situation arising out of a foreclosure or bankruptcy where the money-owing party remains in possession and controls the use of the property.

Deficiency Judgment:
1.  A judgment awarded by a court when the proceeds from the sale of the security pledged for a loan is insufficient to pay off the debt of the defaulting borrower.
2.   A personal judgment against a debtor for the amount remaining due after a judicial foreclosure of a mortgage or a trust deed. This remaining amount is handled by the lender in one of three ways: a payment agreement is offered, a deficiency judgment is entered, or the debt is forgiven.
If the deficiency debt is forgiven, your lender will issue you a 1099-C IRS form. The IRS then views the forgiveness of the debt as your personal income, which you will need to report on your taxes. If you are declared financially insolvent, the IRS can render the income as exempt.

A new federal program, Home Affordable Foreclosure Alternatives, encourages banks to accept short sales by offering them financial incentives to do so. It offers sellers incentives, too.

Homeowners win because:

• They won’t get stuck with a deficiency judgment. Under the program, homeowners are released from all obligations.

• They can receive $3,000 in relocation expenses.

• They can’t be charged any fees to participate.

Creditors win, too, because they don’t inherit a vacant home to maintain. As big as the losses in short sales can be, the losses from foreclosure can be even bigger — by some estimates, as much as 60% of what’s owed on the mortgage.

Secondary lenders, who often stand to get nothing in foreclosures, can receive up to $6,000.

You may qualify for the foreclosure-alternatives program if:

• You have tried unsuccessfully to get a mortgage modification through the Home Affordable Modification Program.

• The property is your principal residence.

• You got your first mortgage loan before Jan.1, 2009.

• You are behind on your mortgage or will be in the foreseeable future.

• You owe no more than $729,750.

• Your total monthly mortgage payment is more than 31% of your income before taxes.

The foreclosure-alternatives program is set to expire Dec. 31, 2012. Some critics predict that it will be as disappointing as the loan-modification program, which was launched in March 2009. Out of millions of distressed homeowners, just 170,000 had received permanent modifications as of the end of February, according to the Department of the Treasury and HUD. (Many more modifications are being offered or are in the trial phases.) The median decline in monthly mortgage payment was about $500.

Will the new program be any better?

“It’s half right,” says Mary Tootikian, the author of “Stunned in America: Sub-Crime Mortgage Crisis.” “The intent of it is good.”

She worries, however, that the new program’s application process will allow lenders to find out borrowers’ incomes and assets. “After they go through this fact-finding mission and they find out you have assets to go after, they don’t have to let you do a short sale,” she says.

Arian-Pace, the Florida attorney, is more optimistic. “The frustration of short sales is the timing of it all, getting banks to approve it,” she says. “You often lose the buyer in the process. I’m hoping it’s a step in the right direction. Really, it’s going to come down to how the banks implement it.”

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For all the homeowners who are upside down and can no longer make their mortgage payment (because of either a job loss, divorce, or an option ARM that’s resetting higher), up to now the only option was, well, letting the bank foreclose. That’s not a good option since a foreclosure sticks on your credit record for at least 10 years. But some experts are now advocating a “short sale.” This is a case of a distinction with a difference: If your bank agrees to a short sale, you then hire an agent to find a buyer for the house, you sell the house for a loss, and with the bank’s blessing, they agree to eat the loss.

That’s the really short version of how it works. The experts say you will need to find a real estate agent and you’ll also need to scale back your own spending. Putting expensive jewelry on your credit card will make a bank less inclined to do you any favors on the sale of your home.

Of course, the better option is to find some way to stay in the house—by first, seeing if the lender is willing to restructure the loan, or forgo a couple of monthly payments to help you get back on your feet. Apparently, more and more lenders are willing to make accommodations to avoid taking the property back. Banks hate to take over homes, especially in a declining market, so you shouldn’t underestimate the willingness of a bank to make concessions.

Read at: http://www.businessweek.com/the_thread/hotproperty/archives/2007/03/the_new_exit_st.html

Identify potential short sales: Locate pre-foreclosures in your area. You can use an online database, search courthouse listings and legal ads or use an experienced real-estate agent as a buyer’s agent. First, try to determine how much is owed on the house in relation to its approximate value. If it seems high, it’s a good candidate because it indicates the seller might have trouble selling it for enough to satisfy the loan. Pass on those in which the owner has a lot of equity in the home — the lender likely will prefer to foreclose and resell closer to the market price.

View the property: Gauge its condition and come up with a rough estimate of how much it’s going to take to repair or renovate. If it needs work, many “normal” buyers won’t consider it, which is good for you.

Do your research: What is the property worth? What’s the profit potential? If you’re an investor or even a homeowner planning to live in the home a short time, you’ll want to profit from the deal.

Find all liens and mortgages: Ask the seller or his agent what liens are on the property, and which lender is the primary lien holder.

Figure out the financing: This is critical. You have to know how you’re going to pay for the property. If you’re a good credit risk, the existing lender may be willing to give you a loan. Since it already has a lot of your information in the short-sale paperwork, it may be able to expedite the loan application process. It’s important to understand that in a short sale, you have to be able to move quickly. Once an agreement is worked out, it is common for the lender to require closing in as few as 45 days. This is too late to start shopping for a mortgage.

Negotiate: It’s not uncommon for the lender to reject your offer or to come back with a counteroffer. As with any real-estate transaction, you should figure out beforehand what your absolute highest limit is, and don’t be afraid to walk away if the lender won’t meet your figure.

Seal the deal: Once you’ve reached an agreement that all three parties — you, the seller and the lender — are OK with, get everything in writing and officially recorded. Make sure the seller understands all of the terms of the deal. Next comes the closing and the property is yours.

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