The mortgage meltdown of 2008 left many homeowners owing more than the value of their home, and in many cases the homeowners were unable to make their mortgage payments as interest rates increased. Unfortunately, the effects of the meltdown continue to hurt Florida homeowners and their ability to pay their mortgages.

Although Palm Beach and Miami Dade County are seeing sharp increases in home values, the numbers do not help those who are facing default and foreclosure proceedings. However, there are alternatives to foreclosure proceedings, and the popular way is through short sales.

A short sale is selling a property for less than the debts that secure the mortgage. When home values fall, lenders are willing to start short sale proceedings if the note holder is in default. The premise is that lenders will recoup some of the money on the original principal balance of the loan.

In order to qualify for a short sale, the borrower must prove that their loan is “underwater”, which means they owe more money than the property is worth. Banks and mortgage lenders must approve short sales, and borrows must show financial hardship before lenders approve a short sale.

Short sales allow borrowers who are in default an opportunity to relieve their debt. However, the default reasons must coincide with an inability to pay monthly mortgage payments due to circumstances beyond the borrowers’ control. Those circumstances include interest rate increases, mortgage loan terms that change, and any circumvention of the rights under the Real Estate Settlement Procedures Act.

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