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Mortgages in Distress: How Fannie Mae and Freddie Mac Handles Short Sales and Foreclosures

foreclosure and short sales

If you have a mortgage, there’s a good chance that’s it’s passed through Fannie Mae or Freddie Mac. These two lending institutions are responsible for creating massive liquidity in the mortgage market. They’re also involved in foreclosures and short sales – something many homeowners are facing today. If you’re one of them, here’s what you need to know.  Short Sale A short sale is when you sell the home for less than what you owe on it. This is usually done when no other option, aside from foreclosure, is available. A short sale must be approved by the bank, since it is guaranteed to lose money on the deal. In some cases, the bank will enter into a cooperative short sale. In these instances, the bank works with you to sell the house, often gives you a cash incentive to remain there so that it can be sold, and sometimes even pays for relocation once you do sell it. Other times, the bank will stipulate that you must pay the deficiency, and a court grants the bank a deficiency judgment. This means that you must sign a promissory note for the remaining balance. These promissory notes can be interest-free, but ...

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