Short Sale Blog

Here is the latest short sale news at Seattle Short Sales. We assist hundreds of Seattle area homeowners with short selling their home and avoiding foreclosure.

Debt Settlement Part 1: The Difference Between Debt Settlement and Debt Consolidation

Seattle Short Sales - Thursday, May 16, 2013

This article is Part 1 of a two-part series on debt settlement. In this article, we look at the differences between debt consolidation and debt settlement. In the second article, we will look at two recent real examples - of clients of ours, whose debts we have settled by convincing their lenders to accept thousands of dollars less than the balances owing.

Many people are confused about the differences between the two strategies known as “debt consolidation” and “debt settlement.”

Debts can add up. Unfortunately, today’s difficult economic climate has many people facing reduced income due to hours cuts or layoffs, and home prices remain low. In these tough times, many Americans find themselves forced to pay basic bills with their credit cards. Their debts are adding up to levels that they may not be able to continue paying.

One way of managing a high debt load is “debt consolidation.” Most people have several different debts, each with a different interest rate. Debt consolidation means managing those debts in order to minimize the interest paid.

For example, if you have $5,000 of credit card debt that you are paying 22% interest on, you are paying over $1000 per year in interest on that debt. If you can move that debt (and any other high-interest debts) into a lower-interest loan, e.g. by paying the credit card off through a line of credit secured against your home, you can bring that interest rate down to perhaps 6%. Those savings, of 16% interest on a $5,000 would save you $800 per year - money that can go directly towards paying off the debt itself, not just servicing the interest.

However, debt consolidation does not relieve you of your obligation to actually pay off that credit card debt. You still owe that $5,000 - and you are still accruing interest on it, even though now it is at a lower rate.

And this is where “debt settlement” comes in. Debt settlement is a completely different strategy. It means making an offer to your creditor, to permanently get rid of your debt. For example, in the case above, you could offer your credit card holder $2,500 to call the debt quits! You would be relieved of having to pay the remaining $2,500, and you would be relieved of that $1,000+ you were paying each year in interest!

Why would your credit card company, or any other creditor, agree to this?

Because it's better than getting nothing.

Debt settlement works with unsecured debts - in other words, debts that do not have collateral associated with them, such as a mortgage on a house or a car loan (where the lender has the right to foreclose on the home, or repossess the car, if you stop repaying them).

Debt settlement also works with undersecured debts, for example a second or third lien against a home. If sale of the home generates only enough funds to pay out the first lien (which, in most cases, is the mortgage loan), then the second or third liens are considered to be undersecured. Since so many homes have dropped in value over the past five years, many second and third liens are now undersecured.

In either case, whether the money owed is unsecured (e.g. credit card debt) or undersecured (e.g. a judgment lien), your creditor has nothing to repossess from you if you do not pay it back. They may be worried that you will declare bankrutpcy - in which case they will receive little or nothing on the money you owe. And that is exactly why they may accept significantly less than the actual amount you owe, in order to “settle your debt.” Because if they don’t, they may get nothing at all.

We have helped numerous clients settle their debts, permanently, often for only 10 to 20% of the total funds owed. In Part 2 of this series, we will look at two real examples - where our clients have been relieved of having to repay thousands of dollars of debt.

Seattle Short Sales has a team of experienced and successful real estate specialists dedicated to working with distressed homeowners. We close, on average, 12% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

In addition to our short sales negotiators, our team includes dedicated professionals advising and advocating for homeowners in the fields of: loan modifications, bankruptcy, debt settlement and collection defense. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner who is struggling to make ends meet, and would like to learn more about the options available to you, please go to: http://seattleshortsales.com/homeowners/

You can also contact Lambros Politis on Google+ or to find more up to date information on this subject, go to theArk Law Group Blog. 

Will My Condo Association Get Anything if They Foreclose On Me?

Seattle Short Sales - Monday, October 01, 2012

What happens when my condominium owners association records a lien against my unit? Can the condo association foreclose on that lien and still expect to recover anything if there are other previously recorded liens?

Before we address these questions, it might be beneficial to briefly review what a lien is, what it does, and how it can impact a homeowner’s ownership rights to his or her property.

Simply put, a lien is a document that memorializes a debt, using the property as collateral for repayment of the debt. In other words, the property acts as a security for money owed. The general rule of lien priority is that once a lien is recorded, it becomes next in line to any previously recorded lien in terms of lien status. So, in most cases, a lien against real property has priority based on the date it is recorded.

The most common kind of lien on a home relates to money borrowed against the home, such as a mortgage taken out to purchase the home, or a Home Equity Line of Credit (HELOC). However, in the context of condo liens in Washington state, if a condo owner fails to pay his/her condo assessments (or fees), a lien will be created automatically for the amount owed.

Under Washington’s Condominium Act, any condominium owner’s association (COA) created after July 1, 1990, will be provided additional protections for condo liens, and such liens are given a “super-priority lien” status. The super-priority lien has priority over mortgages or any other liens, provided that the assessments were due during the six months immediately prior to the date of a trustee/sheriff’s sale. COA’s formed before July 1, 1990 may also avail themselves of the “super-priority lien” protection by amending or modifying the condo declaration to incorporate priority lien language.

Thus, the lien priority hierarchy under the Condo Acts looks something like this:

  1. Government liens for unpaid taxes;

  2. Association lien for the most recent six months’ delinquent assessments prior to trustee/sheriff’s sale;

  3. Mortgages and other liens according to the date they were recorded; and

  4. The remaining amount of the association’s lien.

However, this super-priority lien status only applies if the condo association initiates a judicial foreclosure, i.e. a foreclosure that is processed through the court. If the association forecloses its lien non-judicially, the lien no longer has super-priority over previously recorded liens.

In sum, a condo association can attempt to foreclose on its super-priority lien by filing a judicial foreclosure lawsuit against the homeowner and the beneficiary of the deed of trust (the bank). Usually, the bank will defend the lawsuit and try to arrange to pay the COA’s super-priority lien in effort to reestablish the bank’s senior lien priority.

So, in the context of a short sale, a lien on the condo recorded by the condominium owners association makes the short sale process more complicated. For this reason, we almost always advise our clients to stay current on their COA dues/assessments, to avoid a situation where the COA forecloses on the condo unit.  

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/


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