Frequently Asked Questions About Short Sales
A short sale occurs when the market value of a property is less than the outstanding balance on the mortgage.
The lender(s) agree to accept less than what is owed on the property in order to avoid a possible foreclosure situation.
Upon approval from the lender, the seller is able to walk from the property limiting their potential credit damage and tax liability.
There is a great deal of information here for detail-oriented people. Rather than try to read it all, you may want to read the last questions first.
1. Is a Short Sale right for everyone?
No. There are too many Real Estate Agents that make it sound like anybody can do one, with very minimal credit consequences. They will let you believe that the bank will give you a full release of your debt, and you can happily move out and buy your next home in two years. These agents make it sound very desirable in order to attract more business. This is not a "one size fits all" solution. Every person’s situation has to be assessed by a professional during a consultation. So please read the answers to these questions, and when you are ready, call Debbie Priebe at (702) 990-4373. She will give you a free, no obligation phone consultation to determine what solution is best for you, and what your likely outcome will be.
2. What are the CREDIT benefits of doing a short sale vs. foreclosure?
There are two parts and scenarios that need to be considered for this answer. Let’s start with how it will be reported to the credit bureaus. While in most cases, short sale and foreclosure, the delinquent mortgage will negatively affect their credit rating. However, short sellers will have the type of verbiage on their credit reports stating that they worked out a deal with their lender. Such terms reported by lender are "debt settled for less than what was owed", "debt settled", "debt settled with agreement" or some other similar verbiage dependent on each lender. A short sale can possibly be less damaging to your credit rating point-wise and there are cases where the damage was as little as 50-100 points. Compare this to a foreclosure which mortgage and credit experts say, after bankruptcy, having a foreclosure on your credit report is the worst result and will possibly reduce your credit score by 300-400 points.
The next situation that plays out as to your credit damage is whether you are late on your payments or not. Once you stop making payments, lenders will report you 30, 60, 90 days late all the way out to 150 days late which all contributes to the degradation of your credit. If you have two loans, then the damage can be even greater. People who are late on their payments will suffer much more severe credit damage than those who never miss a payment and do a short sale. Yes, you can do a short sale - even if you are not behind on payments.
People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 24 months. So, if buying a home is a future goal, then a short sale is the better option for many families. Fannie Mae and Freddie Mac have recently changed their guidelines (August 2008) stating if you have a short sale on your record, you may be able to buy another home in 24 months with financing that is ultimately going to be backed by them. However, if you have a foreclosure on your record, you will have to wait 7 years with financing backed by Fannie or Freddie.
3. Are there TAX consequences of doing a short sale vs. foreclosure?
Every situation is different for each person, so it is important to consult with a tax professional, CPA, tax attorney or someone who is qualified to make this determination for you. Here is some information to get you started, after which you should confer with a CPA to see if any of this applies to you. When you do a short sale or a foreclosure the lender is allowed to write off the loss and pass it on to you as income in the form of a 1099-C. The IRS considers this to be income for you, and it is taxable. For example, if you borrowed $200,000 to purchase a home, but only were able to repay $150,000 in the short sale, you will receive a 1099-C for that $50,000 and possibly be taxed on that according to your tax bracket.
Federal Taxes: The Home Mortgage Forgiveness Debt Relief Act of 2007 states that if the property is your primary residence and the debt discharged was from your original "purchase money" loan, then you will not have to pay the taxes for that amount. Further, if you did refinance and used the money to only improve your home, then you may be eligible for exclusion of the taxes as well. This act has been extended until the end of 2012.
If you refinanced your home and pulled the money out for other expenses or it is not your primary residence, then it is possible that you may have to pay the taxes unless you are eligible for "insolvency." The IRS does not require you to pay taxes on the loss the lender takes in a short sale if, at the time of the short sale, you are insolvent. Insolvency means your debts (including your mortgage) exceed the value of all your assets. In other words, if, at the time of the short sale, your debt is greater than your assets, then you are insolvent. Ask your tax advisor if you are eligible for the Debt Relief Act qualifications or are eligible for "insolvency" and filing the IRS Form 982.
State Taxes: Every state is different. Some states conform to the federal tax exemption (Home Mortgage Forgiveness Debt Relief Act of 2007) with their own laws, but some states have some differnences. Ask your tax advisor if you qualify for an exemption of the state taxes for a short sale. Some states also have an insolvency exclusions to ask your tax advisor about.
It is important to understand which tax implications can apply whether you do a short sale, deed in lieu of foreclosure, or a foreclosure.
4. Can My Lender Come After Me For the Difference?
There are two types of loans in most states. That is "non-recourse" and "recourse". A "non-recourse" loan is one you obtained to initially purchase the home. If you go through a non-judicial foreclosure process with a "non-recourse" loan, the bank will not be able to come after you for the difference. If you do a short sale with a "non-recourse" loan, some attorneys feel you should be protected and not have to worry about the bank coming after you. Other attorneys feel that the State Civil Code of Procedure does not address the short sale issue and does not protect "non-recourse" loans, only a foreclosure does. The bottom line is there may be no precedent set in court and no lender has challenged it yet. It is important to have an attorney explain to you the Civil Code for your state, as we cannot give legal advice.
If you have done any type of refinancing or obtained any cash out financing or have a Home Equity Line of Credit taken out after the date of purchase, then these are considered "recourse" loans that gives a bank or mortgage company the ability to come after you for the difference if you go through a short sale. That is unless you receive a short sale approval letter specifically stating that they will not pursue a deficiency judgment or some other verbiage of that sort. Every lender issues a completely different approval letter with different verbiage, so it is important to review you approval letter when it is issued, and we have attorneys on retainer to help you review your approval letter so that you fully understand the verbiage, and whether or not the lender will come after you. It is also our goal to always get you a full release from any liability from your bank when obtaining a short sale approval, and we have an excellent success rate of approval letters.
The ultimate goal of a short sale, however, is to get a full release in an approval letter which will absolve you from having to pay back any deficiency. If you decide to work with us, you will have the opportunity to review the approval letter with an attorney.
5. Will My Bank Come After me For the Difference?
The banks will issue an approval letter stating that they reserve the right to pursue for the remainder of the balance. This is simply an issue that we have not always been able to get around. However, our clients have hired attorneys to litigate and negotiate with top level executives and their legal department to get a letter separately issued directly to the home seller that they will not pursue the homeowner for the deficiency. We can facilitate putting the home on the market, receiving an offer, presenting it to the bank to accept in order to sell the home, but it will not absolve you from having to pay back any of the difference. If you would like to hire an attorney to litigate with these particular banks to negotiate their release of a deficiency or talk about your other options, you are free to do so at your own expense, and we will be happy to work with them.
It is our understanding that after the short sale is completed, the recovery department will contact you about trying to make arrangements to cover the difference. If you are unable to make any payments towards recovery, they will then "charge off" the account and issue you a 1099-C, for whatever loss is sustained by the bank.
UPDATE: We are now able to get deficiency removed in 99% of our short sales, however it depends on everyone’s particular case. Please call Short Sale Success for a consultation to determine if we will be able to get a deficiency release for you.
6. Why Would I Do a Short Sale if I Could Not Get an Approval Letter Removing the Deficiency Balance?
If you are worried about a lender coming after you which will affect your financial future, you may not want to do a short sale. Howesome home owners are willing to accept an approval letter with a without a deficiency removal for the following reasons:
• To stop the payoff clock and stop incurring future or larger deficiency, or payoff.
• To avoid a foreclosure on their credit.
• To settle the deficiency issue at a later date.
• To try and do the most responsible thing and get the bank the highest price possible for the home.
• To avoid any attorneys or additional fees out of pocket to dispose of the home.
• They simply will take their chances and file for Bankruptcy if the lender does try to collect.
• They simply will take their chances that the lender will not come to collect and “write off” the loss instead.
While any or none of these reasons may apply to you, it is important to understand every home owner has different levels of comfort and risk tolerance, personal goals, and opinion on the matter. You will always have the chance to review your approval letter with an attorney before selling your home and you can cancel your listing at any time prior to entering into an escrow with a buyer without any fees paid to us.
7. What is the Difference Between a 2nd Mortgage and a Home Equity Line of Credit (HELOC)?
A true "closed ended" second mortgage is one that is usually used to typically purchase the home and used as additional financing. While some seconds are not always used at purchase, in either event they are loans that are only secured by the property and may be wiped out if a first forecloses and there is not enough equity to pay them anything.
A HELOC is completely different in that, while it does include a lien on a property, it is still a line a credit that can stay open even if the lien is wiped out in a foreclosure. Many inexperienced agents do not understand this, and HELOC’s need special attention in order to do a successful short sale with full release for the borrower. Be sure to question whether your short sale agent understands the difference between these two types of loans.
8. Can I do Short Sale with a Home Equity Line of Credit (HELOC) as a 2nd Mortgage?
Yes, you can still do a short sale if you have a 2nd HELOC, however it can be more difficult depending on your lender. It is important to understand that HELOCS are a completely different type of loan, and the lender can allow you to do the short sale and release the lien on the property, but still leave the entire account open and thus leave you still owing the entire balance due. HELOC’s are like credit cards with a lien on a property. If the lien is released from the property, it doesn’t always mean the line of credit is closed. Many inexperienced short sale agents do not understand this. A new trend that is happening as well is that the bank can sell the bad HELOC loan on the secondary "debt collection" market for a higher price (10%-20% of note value) than what the lender in the first position is willing to pay (1%-3% of loan value). Because of this many HELOC lenders have become much more aggressive in requiring a 10%-30% payout from borrowers to allow a borrower full release from these loans. Banks such as Chase, CitiMortgage, and National City have been the most aggressive so far requiring at least a 10% payout, and I am sure many more will plan to follow suit.
If the HELOC lender wants a 10%-30% payout to allow a short sale with full satisfaction, and the first is not willing to come up to that amount, and other remedies cannot be found, it is possible that you as the borrower can cover the difference if you are looking for a short sale with full satisfaction, by bringing money to the table and/or signing a promissory note under certain terms.
After a consultation we will be able to talk to you about your goals and your likely scenario outcome. You will not be obligated to commit to anything until you understand the terms the lender is requiring. If you do not agree to what you lender requires, then you can cancel your listing at anytime without any fees paid and not go through with the short sale.
9. Will the Short Sale cost me anything?
Our real estate fees will cost you absolutely nothing. Our fees of negotiating your short sale and getting your home sold will be paid by the buyer. We typically can negotiate to have any past mortgage payments eliminated, and negotiate to have the lender pay for all the costs associated with selling the home. We can also typically get them to pay for any past property taxes and possibly any outstanding HOA dues, allowing you to pay nothing out of pocket. We have even negotiated to have the lender pay for repairs on the home as well as buyer's closing costs, but it is subject to each lender and their guidelines. There have been recent changes however from some lenders in what they will and will not pay for, and one of the most costly is past HOA dues. Each situation is completely dependent on which lender you have and your personal scenario. Be sure to get your free consultation to find out what your lender will and will not pay for.
10. Do I Qualify for a Short Sale?
In order to be eligible for a short sale and have us represent you we must be able to prove to the lender that you are a victim of a "hardship" and therefore unable to continue making payments on your mortgage. A hardship situation is one that is the result of some extenuating circumstance that forces the borrower into a position where they can no longer afford their mortgage payments. While every situation is different, some frequent examples of hardship include:
• Unemployment or loss of primary income source
• Inability to work due to health crisis
• Mounting medical expenses
• Employment relocation
• Failure of business
• Bankruptcy
• Death of spouse or significant other
• Divorce or separation
• Incarceration
• You owe more than your house is worth
Call us at (702) 990-4373 for a free consultation to see if you will qualify.
11. Do I Have to Stop Making Payments on My Mortgage in order to do a Short Sale?
Not Always. Just because you called your particular lender, and they told you that you could not do a short sale unless you miss some payments, don’t believe it to be true. These people who answer the phones at these mortgage companies are low level personnel who do not care about your credit. Every borrower's situation is different, and a short sale can be done while staying current on your mortgage payments. We have successfully closed many short sales where the borrower never missed a payment. However we are seeing more and more investors (owners of loans) deny short sale requests, due to the fact that there have not been any missed payments. Fannie Mae, FHA, and some other investors are starting to claim this once again. The important thing to note, is that if you are able to afford your payments, you should continue making them until we devise a plan for you based on your goals and objectives. Many times in short sales you need to gather further information from the lenders to determine what they want and are willing to do, before voluntarily missing any payments. If you have a true hardship and simply cannot afford your payments, there is no need to worry. Be sure to call for a consultation before you decide to miss any payments if you don’t have to.
12. Should I File For Bankruptcy?
At this point in the market there are many attorneys who are advising clients to file bankruptcy in any situation and charging very high fees. For some this may be the correct solution. However it is important to understand that going through a bankruptcy, whichever kind you choose (Chapter 7 or Chapter 13), will not allow you to keep your home unless you bring your mortgage current. While you may be able to stay in your home while the bankruptcy is taking place (it could take 6-10 months), it also "freezes" the home from being able to be sold or do a short sale. You should speak with a competent bankruptcy attorney and decide if you want to sell your home before filing or when the filing is completed. If you need a reference to a bankruptcy attorney, we can provide one for you, as we do not dispense legal advice.
13. When should I begin the short sale process?
Immediately. Foreclosure and short sale situations tend to be extremely time sensitive and consuming for negotiations. The sooner we can begin the negotiations with your lender, the greater the chances of a successful resolution. There is no need to wait until the lender sends you a notice of default or initiates formal foreclosure proceedings against you. Time is of the essence! Please contact us today at (702) 990-4373 for a free consultation with our head broker and short sale specialist Debbie Priebe.
14. How Long Does a Short Sale Take?
It depends on many different factors, such as who your lender is, how long it takes to get an offer, how many loans you have, if you are behind on payments, and so on. With an inexperienced agent it could take 6-8 months. However, with our system and the contacts we have with each lender you can expect an average turnaround time of only 4 months. Our fastest record of getting a home on the market and with an approval is 3 business days, but that is not the case for everyone. Each situation is different.
15. How Do You Handle Short Sales? Do You Hire Other 3rd Party Negotiators?
We handle everything in house and do not farm out the negotiations with your bank to any other party, like some agents do. We have a dozen professional short sale agents, and you will be assigned one for your file from start to finish. You will have one point of contact that will handle the listing of your home, answer all calls from buyers and agents, call your bank every day and handle the negotiations from start to finish. Every interested party on your home will get a call back from someone who knows the exact status of what is going on with your file. Each agent is only allowed to handle a handful of short sales due to the amount of work involved with them. We also have people in the office whose specific job is to handle marketing, filing paperwork, and general support of these short sale agents.
Each file is also reviewed every 48 hours by our broker Debbie Priebe to monitor the progress and handle all of the final and difficult negotiating with the bank when the time comes. Her expertise is infused in every file and she knows what is going on with every file from start to finish. If you wish to talk to her at anytime, you can call her directly at (702) 990-4373 or email her for a quicker response, and she will get back to you.
Based on our experience, we find that it is absolutely not in the best interest of a client to farm out the negotiation of any file, due to level of expertise that is required to get them done. There are many 3rd party negotiating firms out there that will do all the negotiating for a listing agent, but we have found that all they do is go through the motions. They typically have a very low success rate, due to the fact that there is little motivation for these firms to find the often difficult solutions short sales require. We keep everything in house and have a 99% success rate.
16. How Long Have You Been Doing Short Sales?
We have been doing mortgages since early 1976. Debbie Priebe started doing short sales early on in certain geographical areas like Las Vegas, Southern California, Detroit and Florida that experienced the greatest appreciation and were also the first to see the decline. In the beginning Debbie Priebe was seeing short sales of only a couple thousand dollars, and was approaching banks with short sales before even the banks knew how to handle them. Many agents stayed far away from them for years because of the level of difficulty and the lower commissions. Debbie Priebe knew where the market was heading and instead of shying away from the challenge dove in head first to become a specialist and learn everything about them. Since then many agents have jumped in the game as a matter of survival, in order to stay in the business. Now many agents refer their short sale business to Debbie.
Every situation is different, every lender is different, and the banks are changing all the time. So the learning curve is tremendous. It’s not until an agent is working with almost every lender, on a consistent basis, and has developed a proven system, that you should even consider listing a short sale with them. Be sure to ask your short sale agent these questions:
• How long have they been doing short sales?
• How many lenders have they worked with?
• How many listings have they closed?
• What is their success rate of listings to closings?
Just because they have 100 short sale listings doesn’t mean they know how to close them and that they are the #1 short sale expert.
17. Why Would My Lender Agree to a Short Sale?
In most distressed mortgage situations, foreclosure is a last resort for all parties involved. The homeowner and the lender usually want to avoid foreclosure at all costs. That is why a short sale is advantageous to foreclosure, and lenders are typically very motivated to pursue a short sale prior to foreclosure.
A short sale gives the lender the ability to cut it's losses up front thereby avoiding the expense and time of a foreclosure and potentially greater losses. Lenders want to make loans; they do not want to be in the business of owning and managing real estate. Whether the lender chooses to go through with a foreclosure or agree to a short sale, they are taking a loss either way, but in many cases they would take less of a loss with a short sale and resolve the matter in a comparatively shorter time frame. In nearly every case, a short sale offers a significantly better return on the lender’s investment than a foreclosure does.
18. Should I Do a Loan Modification?
If you would like to try and keep your home, a loan modification would be the first option for you to pursue. If you want out, then a short sale is a better option. There are two ways to do a loan modification, the first is to do it yourself, and the second is with the help of a professional. It’s just like selling your home. You can do it yourself, but the chances of success are much greater if you employ the services of a professional.
To do it yourself, you will be required to provide a substantial amount of financial information to your lender and the process takes about 2-3 months, and is very much like a short sale. You are trying to show your lender that you are not able to make your current payments, but you could afford to make payments on an adjustment on the loan in the form of interest rate reduction or a longer term loan.
If you do use a professional, please be sure to do your research on them first. Many companies are springing up everywhere, and many are not licensed, and do not have the proper Department of Real Estate contracts in place in order to charge you any upfront money. We know many reputable loan modification companies that we can refer you to who will give you a fee consultation.
19. Will the Bank Reduce My Loan Amount or Principle with a Loan Modification?
We work with many loan modification companies and we have yet to ever see it in writing that this has ever happened. While there have been examples of deferment of interest on portions of loans, we have yet to see in writing an example of this actually happening. Fed Chairman Ben Bernanke has been pleading with banks for the past 2 years for banks to do this, and Barrack Obama has plans to entice banks to do this in order to obtain further TARP funds, but as of this date we have never seen it. At this time we have only heard of lenders changing interest rates on loan, making the payments interest-only for a set time, or increasing the loan term in order to reduce the payments for homeowners, but bottom line is when you sell the property you will still be responsible for paying back what you owe on the property. For some homeowners a loan modification is right for them if they plan to stay in the home for a longer term and anticipate a return in their equity over time, in order to pay off the lender in full if they ever decide to sell.
20. Do I Need An Attorney to Do a Short Sale?
In some instances the answer is yes. In the past it was fairly easy to get an approval from a bank stating they would not pursue you for a deficiency. Now it is getting harder than ever. And some banks like Bank of America have taken the path of saying they are going to come after everyone who does a short sale. While we can still get a full release from 85% of banks, if your ultimate goal is to obtain an approval letter stating that they will not pursue for a deficiency, we will have to work with the attorneys we have teamed up with who specialize in this. Attorneys cost additional fees, so be sure to talk to us about this during your initial consultation.
We also recommend conferring with an attorney to review an example of an approval letter from your lender which we can provide. We can also have you speak with one of our attorneys on retainer about your specific approval letter once it is received, so that you understand everything in it and its terms, and then decide if you still want to move forward. If you do not agree to the terms that the lender provides, you can cancel your listing and decide not to sell your home. We make sure to not bind you to any contract with any buyer until the approval letters is received from your lender(s), and you give the final approval.
21. What Does Your Success Rate Really Mean?
When Iwe talk about our success rate, it means the ratio of short sales we have taken, to the amount of short sale that have sold before a foreclosure occurred. It is important to understand, that we do not take every short sale we are presented with. We first screen people to make sure they are informed of all of the implications of doing a short sale, including making sure they have spoken with an accountant or CPA before we take the listing. We also make sure that they are aware of the deficiency issues and refer them to talk with an attorney if they can. We also present them with an example of an approval letter from their lender so they know what to expect. We will refer them to attorneys or loan modification firms if they feel another option may be suitable to them such as deed in lieu, foreclosure, or loan modification. When we feel that they are good candidates and still want to move forward, we will take their short sale. Have we ever done a short sale where the home owner receives an approval letter where the deficiency issue was not addressed? Yes, but only when the seller was well informed, and it was a calculated risk on the homeowner's part. IWe have also had sellers who did not agree to the terms of the approval letter and chose another option. We do not count those, as properties lost to foreclosure in our numbers. We have also had clients who have decided to cancel their listing even before the approval letter was issued for different reasons. We do not count those against our record either. Simply put, our approval rating means that we were able to get an offer on the home, get the lender to agree to the terms of the offer and price, and the home was sold. The instances we count against our record are those where we were not able to get an offer on the property before it went to foreclosure, or the bank would not agree to the terms of offer we brought to them and they chose to foreclose instead.
22. What is my obligation?
You are free to cancel your short sale at any time with no fees paid. If you are able to find other alternatives or solutions, you can cancel your contract and keep your home. We are in the business of helping people, and if some solution other than a short sale presents itself in order for you to keep the home, such as winning the lottery, you are absolutely free to cancel your contract with no fees and no obligations.
23. How Do I Start the Process?
The first thing to do is contact Debbie Priebe at (702) 990-4373 for a free phone consultation to make sure a short sale is right for you, or you can fill out our website contact form. From there we will set up a time to counsel you in person or over the phone and go over the entire process and methods of doing short sales. There is no obligation and no fee.
24. What is the Difference Between a Release of Lien and Release of Deficiency?
The difference between release of lien and release of liability if you are a seller in a short sale is how long you must "look over your shoulder". In California it is 4 years of looking over your shoulder. In Nevada it is 6 years. Every state is different.
At bare minimum, you need to get a release of lien for all liens on title to a property in order to sell it. If you are paying off a lien in full, this is not a big deal. Title/escrow typically handles this for you without any thought on your part, but when you are doing a short sale, that means one or more of the liens on title will not be paid in full based on the net offer, due to a reduction in home value.
So, if I am selling this home with liens in excess of the property value, I need to offer each lien at least some money to get them to agree to at least
release their lien so the sale can take place. Obviously a first lien will have priority over any junior liens and they must agree to how much money any junior lien is receiving, if the first lien is also losing money. If I want to get a full release of lien (the bare minimum to sell the home) and liability, I often have to give the junior lien a little 'extra' money above and beyond the standard $3K-$5K that most first liens offer.
Let me explain why it is so important to have a full release of liability. The release of liability means that the lender/bank/investor/mortgage company cannot come after the seller for the deficiency balance on the property.
Many agents assume that doing a short sale releases the seller of all liability, without ever taking thought to read that most approval letters only offer a release of lien, unless you know how to properly negotiate with the lender to also release the seller of all liability.
We do not see a short sale as a very good deal for the seller unless the liability is less than they would have if they simply let the home foreclose (except for being in a better situation with regard to their credit rating).
If you do not get a full release of liability, you need to understand how many years the bank has in your state to obtain a judgment, before the statute of limitations runs out. For example, in California it's 4 years. In Nevada it's 6 years.
25. What is the new government Short Sale Plan (HAFA)?
The government initially announced forthcoming plans and guidelines in May of 2009 to coincide with the loan modification program put into place (HAMP). On November 30, 2009 guidelines were released for servicers to follow if they want to collect on government (Treasury) paid incentives for doing short sales for homeowners. This plan went into effect in April of 2010 and the second portion of the plan for Fannie Mae and Freddie Mac loans went into effect on August 1st, 2010. Below is a list of commonly asked questions about this program.
How does it help homeowners?
• Foreclosure is postponed for 120 days while the property is for sale
• Streamlined short sale and deed in lieu (DIL) process; predetermined listing price, 10 day approval timeframe
• Homeowners will receive $3000 for move out expenses in a Short Sale or DIL
• Homeowners will be released of all future claims from the lender, i.e. no deficiency rights
• Lender will pay all fees associated with sale including real estate commissions
Who is eligible?
• Properties that are primary residence
• First mortgage originated on or before January 1, 2009
• Mortgage is delinquent or default is reasonably foreseeable
• Current unpaid principle balance is equal to or less than $729,750
• The borrowers total monthly mortgage payment exceeds 31% of borrowers gross income
• Homeowners must have been evaluated for a HAMP loan modification first, but homeowner can still request a short sale or DIL
What does a homeowner need to do?
• Hire a Short Sale Specialist certified with HAFA and familiar with the HAFA guidelines
• Respond to lender request within 14 days to start program or they may not be eligible
• Provide all information and sign HAFA documents required to verify program eligibility
• Cooperate with listing broker to actively market the property and respond to servicer inquiries
• Maintain the interior and exterior of the property in a manner that facilitates marketability
• Work to clear any liens or other impediments to title that would prevent a sale
• Make reduced monthly payment stipulated by the lender if asked, or if applicable
26. Should you use an Area Specialist for your Short Sale?
We give free consultations all the time to people from all over the country who are in need of help and information about a short sale. Many times near the end of the conversation after we talk about our experience, our success rate and our contacts and relationships with the bank, a homeowner will ask us, "What is your experience with selling homes in my geographical area?"
We have facilitated short sales for homes in nearly every state in the country and we are very familiar with most popular areas. We have a team of many agents who help us with our listings and their marketing, all of whom specialize in different areas all over the country. If we were referred to you by a Realtor in your area, you can be assured that we have already affected successful short sales in your part of the country.
We would like to point out a few differences between a traditional listing and a short sale listing. In a traditional listing you are trying to obtain top dollar, and to do that you need to utilize marketing to its upmost. This is where a local area expert may have a slight advantage over another agent. They could use their knowledge of the community or schools in their marketing pieces to possibly entice buyers or get answers for a prospective buyer a little quicker. But due to the Internet and the resources we have as a large listing broker, we can determine all the same information very quickly. We research the property and the surrounding community for hours before implementing a listing or initiating the marketing for a listing.
In a short sale however, the easiest part of doing a short sale transaction is obtaining an offer. Because of this, marketing all the nuances of a particular community, complex or development is somewhat irrelevant. The real esssence of a short sale lies in communicating with the banks, negotiating the best possible outcome for the homeowner or borrower, having deficiencies waived, holding the deal together, and getting all parties to agree to terms of the short sale. In a short sale you typically have the lender or sometimes two lenders, the HOA, the IRS, the state franchise tax board, the local property tax assessor, private party liens, the buyers, the buyers agent, and the buyer's lender - who all need to agree to the short sale transaction terms. This in and of itself is very difficult and requires a certain skill and level of experience. Most real estate agents stay far away from short sales because they require so much knowledge and work. Unfortunately some real estate agents attempt short sales without even knowing exactly what they are getting into because they need to try and maintain a pay check.
It is our opinion that homeowners should not be worried about a real estate agent's local area expertise, but rather be concerned about the level of knowledge and experience of their short sale agent. Your entire financial future depends on it, why wouldn’t you want to work with the best? If you don’t chose the most capable and experienced short sale agent to work for your financial future, you are in essence selling yourself short.
27. Should my short sale agent be familiar with my bank?
If you are a homeowner or borrower considering a short sale, this is a question you may not know the answer to yourself. You may have a loan with Bank of America, Citi Mortgage or something along those lines. You may not necessarily know who the CEO is but, it is a very important question for you to know.
The reason being, if you are a borrower or a homeowner considering doing a short sale and deciding who it is you want to work with or who you want to handle your short sale negotiations, it is an absolute imperative question that you should ask of this person. They should be able to answer you directly with the answer to, "who is the CEO of my bank". Most of the large named firms out there doing a short sale should be absolutely familiar with who the CEO is. Whether its Bank of America (Brian Moynihan) or if it is Chase (Jaime Dimon is the CEO), or Wells Fargo where it's John Stumpf. In those cases the people doing the short sale should absolutely know who those people are. Why? Well if they are representing you, they should know that if thay are trying to a get a short sale approval on your behalf and things aren’t going so well or the terms and conditions aren't what you are looking for, like getting the deficiency removed or getting the approval with the price that is acceptable for both the bank and buyer. If those things aren’t being met, the Real Estate agent or broker or negotiating company who are working on your behalf should have the ability or power to be able to communicate with executive offices over there at that the bank. This is not an easy task to do. However we do have personal relationships with most of the lenders out there and their executive offices and have direct communications with most of the CEO’s of most banks. So that is a very important question to consider and ask of your Real Estate Agent or Broker or Short Sale Specialist.
If they aren’t able to tell you that they have some type of a relationship with the executive office at your particular bank or some type of a relationship with a senior vice president over in loss mitigation, you are rolling the dice if you allow them to handle your short sale. After doing hundreds of short sales at this time we know that the easiest part of doing a short sale is obtaining an offer on the property. There are plenty of buyers and investors that are willing to write an offer. The difficult part is dealing with the banks and the negotiating with the banks. When things don’t go right, you want to take it to the top and have a relationship established with them to make sure your file is taken to the proper people to make an informed and educated decision, without simply relying on lower level people. So take that into consideration when are considering who you should hire to do your short sale. Ask them, "Who is the CEO of my bank, and do you have any direct access or experience with dealing with the executive offices over there so you can handle issues on my behalf?"
28. Why would a bank choose Foreclosure over a Short Sale?
Banks are starting to take aggressive action to move towards foreclosures instead of allowing certain short sales at this time. Some banks like One West (Indy Mac) stated in 2009 that they would not do a short sale if the foreclosure date was less than 14 days away. Well it seems other banks are starting to follow suit. Wells Fargo and Wachovia recently announced that they will no longer do a short sale for a homeowner if there is any foreclosure date set, and also will not issue an extension on any short sale once an approval letter is issued. They are sending a message out to real estate agents nationwide in press releases and emails that state: “Due to recent industry changes, we at Wells Fargo will no longer be granting any extensions for short sale close dates or postponing foreclosure/trustee sale dates. If you were issued an extension letter dated 9/14 or earlier, those extension letters will be honored, but no further extensions will be granted. Files must close by expiration date on the original approval letter or they will be removed. If your approval expires 9/15 or 9/16, you will have 48 hours to get me the final HUD for approval and close.”
Fannie Mae and Freddie Mac have also stated in their HAFA short sale guidelines that if a foreclosure date is set, it is too late to do a short sale or loan modification. We fully anticipate that many other lenders and servicers such as Bank Of America and Chase will soon follow suit, and not allow a short sale if a foreclosure date is set. But why would they do this?
There are a few reasons. First, they feel that short sale scams are running rampant, especially when it comes to investors buying shorts sales much cheaper then market value. The process involves the investor negotiating the short sale on the homeowner's behalf and then manipulating the value the bank thinks the property is worth. This typically involves the investor paying off the bank's appraiser so that the value comes in low and the bank sells it for a deep discount. Then the short sale investor buys it cheap and turns around and sells it for profit right away, making sometimes hundreds of thousands of dollars on the short sale purchase.
The next reason has to do with inexperienced real estate agents attempting to do short sales for homeowners. Many agents are attempting to do a short sale with little or no experience, and complicating the transaction because they don’t know what they are doing. This in turn bogs down the banks from working with experienced agents and causes transactions to get delayed for several months, when in reality a short sale should take 30-60 days. The banks in essence are inundated with inexperienced agents, submitting bad offers, incomplete paperwork, and quite simply taking on a transaction where they have no idea what they are doing. The banks had been previously willing to postpone foreclosures over and over, and extending the process out several months, and when this happens in a declining market, in some cases it works out that the bank would have received a higher price for the home had they just foreclosed several months earlier.
Next, banks are seeing homeowners wait until the eleventh hour in order to request the short sale. The homeowner waits and waits, then tries to attempt a short sale in order to stay in the home longer sometimes with no intention of ever completing a short sale, but simply uses it as a stall tactic to stay in the home longer rent free, and the banks are no longer having it.
Lastly, it is important to know that banks typically are just servicers for loans who are owned by investors. Investors are in reality the ones putting pressure on servicers to get their properties back quicker and at higher prices so they don’t loose as much money. The servicers or banks are responding by changing policies and accelerating their foreclosure process to what it once was and do them as quickly as state statutes will allow, to try and save money and flush out homeowners who are simply bucking the system to stay in their homes as long as they can.
What does this mean to homeowners and for short sales? It means if you get behind on payments and truly want to do a loan modification or short sale, start the process immediately or as quickly as you can. Do not wait until the bank has started the foreclosure process as you may find the bank will no longer care and go ahead and proceed with the foreclosure in order to get the property back. This is already happening on a wide scale, as the banks are fed up with procrastinators who are trying to buck the system. While we don’t necessarily agree with these policies as it will truly hurt good potential short sale deals for homeowners, we can see the lender's point of view.
29. Should you work with a HAFA Certified Agent?
Did you know there is a certification for real estate agents to take in regards to the new government short sale program within several states? This certification is recognized by the respective state's Association of Realtors Education. If you are considering selling your home, you and your real estate broker need to be informed of the HAFA guidelines, so that you can walk away from your home without any obligation, and with $3,000 for moving expenses. The real estate agent you choose to work with needs to be familiar with the government programs, the servicer (lender) guidelines, as well as know all of the proper paperwork and timelines to comply with so that you as a homeowner can be in compliance with the program. If your agent is not familiar with this new program, it can literally cost you thousands of dollars. We are certified and fully informed of all of the guidelines for this government program for short sales (HAFA), which went into effect on April 5, 2011. Please call or email if you are interested in learning more about the new government short sale program (HAFA).
30. Should you make your house payments during a short sale?
Homeowners ask this question who might be able to continue making them, but they have decided to pursue a short sale. We cannot and will not instruct you one way or the other or offer any advice as to whether you should continue making payments if you can afford them. What we can do is offer you information in regards to the pro’s and con’s of making your payments during a short sale. Everybody has different situations when it comes to selling a home in a short sale, and everyone has different goals and objectives. The other thing to understand is that short sales are designed for people who have a legitimate hardship or a proven impending hardship. We have done a tremendous amount of short sales where the borrower has never missed a home payment, yet were still able to complete a short sale. We have done this with almost every major lender out there multiple times, but the borrower must have a hardship or impending hardship, and we have to be able to prove this, and it is always a case by case basis. Here are the Pro’s and Con’s to making payments and to not making payments in a short sale:
Pro’s to Making Your Payments during a short sale:
• The foreclosure clock does not start so you have plenty of time to get the transaction done.
• You will not receive any 30, 60, 90, etc. late payments reported on your credit.
• It might be easier to find a place to rent when you move.
Con’s to Making Your Payments during a short sale:
• You will not get any of this money back.
• You may be denied as a candidate for a short sale until you are late. (Requirement of FHA and the new HAFA program, as well as some other lenders)
• The process may take longer to complete as the banks have no sense of urgency.
Pro’s to Not Making Your Payments during a short sale:
• You will qualify much easier for a short sale.
• You can still live in your home, and save the monthly mortgage payments for other expenditures.
Con’s To Not Making Your Payments during a short sale:
• The foreclosure timeline starts.
• Late payments will be reported on your credit history.
• It might be more difficult to find a place to rent and live.
31. What Are My Alternatives to Foreclosure?
If your house is in foreclosure, try to look at the situation without attaching your emotions. When you view the situation from a strictly business viewpoint, you can more successfully analyze which option might best suit your needs and desires and move you towards resolving your financial difficulty. One very important thing to remember: Time is of the essence, so think seriously about your situation and take quick action in order to allow yourself enough time to complete the chosen process.
Nine options when facing Foreclosure:
1. Do Nothing – If a homeowner does nothing, they will most likely lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. This is not the best option.
2. Payoff/Refinance – Completely paying off the entire loan amount plus any default amount and fees is another option. Usually this is accomplished through a refinance of the debt. New debt is at a normally higher interest rate and there may be a prepayment penalty because of the recent default. Consider this option if there is equity in the home.
3. Reinstatement – Paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.
4. Loan Modification – Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment.
5. Forbearance – Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.
6. Partial Claim – A loan from the lender for a 2nd loan to include back payments, costs and fees.
7. Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current. Most loan applications ask if this has ever happened.
8. Bankruptcy – This option can liquidate debt and/or allow more time. We can refer you to a qualified bankruptcy attorney.
• Chapter 7 (Liquidation) Completely settles personal debt.
• Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.
• Chapter 11 (Business Reorganization) A business debt solution.
9. Sale – If the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is more than the property’s value.
32. How Can I Repair My Credit After A Short Sale?
Recently many of our clients have been very concerned about recovering their credit after a short sale. This is a bit different from previous years because
previously many of our clients were in such financial distress that they often had missed payments on car loans, credit cards, and other items so that they
gave up any hope of repairing their credit score. In today’s real estate market however, many homeowners who are short selling their homes may not be in as much distress. They might only be missing their mortgage payments. So they don’t experience as great a point loss on their credit report when it is completed. So they are interested in repairing their credit right away. Credit awareness is much more prevalent in the short sale market today, as news stories have concentrated on the plight of homeowners with significantly devalued properties.
Many credit repair companies simply charge thousands of dollars to do some very basic work, and even if they are unsuccessful, they will still charge you
and keep your money. However, we have found credit repair specialists that we are happy to recommend. If you are interested in this service, please contact us, and we will be happy to refer you.
33. Is It Ever Possible to Buy Another Home?
It is sometimes possible to purchase a home soon after a short sale by using a hard money lender. Private funding from a hard money lender does not require that you have good credit. It does require that you now have a steady income and that you provide a substantial down payment of at least 35%. Many people are saving money every month during the short sale process by not paying their mortgage payments, their taxes, or their homeowner association dues. We are not advising you to do this, nor are we implying that this is ethical. We are simply stating this as a fact in this era of significantly devalued properties. After a number of months of not making payments they are able to accumulate enough money for a substantial down payment on a less expensive house.
Hard money lenders do not require the credit checks or red tape a bank or mortgage company requires. However, they do charge points and high interest
rates and loan only up to 65% of the purchase price (65% LTV). Expect to pay 3 to 5 points and 12% to 21% interest. These rates are reminiscent of the mid 1980s when everyone, even borrowers with excellent credit paid 5 points and 21% interest, and they were happy to get it. Generally speaking the smaller the loan amount, the higher the points and interest. Also generally speaking, the more money you put down, the lower the interest rate although there are also other factors that determine what you pay. Loans are generally amortized over 30 years and have a term of 3 to 5 years to allow you to repair your credit. By then your credit will be improved, and you should be able to refinance or buy a new home with conventional financing at a lower rate. We know a hard money lender in Las Vegas and other areas of the country that we are happy to recommend. If you are interested in this service, please contact us, and we will be happy to refer you.
If you are considering a short sale, you can rest assured that we have a plan for you after your short sale, and that you can get your credit repaired as
quickly as possible, so that you may be able to buy another home at some point. Call us now at (702) 990-4373 to see if you will benefit from a short sale.
The lender(s) agree to accept less than what is owed on the property in order to avoid a possible foreclosure situation.
Upon approval from the lender, the seller is able to walk from the property limiting their potential credit damage and tax liability.
There is a great deal of information here for detail-oriented people. Rather than try to read it all, you may want to read the last questions first.
1. Is a Short Sale right for everyone?
No. There are too many Real Estate Agents that make it sound like anybody can do one, with very minimal credit consequences. They will let you believe that the bank will give you a full release of your debt, and you can happily move out and buy your next home in two years. These agents make it sound very desirable in order to attract more business. This is not a "one size fits all" solution. Every person’s situation has to be assessed by a professional during a consultation. So please read the answers to these questions, and when you are ready, call Debbie Priebe at (702) 990-4373. She will give you a free, no obligation phone consultation to determine what solution is best for you, and what your likely outcome will be.
2. What are the CREDIT benefits of doing a short sale vs. foreclosure?
There are two parts and scenarios that need to be considered for this answer. Let’s start with how it will be reported to the credit bureaus. While in most cases, short sale and foreclosure, the delinquent mortgage will negatively affect their credit rating. However, short sellers will have the type of verbiage on their credit reports stating that they worked out a deal with their lender. Such terms reported by lender are "debt settled for less than what was owed", "debt settled", "debt settled with agreement" or some other similar verbiage dependent on each lender. A short sale can possibly be less damaging to your credit rating point-wise and there are cases where the damage was as little as 50-100 points. Compare this to a foreclosure which mortgage and credit experts say, after bankruptcy, having a foreclosure on your credit report is the worst result and will possibly reduce your credit score by 300-400 points.
The next situation that plays out as to your credit damage is whether you are late on your payments or not. Once you stop making payments, lenders will report you 30, 60, 90 days late all the way out to 150 days late which all contributes to the degradation of your credit. If you have two loans, then the damage can be even greater. People who are late on their payments will suffer much more severe credit damage than those who never miss a payment and do a short sale. Yes, you can do a short sale - even if you are not behind on payments.
People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 24 months. So, if buying a home is a future goal, then a short sale is the better option for many families. Fannie Mae and Freddie Mac have recently changed their guidelines (August 2008) stating if you have a short sale on your record, you may be able to buy another home in 24 months with financing that is ultimately going to be backed by them. However, if you have a foreclosure on your record, you will have to wait 7 years with financing backed by Fannie or Freddie.
3. Are there TAX consequences of doing a short sale vs. foreclosure?
Every situation is different for each person, so it is important to consult with a tax professional, CPA, tax attorney or someone who is qualified to make this determination for you. Here is some information to get you started, after which you should confer with a CPA to see if any of this applies to you. When you do a short sale or a foreclosure the lender is allowed to write off the loss and pass it on to you as income in the form of a 1099-C. The IRS considers this to be income for you, and it is taxable. For example, if you borrowed $200,000 to purchase a home, but only were able to repay $150,000 in the short sale, you will receive a 1099-C for that $50,000 and possibly be taxed on that according to your tax bracket.
Federal Taxes: The Home Mortgage Forgiveness Debt Relief Act of 2007 states that if the property is your primary residence and the debt discharged was from your original "purchase money" loan, then you will not have to pay the taxes for that amount. Further, if you did refinance and used the money to only improve your home, then you may be eligible for exclusion of the taxes as well. This act has been extended until the end of 2012.
If you refinanced your home and pulled the money out for other expenses or it is not your primary residence, then it is possible that you may have to pay the taxes unless you are eligible for "insolvency." The IRS does not require you to pay taxes on the loss the lender takes in a short sale if, at the time of the short sale, you are insolvent. Insolvency means your debts (including your mortgage) exceed the value of all your assets. In other words, if, at the time of the short sale, your debt is greater than your assets, then you are insolvent. Ask your tax advisor if you are eligible for the Debt Relief Act qualifications or are eligible for "insolvency" and filing the IRS Form 982.
State Taxes: Every state is different. Some states conform to the federal tax exemption (Home Mortgage Forgiveness Debt Relief Act of 2007) with their own laws, but some states have some differnences. Ask your tax advisor if you qualify for an exemption of the state taxes for a short sale. Some states also have an insolvency exclusions to ask your tax advisor about.
It is important to understand which tax implications can apply whether you do a short sale, deed in lieu of foreclosure, or a foreclosure.
4. Can My Lender Come After Me For the Difference?
There are two types of loans in most states. That is "non-recourse" and "recourse". A "non-recourse" loan is one you obtained to initially purchase the home. If you go through a non-judicial foreclosure process with a "non-recourse" loan, the bank will not be able to come after you for the difference. If you do a short sale with a "non-recourse" loan, some attorneys feel you should be protected and not have to worry about the bank coming after you. Other attorneys feel that the State Civil Code of Procedure does not address the short sale issue and does not protect "non-recourse" loans, only a foreclosure does. The bottom line is there may be no precedent set in court and no lender has challenged it yet. It is important to have an attorney explain to you the Civil Code for your state, as we cannot give legal advice.
If you have done any type of refinancing or obtained any cash out financing or have a Home Equity Line of Credit taken out after the date of purchase, then these are considered "recourse" loans that gives a bank or mortgage company the ability to come after you for the difference if you go through a short sale. That is unless you receive a short sale approval letter specifically stating that they will not pursue a deficiency judgment or some other verbiage of that sort. Every lender issues a completely different approval letter with different verbiage, so it is important to review you approval letter when it is issued, and we have attorneys on retainer to help you review your approval letter so that you fully understand the verbiage, and whether or not the lender will come after you. It is also our goal to always get you a full release from any liability from your bank when obtaining a short sale approval, and we have an excellent success rate of approval letters.
The ultimate goal of a short sale, however, is to get a full release in an approval letter which will absolve you from having to pay back any deficiency. If you decide to work with us, you will have the opportunity to review the approval letter with an attorney.
5. Will My Bank Come After me For the Difference?
The banks will issue an approval letter stating that they reserve the right to pursue for the remainder of the balance. This is simply an issue that we have not always been able to get around. However, our clients have hired attorneys to litigate and negotiate with top level executives and their legal department to get a letter separately issued directly to the home seller that they will not pursue the homeowner for the deficiency. We can facilitate putting the home on the market, receiving an offer, presenting it to the bank to accept in order to sell the home, but it will not absolve you from having to pay back any of the difference. If you would like to hire an attorney to litigate with these particular banks to negotiate their release of a deficiency or talk about your other options, you are free to do so at your own expense, and we will be happy to work with them.
It is our understanding that after the short sale is completed, the recovery department will contact you about trying to make arrangements to cover the difference. If you are unable to make any payments towards recovery, they will then "charge off" the account and issue you a 1099-C, for whatever loss is sustained by the bank.
UPDATE: We are now able to get deficiency removed in 99% of our short sales, however it depends on everyone’s particular case. Please call Short Sale Success for a consultation to determine if we will be able to get a deficiency release for you.
6. Why Would I Do a Short Sale if I Could Not Get an Approval Letter Removing the Deficiency Balance?
If you are worried about a lender coming after you which will affect your financial future, you may not want to do a short sale. Howesome home owners are willing to accept an approval letter with a without a deficiency removal for the following reasons:
• To stop the payoff clock and stop incurring future or larger deficiency, or payoff.
• To avoid a foreclosure on their credit.
• To settle the deficiency issue at a later date.
• To try and do the most responsible thing and get the bank the highest price possible for the home.
• To avoid any attorneys or additional fees out of pocket to dispose of the home.
• They simply will take their chances and file for Bankruptcy if the lender does try to collect.
• They simply will take their chances that the lender will not come to collect and “write off” the loss instead.
While any or none of these reasons may apply to you, it is important to understand every home owner has different levels of comfort and risk tolerance, personal goals, and opinion on the matter. You will always have the chance to review your approval letter with an attorney before selling your home and you can cancel your listing at any time prior to entering into an escrow with a buyer without any fees paid to us.
7. What is the Difference Between a 2nd Mortgage and a Home Equity Line of Credit (HELOC)?
A true "closed ended" second mortgage is one that is usually used to typically purchase the home and used as additional financing. While some seconds are not always used at purchase, in either event they are loans that are only secured by the property and may be wiped out if a first forecloses and there is not enough equity to pay them anything.
A HELOC is completely different in that, while it does include a lien on a property, it is still a line a credit that can stay open even if the lien is wiped out in a foreclosure. Many inexperienced agents do not understand this, and HELOC’s need special attention in order to do a successful short sale with full release for the borrower. Be sure to question whether your short sale agent understands the difference between these two types of loans.
8. Can I do Short Sale with a Home Equity Line of Credit (HELOC) as a 2nd Mortgage?
Yes, you can still do a short sale if you have a 2nd HELOC, however it can be more difficult depending on your lender. It is important to understand that HELOCS are a completely different type of loan, and the lender can allow you to do the short sale and release the lien on the property, but still leave the entire account open and thus leave you still owing the entire balance due. HELOC’s are like credit cards with a lien on a property. If the lien is released from the property, it doesn’t always mean the line of credit is closed. Many inexperienced short sale agents do not understand this. A new trend that is happening as well is that the bank can sell the bad HELOC loan on the secondary "debt collection" market for a higher price (10%-20% of note value) than what the lender in the first position is willing to pay (1%-3% of loan value). Because of this many HELOC lenders have become much more aggressive in requiring a 10%-30% payout from borrowers to allow a borrower full release from these loans. Banks such as Chase, CitiMortgage, and National City have been the most aggressive so far requiring at least a 10% payout, and I am sure many more will plan to follow suit.
If the HELOC lender wants a 10%-30% payout to allow a short sale with full satisfaction, and the first is not willing to come up to that amount, and other remedies cannot be found, it is possible that you as the borrower can cover the difference if you are looking for a short sale with full satisfaction, by bringing money to the table and/or signing a promissory note under certain terms.
After a consultation we will be able to talk to you about your goals and your likely scenario outcome. You will not be obligated to commit to anything until you understand the terms the lender is requiring. If you do not agree to what you lender requires, then you can cancel your listing at anytime without any fees paid and not go through with the short sale.
9. Will the Short Sale cost me anything?
Our real estate fees will cost you absolutely nothing. Our fees of negotiating your short sale and getting your home sold will be paid by the buyer. We typically can negotiate to have any past mortgage payments eliminated, and negotiate to have the lender pay for all the costs associated with selling the home. We can also typically get them to pay for any past property taxes and possibly any outstanding HOA dues, allowing you to pay nothing out of pocket. We have even negotiated to have the lender pay for repairs on the home as well as buyer's closing costs, but it is subject to each lender and their guidelines. There have been recent changes however from some lenders in what they will and will not pay for, and one of the most costly is past HOA dues. Each situation is completely dependent on which lender you have and your personal scenario. Be sure to get your free consultation to find out what your lender will and will not pay for.
10. Do I Qualify for a Short Sale?
In order to be eligible for a short sale and have us represent you we must be able to prove to the lender that you are a victim of a "hardship" and therefore unable to continue making payments on your mortgage. A hardship situation is one that is the result of some extenuating circumstance that forces the borrower into a position where they can no longer afford their mortgage payments. While every situation is different, some frequent examples of hardship include:
• Unemployment or loss of primary income source
• Inability to work due to health crisis
• Mounting medical expenses
• Employment relocation
• Failure of business
• Bankruptcy
• Death of spouse or significant other
• Divorce or separation
• Incarceration
• You owe more than your house is worth
Call us at (702) 990-4373 for a free consultation to see if you will qualify.
11. Do I Have to Stop Making Payments on My Mortgage in order to do a Short Sale?
Not Always. Just because you called your particular lender, and they told you that you could not do a short sale unless you miss some payments, don’t believe it to be true. These people who answer the phones at these mortgage companies are low level personnel who do not care about your credit. Every borrower's situation is different, and a short sale can be done while staying current on your mortgage payments. We have successfully closed many short sales where the borrower never missed a payment. However we are seeing more and more investors (owners of loans) deny short sale requests, due to the fact that there have not been any missed payments. Fannie Mae, FHA, and some other investors are starting to claim this once again. The important thing to note, is that if you are able to afford your payments, you should continue making them until we devise a plan for you based on your goals and objectives. Many times in short sales you need to gather further information from the lenders to determine what they want and are willing to do, before voluntarily missing any payments. If you have a true hardship and simply cannot afford your payments, there is no need to worry. Be sure to call for a consultation before you decide to miss any payments if you don’t have to.
12. Should I File For Bankruptcy?
At this point in the market there are many attorneys who are advising clients to file bankruptcy in any situation and charging very high fees. For some this may be the correct solution. However it is important to understand that going through a bankruptcy, whichever kind you choose (Chapter 7 or Chapter 13), will not allow you to keep your home unless you bring your mortgage current. While you may be able to stay in your home while the bankruptcy is taking place (it could take 6-10 months), it also "freezes" the home from being able to be sold or do a short sale. You should speak with a competent bankruptcy attorney and decide if you want to sell your home before filing or when the filing is completed. If you need a reference to a bankruptcy attorney, we can provide one for you, as we do not dispense legal advice.
13. When should I begin the short sale process?
Immediately. Foreclosure and short sale situations tend to be extremely time sensitive and consuming for negotiations. The sooner we can begin the negotiations with your lender, the greater the chances of a successful resolution. There is no need to wait until the lender sends you a notice of default or initiates formal foreclosure proceedings against you. Time is of the essence! Please contact us today at (702) 990-4373 for a free consultation with our head broker and short sale specialist Debbie Priebe.
14. How Long Does a Short Sale Take?
It depends on many different factors, such as who your lender is, how long it takes to get an offer, how many loans you have, if you are behind on payments, and so on. With an inexperienced agent it could take 6-8 months. However, with our system and the contacts we have with each lender you can expect an average turnaround time of only 4 months. Our fastest record of getting a home on the market and with an approval is 3 business days, but that is not the case for everyone. Each situation is different.
15. How Do You Handle Short Sales? Do You Hire Other 3rd Party Negotiators?
We handle everything in house and do not farm out the negotiations with your bank to any other party, like some agents do. We have a dozen professional short sale agents, and you will be assigned one for your file from start to finish. You will have one point of contact that will handle the listing of your home, answer all calls from buyers and agents, call your bank every day and handle the negotiations from start to finish. Every interested party on your home will get a call back from someone who knows the exact status of what is going on with your file. Each agent is only allowed to handle a handful of short sales due to the amount of work involved with them. We also have people in the office whose specific job is to handle marketing, filing paperwork, and general support of these short sale agents.
Each file is also reviewed every 48 hours by our broker Debbie Priebe to monitor the progress and handle all of the final and difficult negotiating with the bank when the time comes. Her expertise is infused in every file and she knows what is going on with every file from start to finish. If you wish to talk to her at anytime, you can call her directly at (702) 990-4373 or email her for a quicker response, and she will get back to you.
Based on our experience, we find that it is absolutely not in the best interest of a client to farm out the negotiation of any file, due to level of expertise that is required to get them done. There are many 3rd party negotiating firms out there that will do all the negotiating for a listing agent, but we have found that all they do is go through the motions. They typically have a very low success rate, due to the fact that there is little motivation for these firms to find the often difficult solutions short sales require. We keep everything in house and have a 99% success rate.
16. How Long Have You Been Doing Short Sales?
We have been doing mortgages since early 1976. Debbie Priebe started doing short sales early on in certain geographical areas like Las Vegas, Southern California, Detroit and Florida that experienced the greatest appreciation and were also the first to see the decline. In the beginning Debbie Priebe was seeing short sales of only a couple thousand dollars, and was approaching banks with short sales before even the banks knew how to handle them. Many agents stayed far away from them for years because of the level of difficulty and the lower commissions. Debbie Priebe knew where the market was heading and instead of shying away from the challenge dove in head first to become a specialist and learn everything about them. Since then many agents have jumped in the game as a matter of survival, in order to stay in the business. Now many agents refer their short sale business to Debbie.
Every situation is different, every lender is different, and the banks are changing all the time. So the learning curve is tremendous. It’s not until an agent is working with almost every lender, on a consistent basis, and has developed a proven system, that you should even consider listing a short sale with them. Be sure to ask your short sale agent these questions:
• How long have they been doing short sales?
• How many lenders have they worked with?
• How many listings have they closed?
• What is their success rate of listings to closings?
Just because they have 100 short sale listings doesn’t mean they know how to close them and that they are the #1 short sale expert.
17. Why Would My Lender Agree to a Short Sale?
In most distressed mortgage situations, foreclosure is a last resort for all parties involved. The homeowner and the lender usually want to avoid foreclosure at all costs. That is why a short sale is advantageous to foreclosure, and lenders are typically very motivated to pursue a short sale prior to foreclosure.
A short sale gives the lender the ability to cut it's losses up front thereby avoiding the expense and time of a foreclosure and potentially greater losses. Lenders want to make loans; they do not want to be in the business of owning and managing real estate. Whether the lender chooses to go through with a foreclosure or agree to a short sale, they are taking a loss either way, but in many cases they would take less of a loss with a short sale and resolve the matter in a comparatively shorter time frame. In nearly every case, a short sale offers a significantly better return on the lender’s investment than a foreclosure does.
18. Should I Do a Loan Modification?
If you would like to try and keep your home, a loan modification would be the first option for you to pursue. If you want out, then a short sale is a better option. There are two ways to do a loan modification, the first is to do it yourself, and the second is with the help of a professional. It’s just like selling your home. You can do it yourself, but the chances of success are much greater if you employ the services of a professional.
To do it yourself, you will be required to provide a substantial amount of financial information to your lender and the process takes about 2-3 months, and is very much like a short sale. You are trying to show your lender that you are not able to make your current payments, but you could afford to make payments on an adjustment on the loan in the form of interest rate reduction or a longer term loan.
If you do use a professional, please be sure to do your research on them first. Many companies are springing up everywhere, and many are not licensed, and do not have the proper Department of Real Estate contracts in place in order to charge you any upfront money. We know many reputable loan modification companies that we can refer you to who will give you a fee consultation.
19. Will the Bank Reduce My Loan Amount or Principle with a Loan Modification?
We work with many loan modification companies and we have yet to ever see it in writing that this has ever happened. While there have been examples of deferment of interest on portions of loans, we have yet to see in writing an example of this actually happening. Fed Chairman Ben Bernanke has been pleading with banks for the past 2 years for banks to do this, and Barrack Obama has plans to entice banks to do this in order to obtain further TARP funds, but as of this date we have never seen it. At this time we have only heard of lenders changing interest rates on loan, making the payments interest-only for a set time, or increasing the loan term in order to reduce the payments for homeowners, but bottom line is when you sell the property you will still be responsible for paying back what you owe on the property. For some homeowners a loan modification is right for them if they plan to stay in the home for a longer term and anticipate a return in their equity over time, in order to pay off the lender in full if they ever decide to sell.
20. Do I Need An Attorney to Do a Short Sale?
In some instances the answer is yes. In the past it was fairly easy to get an approval from a bank stating they would not pursue you for a deficiency. Now it is getting harder than ever. And some banks like Bank of America have taken the path of saying they are going to come after everyone who does a short sale. While we can still get a full release from 85% of banks, if your ultimate goal is to obtain an approval letter stating that they will not pursue for a deficiency, we will have to work with the attorneys we have teamed up with who specialize in this. Attorneys cost additional fees, so be sure to talk to us about this during your initial consultation.
We also recommend conferring with an attorney to review an example of an approval letter from your lender which we can provide. We can also have you speak with one of our attorneys on retainer about your specific approval letter once it is received, so that you understand everything in it and its terms, and then decide if you still want to move forward. If you do not agree to the terms that the lender provides, you can cancel your listing and decide not to sell your home. We make sure to not bind you to any contract with any buyer until the approval letters is received from your lender(s), and you give the final approval.
21. What Does Your Success Rate Really Mean?
When Iwe talk about our success rate, it means the ratio of short sales we have taken, to the amount of short sale that have sold before a foreclosure occurred. It is important to understand, that we do not take every short sale we are presented with. We first screen people to make sure they are informed of all of the implications of doing a short sale, including making sure they have spoken with an accountant or CPA before we take the listing. We also make sure that they are aware of the deficiency issues and refer them to talk with an attorney if they can. We also present them with an example of an approval letter from their lender so they know what to expect. We will refer them to attorneys or loan modification firms if they feel another option may be suitable to them such as deed in lieu, foreclosure, or loan modification. When we feel that they are good candidates and still want to move forward, we will take their short sale. Have we ever done a short sale where the home owner receives an approval letter where the deficiency issue was not addressed? Yes, but only when the seller was well informed, and it was a calculated risk on the homeowner's part. IWe have also had sellers who did not agree to the terms of the approval letter and chose another option. We do not count those, as properties lost to foreclosure in our numbers. We have also had clients who have decided to cancel their listing even before the approval letter was issued for different reasons. We do not count those against our record either. Simply put, our approval rating means that we were able to get an offer on the home, get the lender to agree to the terms of the offer and price, and the home was sold. The instances we count against our record are those where we were not able to get an offer on the property before it went to foreclosure, or the bank would not agree to the terms of offer we brought to them and they chose to foreclose instead.
22. What is my obligation?
You are free to cancel your short sale at any time with no fees paid. If you are able to find other alternatives or solutions, you can cancel your contract and keep your home. We are in the business of helping people, and if some solution other than a short sale presents itself in order for you to keep the home, such as winning the lottery, you are absolutely free to cancel your contract with no fees and no obligations.
23. How Do I Start the Process?
The first thing to do is contact Debbie Priebe at (702) 990-4373 for a free phone consultation to make sure a short sale is right for you, or you can fill out our website contact form. From there we will set up a time to counsel you in person or over the phone and go over the entire process and methods of doing short sales. There is no obligation and no fee.
24. What is the Difference Between a Release of Lien and Release of Deficiency?
The difference between release of lien and release of liability if you are a seller in a short sale is how long you must "look over your shoulder". In California it is 4 years of looking over your shoulder. In Nevada it is 6 years. Every state is different.
At bare minimum, you need to get a release of lien for all liens on title to a property in order to sell it. If you are paying off a lien in full, this is not a big deal. Title/escrow typically handles this for you without any thought on your part, but when you are doing a short sale, that means one or more of the liens on title will not be paid in full based on the net offer, due to a reduction in home value.
So, if I am selling this home with liens in excess of the property value, I need to offer each lien at least some money to get them to agree to at least
release their lien so the sale can take place. Obviously a first lien will have priority over any junior liens and they must agree to how much money any junior lien is receiving, if the first lien is also losing money. If I want to get a full release of lien (the bare minimum to sell the home) and liability, I often have to give the junior lien a little 'extra' money above and beyond the standard $3K-$5K that most first liens offer.
Let me explain why it is so important to have a full release of liability. The release of liability means that the lender/bank/investor/mortgage company cannot come after the seller for the deficiency balance on the property.
Many agents assume that doing a short sale releases the seller of all liability, without ever taking thought to read that most approval letters only offer a release of lien, unless you know how to properly negotiate with the lender to also release the seller of all liability.
We do not see a short sale as a very good deal for the seller unless the liability is less than they would have if they simply let the home foreclose (except for being in a better situation with regard to their credit rating).
If you do not get a full release of liability, you need to understand how many years the bank has in your state to obtain a judgment, before the statute of limitations runs out. For example, in California it's 4 years. In Nevada it's 6 years.
25. What is the new government Short Sale Plan (HAFA)?
The government initially announced forthcoming plans and guidelines in May of 2009 to coincide with the loan modification program put into place (HAMP). On November 30, 2009 guidelines were released for servicers to follow if they want to collect on government (Treasury) paid incentives for doing short sales for homeowners. This plan went into effect in April of 2010 and the second portion of the plan for Fannie Mae and Freddie Mac loans went into effect on August 1st, 2010. Below is a list of commonly asked questions about this program.
How does it help homeowners?
• Foreclosure is postponed for 120 days while the property is for sale
• Streamlined short sale and deed in lieu (DIL) process; predetermined listing price, 10 day approval timeframe
• Homeowners will receive $3000 for move out expenses in a Short Sale or DIL
• Homeowners will be released of all future claims from the lender, i.e. no deficiency rights
• Lender will pay all fees associated with sale including real estate commissions
Who is eligible?
• Properties that are primary residence
• First mortgage originated on or before January 1, 2009
• Mortgage is delinquent or default is reasonably foreseeable
• Current unpaid principle balance is equal to or less than $729,750
• The borrowers total monthly mortgage payment exceeds 31% of borrowers gross income
• Homeowners must have been evaluated for a HAMP loan modification first, but homeowner can still request a short sale or DIL
What does a homeowner need to do?
• Hire a Short Sale Specialist certified with HAFA and familiar with the HAFA guidelines
• Respond to lender request within 14 days to start program or they may not be eligible
• Provide all information and sign HAFA documents required to verify program eligibility
• Cooperate with listing broker to actively market the property and respond to servicer inquiries
• Maintain the interior and exterior of the property in a manner that facilitates marketability
• Work to clear any liens or other impediments to title that would prevent a sale
• Make reduced monthly payment stipulated by the lender if asked, or if applicable
26. Should you use an Area Specialist for your Short Sale?
We give free consultations all the time to people from all over the country who are in need of help and information about a short sale. Many times near the end of the conversation after we talk about our experience, our success rate and our contacts and relationships with the bank, a homeowner will ask us, "What is your experience with selling homes in my geographical area?"
We have facilitated short sales for homes in nearly every state in the country and we are very familiar with most popular areas. We have a team of many agents who help us with our listings and their marketing, all of whom specialize in different areas all over the country. If we were referred to you by a Realtor in your area, you can be assured that we have already affected successful short sales in your part of the country.
We would like to point out a few differences between a traditional listing and a short sale listing. In a traditional listing you are trying to obtain top dollar, and to do that you need to utilize marketing to its upmost. This is where a local area expert may have a slight advantage over another agent. They could use their knowledge of the community or schools in their marketing pieces to possibly entice buyers or get answers for a prospective buyer a little quicker. But due to the Internet and the resources we have as a large listing broker, we can determine all the same information very quickly. We research the property and the surrounding community for hours before implementing a listing or initiating the marketing for a listing.
In a short sale however, the easiest part of doing a short sale transaction is obtaining an offer. Because of this, marketing all the nuances of a particular community, complex or development is somewhat irrelevant. The real esssence of a short sale lies in communicating with the banks, negotiating the best possible outcome for the homeowner or borrower, having deficiencies waived, holding the deal together, and getting all parties to agree to terms of the short sale. In a short sale you typically have the lender or sometimes two lenders, the HOA, the IRS, the state franchise tax board, the local property tax assessor, private party liens, the buyers, the buyers agent, and the buyer's lender - who all need to agree to the short sale transaction terms. This in and of itself is very difficult and requires a certain skill and level of experience. Most real estate agents stay far away from short sales because they require so much knowledge and work. Unfortunately some real estate agents attempt short sales without even knowing exactly what they are getting into because they need to try and maintain a pay check.
It is our opinion that homeowners should not be worried about a real estate agent's local area expertise, but rather be concerned about the level of knowledge and experience of their short sale agent. Your entire financial future depends on it, why wouldn’t you want to work with the best? If you don’t chose the most capable and experienced short sale agent to work for your financial future, you are in essence selling yourself short.
27. Should my short sale agent be familiar with my bank?
If you are a homeowner or borrower considering a short sale, this is a question you may not know the answer to yourself. You may have a loan with Bank of America, Citi Mortgage or something along those lines. You may not necessarily know who the CEO is but, it is a very important question for you to know.
The reason being, if you are a borrower or a homeowner considering doing a short sale and deciding who it is you want to work with or who you want to handle your short sale negotiations, it is an absolute imperative question that you should ask of this person. They should be able to answer you directly with the answer to, "who is the CEO of my bank". Most of the large named firms out there doing a short sale should be absolutely familiar with who the CEO is. Whether its Bank of America (Brian Moynihan) or if it is Chase (Jaime Dimon is the CEO), or Wells Fargo where it's John Stumpf. In those cases the people doing the short sale should absolutely know who those people are. Why? Well if they are representing you, they should know that if thay are trying to a get a short sale approval on your behalf and things aren’t going so well or the terms and conditions aren't what you are looking for, like getting the deficiency removed or getting the approval with the price that is acceptable for both the bank and buyer. If those things aren’t being met, the Real Estate agent or broker or negotiating company who are working on your behalf should have the ability or power to be able to communicate with executive offices over there at that the bank. This is not an easy task to do. However we do have personal relationships with most of the lenders out there and their executive offices and have direct communications with most of the CEO’s of most banks. So that is a very important question to consider and ask of your Real Estate Agent or Broker or Short Sale Specialist.
If they aren’t able to tell you that they have some type of a relationship with the executive office at your particular bank or some type of a relationship with a senior vice president over in loss mitigation, you are rolling the dice if you allow them to handle your short sale. After doing hundreds of short sales at this time we know that the easiest part of doing a short sale is obtaining an offer on the property. There are plenty of buyers and investors that are willing to write an offer. The difficult part is dealing with the banks and the negotiating with the banks. When things don’t go right, you want to take it to the top and have a relationship established with them to make sure your file is taken to the proper people to make an informed and educated decision, without simply relying on lower level people. So take that into consideration when are considering who you should hire to do your short sale. Ask them, "Who is the CEO of my bank, and do you have any direct access or experience with dealing with the executive offices over there so you can handle issues on my behalf?"
28. Why would a bank choose Foreclosure over a Short Sale?
Banks are starting to take aggressive action to move towards foreclosures instead of allowing certain short sales at this time. Some banks like One West (Indy Mac) stated in 2009 that they would not do a short sale if the foreclosure date was less than 14 days away. Well it seems other banks are starting to follow suit. Wells Fargo and Wachovia recently announced that they will no longer do a short sale for a homeowner if there is any foreclosure date set, and also will not issue an extension on any short sale once an approval letter is issued. They are sending a message out to real estate agents nationwide in press releases and emails that state: “Due to recent industry changes, we at Wells Fargo will no longer be granting any extensions for short sale close dates or postponing foreclosure/trustee sale dates. If you were issued an extension letter dated 9/14 or earlier, those extension letters will be honored, but no further extensions will be granted. Files must close by expiration date on the original approval letter or they will be removed. If your approval expires 9/15 or 9/16, you will have 48 hours to get me the final HUD for approval and close.”
Fannie Mae and Freddie Mac have also stated in their HAFA short sale guidelines that if a foreclosure date is set, it is too late to do a short sale or loan modification. We fully anticipate that many other lenders and servicers such as Bank Of America and Chase will soon follow suit, and not allow a short sale if a foreclosure date is set. But why would they do this?
There are a few reasons. First, they feel that short sale scams are running rampant, especially when it comes to investors buying shorts sales much cheaper then market value. The process involves the investor negotiating the short sale on the homeowner's behalf and then manipulating the value the bank thinks the property is worth. This typically involves the investor paying off the bank's appraiser so that the value comes in low and the bank sells it for a deep discount. Then the short sale investor buys it cheap and turns around and sells it for profit right away, making sometimes hundreds of thousands of dollars on the short sale purchase.
The next reason has to do with inexperienced real estate agents attempting to do short sales for homeowners. Many agents are attempting to do a short sale with little or no experience, and complicating the transaction because they don’t know what they are doing. This in turn bogs down the banks from working with experienced agents and causes transactions to get delayed for several months, when in reality a short sale should take 30-60 days. The banks in essence are inundated with inexperienced agents, submitting bad offers, incomplete paperwork, and quite simply taking on a transaction where they have no idea what they are doing. The banks had been previously willing to postpone foreclosures over and over, and extending the process out several months, and when this happens in a declining market, in some cases it works out that the bank would have received a higher price for the home had they just foreclosed several months earlier.
Next, banks are seeing homeowners wait until the eleventh hour in order to request the short sale. The homeowner waits and waits, then tries to attempt a short sale in order to stay in the home longer sometimes with no intention of ever completing a short sale, but simply uses it as a stall tactic to stay in the home longer rent free, and the banks are no longer having it.
Lastly, it is important to know that banks typically are just servicers for loans who are owned by investors. Investors are in reality the ones putting pressure on servicers to get their properties back quicker and at higher prices so they don’t loose as much money. The servicers or banks are responding by changing policies and accelerating their foreclosure process to what it once was and do them as quickly as state statutes will allow, to try and save money and flush out homeowners who are simply bucking the system to stay in their homes as long as they can.
What does this mean to homeowners and for short sales? It means if you get behind on payments and truly want to do a loan modification or short sale, start the process immediately or as quickly as you can. Do not wait until the bank has started the foreclosure process as you may find the bank will no longer care and go ahead and proceed with the foreclosure in order to get the property back. This is already happening on a wide scale, as the banks are fed up with procrastinators who are trying to buck the system. While we don’t necessarily agree with these policies as it will truly hurt good potential short sale deals for homeowners, we can see the lender's point of view.
29. Should you work with a HAFA Certified Agent?
Did you know there is a certification for real estate agents to take in regards to the new government short sale program within several states? This certification is recognized by the respective state's Association of Realtors Education. If you are considering selling your home, you and your real estate broker need to be informed of the HAFA guidelines, so that you can walk away from your home without any obligation, and with $3,000 for moving expenses. The real estate agent you choose to work with needs to be familiar with the government programs, the servicer (lender) guidelines, as well as know all of the proper paperwork and timelines to comply with so that you as a homeowner can be in compliance with the program. If your agent is not familiar with this new program, it can literally cost you thousands of dollars. We are certified and fully informed of all of the guidelines for this government program for short sales (HAFA), which went into effect on April 5, 2011. Please call or email if you are interested in learning more about the new government short sale program (HAFA).
30. Should you make your house payments during a short sale?
Homeowners ask this question who might be able to continue making them, but they have decided to pursue a short sale. We cannot and will not instruct you one way or the other or offer any advice as to whether you should continue making payments if you can afford them. What we can do is offer you information in regards to the pro’s and con’s of making your payments during a short sale. Everybody has different situations when it comes to selling a home in a short sale, and everyone has different goals and objectives. The other thing to understand is that short sales are designed for people who have a legitimate hardship or a proven impending hardship. We have done a tremendous amount of short sales where the borrower has never missed a home payment, yet were still able to complete a short sale. We have done this with almost every major lender out there multiple times, but the borrower must have a hardship or impending hardship, and we have to be able to prove this, and it is always a case by case basis. Here are the Pro’s and Con’s to making payments and to not making payments in a short sale:
Pro’s to Making Your Payments during a short sale:
• The foreclosure clock does not start so you have plenty of time to get the transaction done.
• You will not receive any 30, 60, 90, etc. late payments reported on your credit.
• It might be easier to find a place to rent when you move.
Con’s to Making Your Payments during a short sale:
• You will not get any of this money back.
• You may be denied as a candidate for a short sale until you are late. (Requirement of FHA and the new HAFA program, as well as some other lenders)
• The process may take longer to complete as the banks have no sense of urgency.
Pro’s to Not Making Your Payments during a short sale:
• You will qualify much easier for a short sale.
• You can still live in your home, and save the monthly mortgage payments for other expenditures.
Con’s To Not Making Your Payments during a short sale:
• The foreclosure timeline starts.
• Late payments will be reported on your credit history.
• It might be more difficult to find a place to rent and live.
31. What Are My Alternatives to Foreclosure?
If your house is in foreclosure, try to look at the situation without attaching your emotions. When you view the situation from a strictly business viewpoint, you can more successfully analyze which option might best suit your needs and desires and move you towards resolving your financial difficulty. One very important thing to remember: Time is of the essence, so think seriously about your situation and take quick action in order to allow yourself enough time to complete the chosen process.
Nine options when facing Foreclosure:
1. Do Nothing – If a homeowner does nothing, they will most likely lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. This is not the best option.
2. Payoff/Refinance – Completely paying off the entire loan amount plus any default amount and fees is another option. Usually this is accomplished through a refinance of the debt. New debt is at a normally higher interest rate and there may be a prepayment penalty because of the recent default. Consider this option if there is equity in the home.
3. Reinstatement – Paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.
4. Loan Modification – Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment.
5. Forbearance – Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.
6. Partial Claim – A loan from the lender for a 2nd loan to include back payments, costs and fees.
7. Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current. Most loan applications ask if this has ever happened.
8. Bankruptcy – This option can liquidate debt and/or allow more time. We can refer you to a qualified bankruptcy attorney.
• Chapter 7 (Liquidation) Completely settles personal debt.
• Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.
• Chapter 11 (Business Reorganization) A business debt solution.
9. Sale – If the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is more than the property’s value.
32. How Can I Repair My Credit After A Short Sale?
Recently many of our clients have been very concerned about recovering their credit after a short sale. This is a bit different from previous years because
previously many of our clients were in such financial distress that they often had missed payments on car loans, credit cards, and other items so that they
gave up any hope of repairing their credit score. In today’s real estate market however, many homeowners who are short selling their homes may not be in as much distress. They might only be missing their mortgage payments. So they don’t experience as great a point loss on their credit report when it is completed. So they are interested in repairing their credit right away. Credit awareness is much more prevalent in the short sale market today, as news stories have concentrated on the plight of homeowners with significantly devalued properties.
Many credit repair companies simply charge thousands of dollars to do some very basic work, and even if they are unsuccessful, they will still charge you
and keep your money. However, we have found credit repair specialists that we are happy to recommend. If you are interested in this service, please contact us, and we will be happy to refer you.
33. Is It Ever Possible to Buy Another Home?
It is sometimes possible to purchase a home soon after a short sale by using a hard money lender. Private funding from a hard money lender does not require that you have good credit. It does require that you now have a steady income and that you provide a substantial down payment of at least 35%. Many people are saving money every month during the short sale process by not paying their mortgage payments, their taxes, or their homeowner association dues. We are not advising you to do this, nor are we implying that this is ethical. We are simply stating this as a fact in this era of significantly devalued properties. After a number of months of not making payments they are able to accumulate enough money for a substantial down payment on a less expensive house.
Hard money lenders do not require the credit checks or red tape a bank or mortgage company requires. However, they do charge points and high interest
rates and loan only up to 65% of the purchase price (65% LTV). Expect to pay 3 to 5 points and 12% to 21% interest. These rates are reminiscent of the mid 1980s when everyone, even borrowers with excellent credit paid 5 points and 21% interest, and they were happy to get it. Generally speaking the smaller the loan amount, the higher the points and interest. Also generally speaking, the more money you put down, the lower the interest rate although there are also other factors that determine what you pay. Loans are generally amortized over 30 years and have a term of 3 to 5 years to allow you to repair your credit. By then your credit will be improved, and you should be able to refinance or buy a new home with conventional financing at a lower rate. We know a hard money lender in Las Vegas and other areas of the country that we are happy to recommend. If you are interested in this service, please contact us, and we will be happy to refer you.
If you are considering a short sale, you can rest assured that we have a plan for you after your short sale, and that you can get your credit repaired as
quickly as possible, so that you may be able to buy another home at some point. Call us now at (702) 990-4373 to see if you will benefit from a short sale.
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Short Sale Success, NA | 170 S. Green Valley Pkwy. #200| Henderson, Nevada 89012| (702) 990-4373 | (800) 993-9303
Short Sale Success ™ is a Trademark of Short Sale Success, NA and Deborah Priebe. © 2013 Short Sale Success, NA. All Rights Reserved.
** For MODIFICATION Information/Questions, please contact Deborah L. Priebe at JALEETER LLC dba Short Sale Success @ 702-932-7448 **
Short Sale Success, NA | 170 S. Green Valley Pkwy. #200| Henderson, Nevada 89012| (702) 990-4373 | (800) 993-9303
Short Sale Success ™ is a Trademark of Short Sale Success, NA and Deborah Priebe. © 2013 Short Sale Success, NA. All Rights Reserved.
** For MODIFICATION Information/Questions, please contact Deborah L. Priebe at JALEETER LLC dba Short Sale Success @ 702-932-7448 **
