|
Short Sale
This topic is one that is confronting a number of Home Owners today. A Short Sale of their home. I chose this topic because many of my clients have been asking about it. It is with a heavy heart for the problems I see happening around me that I begin:
Is Your Situation?
Do you owe more than your house is worth?
Are you struggling to make your mortgage payments?
Are the banks unwilling to work with you?
Has your income recently declined?
Have you lost your job or are in fear of losing your job?
Have you had trouble selling your home?
Do you feel like there is no way out?
BREAKING NEWS..........HAFA PROGRAM HELPS SHORT SALES GO MUCH QUICKER AND THE BANK WAIVES ALL DEFICIENCY BALANCES SO HOME OWNER OWES NOTHING!!!!!!!
I Can Help
Making Wise Choices In Troubled Times.
In these trying times, I am dedicated to helping homeowners rise above their challenging circumstances and get a fresh start.
In Real Estate, a short sale is a sale of Real Estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property being sold.
Lenders will be more agreeable to negotiate a short sale if you are working with a professional Realtor and if your payments are in arrears.
In a short sale, the bank or mortgage lender agrees to discount a loan balance if the reason the loan can’t be paid off is due to a financial or economic hardship. This negotiation is done through communication with a bank's Loss Mitigation Department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.
Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current Real Estate market and the borrower's financial situation.
A short sale typically is entered into to prevent a home foreclosure. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss to the bank than would happen if they foreclose on the property. The main advantage, by negotiating a short sale, is to avoid a foreclosure, which is very, very negative on your credit report. Also, the short sale is typically faster and less expensive than a foreclosure.
Negotiating a Short Sale
With a foreclosure, depending on state laws regarding foreclosure, a seller could stay in the property, essentially rent free, for four months to a year before being forced to vacate. But that fact alone does not mean a foreclosure is better.
With a short sale the property is, generally listed for sale through their local MLS. Potential home buyers will make appointments to view the home, some will make lowball offers, agents might hold open houses and, in general, a seller's life will be disrupted, all in the hopes that a buyer will buy the home.
Due to the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the current foreclosure crisis, they are now more willing to accept short sales than ever before. This is great news for borrowers who are "underwater" or in other words those who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure because of this. They are type of distressed borrower who needs a short sale the most.
The wide variety of people and processes involved in a short sale makes it a relatively complex and highly specialized type of Real Estate transaction. That is why short sale deals have a high failure rate and often do not close on time to save homeowners from foreclosure when they are not handled by a knowledgeable and experienced professional. The best sources of knowledge and expertise in short sales are Real Estate Consultants who have handled a variety of short sale transactions.
It is a good idea when searching for someone to sell your home to interview the Realtor before hiring them. If they have never handled any short sale transactions, you do not want them to help you even if they are a family member or a good friend. You need professional advice from someone who is used to successfully negotiating with a variety of individuals and companies. Their experience will mean the difference between success and failure in the sale of your home.
Will a Short Sale Damage My Credit?
There is no way around it, yes, it will damage your credit but there is still hope. While a short sale will negatively affect a person's credit report, the negative impact is typically less severe than a foreclosure. Short sales are a type of settlement. A short sale will remain on a credit report for seven years.
While it is not uncommon for a lender to forgive the balance of the loan, it is not likely that any lien holder who is not a on the mortgage will forgive any of their balance. It is also common for a lender to omit updating mortgage balances to reflect a zero balance after a short sale. It is a good idea to keep checking all three of the credit reporting services to make sure the mortgage balance is reported as zero as soon as possible.
The effect of a short sale (providing the sellers are more than 59 days late) on a seller's credit report is usually the same as a foreclosure depending on overall condition of credit before the short sale. Sellers will take a hit of 200 to 300 points. This means if a seller's FICO score before foreclosure was 680, it could dip as low as 380.
Depending on your other credit information (check all three credit reporting companies as they may very) it is typically possible to obtain another mortgage 1-3 years after a short sale.
What Is The Waiting Period Before Buying Another Home
A seller who wants to buy another home after foreclosure will end up waiting about 24 to 72 months before a lender will offer any kind of interest rate that makes sense. The good news is a short sale will allow the seller to obtain a mortgage loan for a home within two years.
For more information, see the Fannie Mae Selling Guide online.
Some Real Estate agents say the good news for short sale sellers is the wait is much shorter before buying another home, and new Fannie Mae guidelines make that a true statement.
Can a seller buy again in less than two years? Partially true, says Coy, "It's an utter myth that a consumer 'can buy again in about 18 months at a good interest rate.' However, new Fannie Mae guidelines now require only 24 months' seasoning, and that's good news for Real Estate agents who specialize in short sales."
Note that Fannie Mae guidelines allow a seller to immediately apply for a new loan to buy another home if that seller kept the payments current and had no 60-day late pays or greater on record.
The bad news is that a seller could be subject to a deficiency judgment for the difference between the loan amount and the amount paid by the short sale.
The lender has sole discretion whether to pursue a deficiency judgment in those instances when the judgment is permitted. To determine whether a pending foreclosure or short sale is subject to a deficiency judgment, talk to a Real Estate lawyer.
If you're a seller trying to decide whether to let a home go through foreclosure versus attempting a short sale, salvaging your credit may not be an advantage to doing a short sale, if you've fallen behind in your payments. Coy says that according to "Score Factor Code #22, there's no credit score advantage for a delinquent borrower on a short sale over a foreclosure." The only advantage is being able to buy another home within two years over the three- to five-year period required for foreclosures. But seek legal and tax advice before making that decision.
Why Would a Lender Accept a Short Sale?
There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a "short sale."
When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.
As a Real Estate Consultant, I am not licensed as a lawyer or a CPA and cannot advise on those consequences. Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.
What Will A Lender Need Before They Accept A Short Sale?
Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a Real Estate agent, closing agent, Title Company, or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following:
Property Address
Loan Reference Number
Your Name
The Date
Your Agent's Name & Contact Information
You will need an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including Real Estate commissions, if any. Your Real Estate agent should be able to prepare this for you. If the bottom line shows cash to the seller, you will probably not need a short sale.
You will also need to send the lender a “Hardship Letter.” The sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.
It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other Real Estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). Your Real Estate agent can prepare a CMA for you, which will show prices of similar homes:
Active on the market
Pending sales
Solds from the past six months
When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to pay for certain items such as home protection plans or termite inspections.
Now, if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request.
Should We Walk Away From Our Home?
A client asked: "My husband and I bought a home at the height of the market and now it is worth less than we paid for it. Not only has our value dropped, but we owe more to the mortgage company than our home is worth due to refinancing to pay off other bills and credit cards.
We both have good jobs and are not behind in our mortgage payments. But some family members are saying we should walk away. That it's not a big deal, and we could start over. Is it really that easy? Should we walk away from our home?"
Answer: I can hear my mother's voice echoing in my head, "If everybody is jumping off a cliff, should you do it, too?" The answer is most likely no. It's not easy going through foreclosure or a short sale; it's heartbreaking, nerve-wrecking and time consuming.
Consider this: the moment you drive a brand new car off the parking lot, it is no longer worth what you paid for it. It's worth less. Does that mean you should turn that car around, drive back on the dealer's lot and hand over the keys?
No, you made your choice -- most likely made a commitment to repay the car loan. You should hang on to that car. One day you will pay it off, and you will trade it in for another car, putting the value of that car into your pocket.
A home is not that different. For one thing, you need a place to live. There are plenty of good reasons to own a home. For another, you made a promise to repay a loan, and most people feel an ethical, if not legal, obligation to follow through on their word. It's a matter of personal integrity.
And yet another reason is markets move in cycles. You can't time the Real Estate market. Eventually, what goes down comes back up. Historically, Real Estate values appreciate over time.
You have better alternatives to Buy and Bail.
For some people, walking away is the only solution because they can no longer afford to make an increased mortgage payment due to an adjustable-rate mortgage loan or other credit problems. So, they look online for a solution.
There are no honest solutions online from these walkaway profiteers. These are companies that prey on troubled borrowers' misfortune and perpetrate the myth that walking away and going into foreclosure is a logical, foregone alternative.
You don't need the help of an online company to help you do what you can do for yourself. Don't line the pockets of opportunists. There are plenty of nonprofit organizations that can help you negotiate with your lender or offer up other viable options, and they don't charge you:
National Credit Foundation for Credit Counseling
Hope Now
HUD Approved Counseling Agencies
You can also find local nonprofit agencies that will give you free advice regarding foreclosure and short sale options.
Foreclosure Scammers
If you fall behind on your payments, suddenly, plenty of foreclosure scams will find you. These companies will strip title from you faster than you can say, "What's a quitclaim deed?" Don't do business with them. Call a Real Estate Consultant who specializes in short sales before agreeing to accept "help" from a company who wants to steal your home by making promises it can't fulfill.
If you've reached the point where a Notice of Default has been filed and you are headed into foreclosure, there are ways to stop foreclosure. Again, deal with reputable companies that don't have a dog in race. Ask yourself, if the company stands to profit from helping me, how much help is it likely to offer?
Foreclosures and short sales will ruin your credit. That derogatory credit will stay on your credit report for 7 years. Short sales affect credit in an identical manner.
Doing a short sale won't save your credit report. You may qualify to buy another home in two to three years, but the interest rate offered to you will not be attractive.
Is foreclosure or a short sale the right decision for you?
Is this decision creating a crisis in your family's life?
Do you know your rights?
Is your home worth less than you owe on it?
Has your mortgage payment become impossible?
Have you tried unsuccessfully to sell your house?
Beware of Foreclosure Rescue Scams
Step away from the We-Stop-Foreclosure blinking icons, the large yellow typeface, the screaming We-Can-Save-Your-Home flashing banners and remember the words your mother undoubtedly told you when you were young: If it sounds too good to be true, it probably is.
Foreclosure rescue scams are everywhere online. Just because you found it on the Internet doesn't mean it is a real business, much less a company that will help you or save your home from foreclosure. If the web site makes you raise an eyebrow or look sideways, pay attention to your gut reaction. Your instincts are trying to tell you that you're reading a fraudulent foreclosure rescue site.
How Foreclosure Rescue Fraud Scams Victims
They may call themselves foreclosure protection specialists or foreclosure counselors, but they are wolves in sheep's clothing. Regardless of how sympathetic or empathetic they may appear, their sole objective is to wrestle title away from you.
They will ask you to sign a property deed such as a warranty deed, grant deed or quitclaim deed, making all sorts of promises that are impossible to fulfill. They may even tell you that they know secrets and ways to stop foreclosure that your lender will not tell you or that they will lend you money when nobody else will. Believe me, the lender does not want to foreclose on you and, moreover, nobody will lend you money without ulterior motives.
You have the power to avoid foreclosure yourself. You do not need a third party to assist you.
Here are some of the ways scam artists will claim to help you after a Notice of Default has been filed. Any one of these should send up a red flag:
The company will make up your back payments to the lender.
There are no charities that bail out troubled home owners from foreclosure by sending your lender money out of the goodness of their hearts.
You can refinance or take out another mortgage to pay off your existing lender.
If your existing lender will not let you borrow money to reinstate your loan, no other reputable lender will lend you money when you are in default. Some loan sharks might offer to make you a loan but will then foreclose on you themselves.
You may stay in the property as a tenant and reclaim title later.
No company is going to let you buy back the home after you have deeded away your interest. You have the right to retain possession of your home until the foreclosure is completed, which could take anywhere from three and half months to a year, depending on where you live.
If you pay an upfront fee, they will stop foreclosure for you.
There is no guarantee that anybody can stop foreclosure for you. You have the means to work out options with the lender and are in a better position to do so than any third party.
If you make payments to the foreclosure rescue company, they will work out an arrangement with your lender to let you stay in the home.
There is no magical cure for foreclosure. Lenders will discuss options with you, and you can choose the option that best fits your circumstances.
Promises that signing a deed or contract, which transfers title, is only temporary.
All deeds are final. Even if the deed is not recorded in the public records, if you have signed and notarized the deed, you have transferred title and you no longer own the house. However, you may very well still be responsible for the mortgage.
How to Report Foreclosure Rescue Scams
Report these unscrupulous companies to the Attorney General's office, the state licensing department for Real Estate, your local District Attorney.
What should I Do?
There are options. The future may seem dark and dreary now but there is always light at the end of the tunnel. Before you panic, call me and discuss your options. If a foreclosure or short shale is not for you, I will tell you. I do not want you to lose your home that you have worked so hard to purchase. The American Dream is not deal and there are better days coming.
Do not wait until you are 6 months behind in your payments before you start considering your options. It may be too late by that time. You know when things are starting to get tight and it becomes hard making your payments. Maybe you are starting to use your credit card to make your mortgage payments. Stop and think before it goes that far. Call me and together we will sit down and look at all your options but I need you to tell me everything because I cannot help you if I cannot see the whole picture. I am experienced at negotiating with mortgage lenders and banks and know what they need and expect. They would rather you be able to stay in you home than have to go through the process of a foreclosure or short sale. They are costly and time consuming.
I am here for you and will counsel you every step of the way. I would rather sell a home for someone who doesn’t have to go through a foreclosure or short sale so contact me before is gets so bad you do not have as many options as you need.
Having a lot of experience in Short Sales, I have helped many people successfully sell their homes so they can move on and create new lives for themselves and their families. If you or anyone you know id having problems making your mortgage payments and are contemplating a foreclosure or a Short Sale, please contact me at 616.836.2603 or Susan@CariniRealtors.com as soon as possible. You will be glad you did. Susan Compagner. Your Real Estate Consultant for Life.
|
