All About Short Sales

All About Short Sales

Do I need to qualify?

Short Sale vs Foreclosure

     How will a Short Sale Effect My Credit?

     Can I Receive Relocation Fees?

        What Is HAFA?

I Need More Information?

A short sale is when the homeowner sells their home for less than the loan(s) owed on the house.  The lenders have final approval of what will be approved.

For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $800,000. The market value of the home is $550,000. The lender agrees to wipe out $250,000 in mortgage debt, and accepts the offer for $550,000 and the home is sold. In actual practice, a Short Sale is the most complex of all residential transactions, so make sure you work with seasoned professionals.
Once escrow closes the lender(s) may consider the debt/loan paid in full. However, the homeowner may still have to pay some of the remaining balance of the loan or what is also known as a deficiency.  This is due to tax implications that may be attached to the Purchase Contract.  It is always best prior to making any decisions regarding your financial situation, to speak to your financial advisors, especially when they are dealing with such a large investment as real estate.

Material discussed is meant for general illustrations and/or informational purposes only and it is not to be construed as tax, legal, or investment advice.  Although the information  has been gathered from sources believed to be reliable, please note that individual situations can vary, therefore, please consult a professional for specific advice.

Distressed homeowners foreclose/ give up their homes because they were not informed of their options. In this tough market, it is best to know what short sales really are before deciding to do one.

These are questions that our short sale clients have always been asking. Not all realtors are qualified or sufficiently experienced in short sales and can not answer your questions.   We have not only been successful in selling and closing escrows on short sale transactions. We have further expanded our expertise by taking comprehensive classes and received certifications recognized by both the National Association and California Association of Realtors.
This is a comprehensive Short Sale Guide; we have spent a lot of time compiling these questions so that you can be more knowledgeable in short sales after reading this Short Sale Guide.

Our greatest success has been to educate our clients on all of the possibilities in the real estate market so that these distressed homeowners can come out with the best outcome. This is the difference between having an almost 100% short sale approval success rate versus other agents who can barely accomplish one short sale. We hope that this compilation Short Sale Guide is helpful and that you too can make an educated decision on short sales.
April 2009 the government introduced the HAFA program to provide a viable option for homeowners who are unable to keep their homes through the Home Affordable Modification Program (HAMP).  The HAFA program ends December 31, 20112.


My property is upside down. What are my options?
A. Foreclosure
    Give up the home and walk away. Property is then sold in an auction, also known as a Trustees’ Sale.
B. Deed-in-Lieu
    Give the Title back to the lender.
C. Modification
    Negotiate with the lender to change the terms on your loan.
D. Short Sale
    Negotiate with the lender to see if he will accept the purchase price of a property for less than its owed.


Of the three, which hurts your credit the most?

Foreclosure. You defaulted on your loan with the bank, and will have poor credit for 7 years


If I don’t want to go into foreclosure or deed-in-lieu, how should I decide between modification and Short Sale?


Modification: If you want to continue to live in your current residence, then you should attempt to work with your lender to see if you qualify to modify the terms of your loan.
Short Sale: If you want to get rid of your financial distress and move on, then short sale is the other way to go.


Is doing a modification the right choice for me?


If you are able to make your monthly mortgage payments, but it is straining your income a little, then a modification may work.  Most modifications will be re-adjusted for 6 months then reevaluated. It is not a long-term solution if you are deeply financially distressed.


Is doing a short sale the right choice for me?


If you can not continue to pay your mortgage payments and the difference between the selling price and the mortgage  payment is unmanageable, then a short sale may work for your circumstances.


Do I have to pay for any closing costs, agents’ commission, etc., in a short sale? 

No. When the lender approves the short sale, the lender pays all closing costs, agents’ commissions, title fees, the lender may not pay for the termite inspection & repairs. In loan modifications, there are fees the homeowner will be responsible paying, but NOT in short sales, the lender covers the cost.

Are all lenders willing to do short sales and why?


The bank already understands that they are going to incur a loss, so they want to reduce as much of their loss as possible. Short sales prevent them from having to pay foreclosure costs: acquiring the property, assigning a property manager, paying for repairs, etc. In comparison, a short sale saves them about 10% of those costs. The faster they can turn over a negative asset, the better.


Who is qualified to do a Short Sale?


Financial difficulties or adverse reasons that show your hardship.
Is a hardship necessary?
Yes. Your lender will require documentation of your financial hardship situation.  The following are a few examples of hardships:


Unemployment, job loss, reduced income job relocation,
Divorce, separation, death of a spouse 
Inability to work to health issues, medical bills 
Business failure

What is the difference on my credit with a Short Sale?


There is a big difference between a foreclosure and a short sale.  There is a huge impact on your credit. There are new federal guidelines and polices governing short sales.


Do I have to be behind on my payments to do a Short Sale?


Not at all. You can do a short sale without being late at all. Some of the above mentioned hardships: unemployment, job loss, reduced income, financial difficulties due to medical bills, inability to work due to health issues, divorce, separation are situations that may not have caused you to be late with work mortgage yet, but soon cause late mortgage payments.
If I have already done or attempted a modification from my lender, can I still do a Short Sale?
Yes.  If you have completed or attempted a loan modification you still may do a short sale.
 

Short Sale Foreclosure
2-3 years to regain a positive credit standing. 7 years to regain positive credit standing.
Written on your credit report:
“paid as agreed”, “paid as settled,” “paid in full,” – all very similar, little affect on your credit standing.
Written on your credit report:
“foreclosure”- reduces your credit rating by hundreds of points.
You can control the amount of credit lost:, the less of your credit is lost with fewer late payments you have.

Contact your bank immediately when you know you are having financial difficulties cannot afford your home.
The credit bureaus have a systematic way of handling foreclosures. To foreclose means you are starting over with your credit.

 

What is HAFA?

A program the federal government implemented in May 2009 to assist homeowners who are unable to pay their mortgage and keep their home under the Home Affordable Modification Program (HAMP).
A borrower (the current owner) may be able to avoid a foreclosure by completing a short sale or a deed-in-lieu of foreclosure (DIL) under HAFA.
The guidance and forms released on November 30 do not apply to loans owned or guaranteed by Fannie Mae or Freddie Mac. Those enterprises will issue their own HAFA guidance and forms.
Who is eligible?
The homeowner/borrower must meet the basic eligibility criteria for HAMP:
Principal residence.                                                                                                                    
First lien originated before 2009.                                                                                     
Delinquent Mortgage or default is reasonably foreseeable.                                               
 Unpaid principal balance no more than $729,750 (higher limits for 2 to 4 unit dwellings).
Homeowner’s/borrower’s total monthly payment exceeds 31% of gross income.

How much are the incentive payments?


$3,000 for borrower relocation assistance                                                                           
$1,500 for servicers to cover administrative and processing costs                                            
Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
 What are the steps for evaluating a loan to see if it is a candidate for HAFA?
Borrower applies for HAFA.                                                                                                      
Assess expected recovery through foreclosure and disposition compared to a HAFA short sale or DIF. 
Use of borrower financial information from HAMP. (May require updates or documentation.) Property valuation                                                                                                                
Review of title.       
Homeowner/borrower notice if short sale or Deed-In-Lieu not available (to borrowers that have expressed interest in HAFA).

 
 Can the servicer complete a foreclosure during the HAFA process?

No. A servicer may initiate foreclosure, but may not complete a foreclosure sale:
While determining borrower’s eligibility and qualification for HAMP or HAFA. 
While awaiting the return of the Short Sale Agreement by a 14 day deadline. 
During the term of a fully executed Short Sale Agreement (while the homeowner/borrower  seeks to sell).
Pending the transfer of ownership based on an approved sales contract per the RASS (Request for Approval of Short Sale) or Alternative RASS.
Pending transfer of ownership via a DIL by the date specified in the SSA or DIL Agreement. 

What else should I know?


The transaction must be “arms length.” Homeowner/borrowers can’t list the property or sell it to a relative or anyone else with whom they have a close personal or business relationship.
The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end of 2012, however, the tax may not apply. Forgiven debt will not be taxed if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Check with a tax advisor.
The servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment. There will be a negative effect on credit scores.
Buyers may not reconvey the property within 90 days after closing.
When does the program end?
Short Sale Agreements must be executed and returned to the lender no later than 12/31/2012.
Where can I find the  forms?
Go to www.Realtor.Org/Shortsales for links to the guidance, these FAQs, a summary, and much more information about short sales.