Know How Real Estate Short Sale Works

Perhaps some of you are thinking what short sale is all about and how it works. This article tells you more about the process of short sale. This gives a thorough explanation on procedures in a short sale business from the short sale request of the seller to the bank for its approval to the short sale request.

What is meant by a short sale? Short sale is a sale of real estate in which the sale profits fall short of the balance payable on the property’s loan. This occurs when the borrower either has a hardship or the borrower owes more on the mortgage than the home is worth. In this instance, the bank would decide to sell the property and it would need both the party’s permission for the short sale to prevent foreclosure.

During a short sale process, the borrower or the seller of the property would first be required to prepare a financial package to be submitted to the short sale bank. The package comprises the letter of authorization, that lets your agent speak to the bank, HUD-1 or preliminary net sheet, a completed financial statement, the borrower’s hardship letter, two years of tax returns, two years of W-2s, recent payroll stubs, last two months of bank statements, and the comparative market analysis or list of recent comparable sales. After the package has been submitted to the bank, the bank will then find potential buyers for the property.

If a buyer is keen on buying the property, he will then be required to send a short sale offer letter to the bank. After this, the bank would negotiate with the seller. If the seller accepts the offer, the listing agent will send the listing agreement, executed purchase offer, the buyer’s pre-approval letter and copy of earnest money check and the short sale package of the seller to the bank. The short sale is then processed by the bank.

The bank first acknowledges the receipt of the file. This may take 10 days to a month. Next, a negotiator is assigned to take charge of the negotiation. A broken price opinion is ordered subsequently. The bank probably will refuse to share the results of the BPO. Then, the file is sent for review or to the pooling service agreement. This might take another two weeks to thirty days. The bank requests all parties to sign an arm’s-length affidavit, after the file has been reviewed. The bank, finally issues a short sale approval letter.

It requires a lot of time for a short sale to be approved. This is the foremost reason why majority of the buyers cancel their short sale transactions. Buyers may get tired of waiting a very long time to receive a response from the bank. Thus if you are a kind of buyer with a little patience, maybe short sale is not for you.

Short sale is a business which requires to be studied first before you engage on it. You need to have a good agent who fully comprehends this process. Adam Alcaraz, of Orange County real estate would want to help you on your short sale troubles. Adam has been an Orange County short sale agent for 15 years and has been successfully handling short sales in all the cities of the Orange County.

Short Sale Benefits – Advantages of Short Sale – List of Short Sale Benefits

Short Sale Benefits – Advantages of Short Sale – Charlotte NC

A very common question among homeowners facing foreclosure in Charlotte NC is what are the benefits of a short sale and the advantages of a short sale?  There are many benefits and advantages of short sales, but one common misconception is that short sales do not affect your credit.  In fact, short sales do affect your credit score if you are behind on payments.  Late payments on your mortgage will show on your credit, which will reduce your credit score, although typically not as much as a foreclosure. **Keep in mind, I am not a CPA, tax advisor, or attorney.  Please consult the appropriate professional about short sale tax and credit consequences.

List of Benefits & Advantages of Short Sales

Most lenders will postpone or pause the foreclosure in attempt to allow you to do a short sale
Short Sales are not reported on credit history.  Late payments do affect your credit score, but in most cases, the loan is reported as “paid in full” or “paid as negotiated.
Eligible for a Fannie Mae backed mortgage 2 years after a short sale versus 5 years after a foreclosure.
Avoid foreclosure.  Keep your head high knowing you sold your home and are not branded with the “F” word.
You can remain living in your home while attempting to short sale.
You do not have to make mortgage payments while in the short sale process.
Typically, you will not be denied a job because of a short sale.  Employers can deny you a job due to a foreclosure on your record.
Your Real Estate Agent is paid by the lender/mortgage company, not by you!

While a short sale is not right for everyone, it is a great way to possibly avoid foreclosure.  For a free short sale consultation visit Charlotte Short Sale.  Our Short Sale Specialists are licensed real estate agents and REALTORS.  We have dealt with a variety of mortgage companies and lenders.  We will walk you through the short sale process step by step. If you are facing foreclosure, behind on your mortgage payments, or just can’t sell your home and don’t know what to do, do not hesitate.  As a homeowner, you have options!  Visit 704Options.com.

What do I put in a short sale hardship letter?

What in short sale and letter and why do I need to write one?
Please mail your real estate agent has explained the process of short sale to you and has told you that you need to write a short sale hardship letter. If you are reading this is most likely because they did not thoroughly explained that to you. The hardship letter is the statement from you to your lender as to why you no longer can make your mortgage payment and why they should accept a short sale on your home.

What should you never do when writing a hardship letter?

Your short sale hardship letter is not the place to complain about your lender! As you sit down to write your letter resist the urge to complain to your lender about how unfair they are and how bad your loan is. They simply do not care! You need to focus on staying factual and nonemotional as you write your hardship letter. Keep in mind that the person reading your hardship letter does not really care about your situation but has the power to approve or disapprove the sale of your home. Starting off by telling them how stupid they are, and how unfair the bank is been to them is not likely to help you.

Steps to Writing Your Short Sale Hardship Letter
Before you start writing your short sale hardship letter stop and make a list of all the changes to your finances since you bought your home. Have you lost or change job? Do you have new bills such as medical or education expenses, that have come up?

Go through your list and select three or four that have made the greatest impact on you. These will be the items that you list in your letter to the bank. One by one go through and write out exactly how each one has hurt you financially and contributed to your inability to pay your mortgage.

How Long Should My Short Sale Hardship Letter Be?
The easy answer to how long should a short sale hardship letter be is no longer than one page. Be concise, hit all of your reasons for needing to do a short sale, but do not get long-winded in your explanations. Consider that the person reading it let already read hundreds before it and does not want to dig through three pages to find a reason why they should grant you a short sale.

Start Your Short Sale Hardship Letter
At the top of the hardship letter put your bank’s name that you are requesting the short sale from, their address and their phone number and fax number. Skip a line and insert the date of your letter. Skip another line and put the header “Request for short sale – (Your Loan # and Property address).”

You will find that putting your loan number and address on all your paperwork when dealing with the bank will help in keeping them from ‘not getting’ any of your documents. Meaning of course that they got it but promptly lost it somewhere in their office.

Paragraph 1 – Your General Financial Situation
In the first paragraph of your short sale hardship letter state the change took place why you can no longer afford your payments. Keep your explanation brief and simply let them know that some change happened between the time you bought the home and how it has affected your ability to pay your mortgage loan. Ex: “I lost my job and have had a serious reduction in income”

Paragraph 2–Your Local Real Estate Market
In the second paragraph of your short sale hardship letter will explain how your home’s value has gone down. Discussed changes to the local market, the number of homes for sale, how many bank owned in short sale properties are around your home and so on.

Your real estate agent should be able to provide some of this information for you. It is definitely a good idea to as accurately as possible document why their acceptance of short sale is financially beneficial to them.

Paragraph 3 & 4 – Explain Your Situation in Detail
in your middle paragraphs explain in more detail the changes in your finances that have brought you to your current situation. Insert details such as how much her income has dropped how your bills have increased and so on. Again the whole point of this is to show the person evaluating your file how despite your best efforts you are no longer able to afford your home.

Paragraph 5 – Your Declaration
Very plainly in the last paragraph of your short sale hardship letter declare that despite your desire to keep paying your mortgage and to not sell your home that your current financial situation makes that impossible and that if the bank does not approve a short sale then they will be forced to take back your home via foreclosure. Hopefully you have done a good job in convincing them that it is now worth considerably less than what is owed and that is in their best interest to let your short sale so go through.

I Wish You the Best of Luck With the Short Sale of Your Home
I hope this explanation of how to write a short sale hardship letter will help you complete the short sale of your home. It is heart-wrenching for me to work with so many homeowners that are in situations like yours where they are being forced to sell homes they intended to live in for many years to come.

Short Sale 101

This article will attempt to address the following:

1. Define a short sale

2. Talk about the different ways it can come about and be structured

3. Talk about how it’s different that foreclosure or bankruptcy

4. Talk about the implications for the seller

5. Talk about the implications for the buyer

6. Address investor related questions on capitalizing on short sales (which you will soon find based on the definition is not really what you investors are looking for)

7. If your question is not answered in the article, see the Short Sale FAQ.

Definition:

A short sale is an “arrangement” between the current owner of a home and the bank that lent them the money to buy their home to accept an offer for less than the total amount owed to pay off the home. The “deficiency” is the difference between the amount owed and what the bank collects at the short sale.

Although, the “arrangement” can take many different forms, there is no other definition of a short sale. I say this because many realtors and some investors simply throw the term around as if it meant “a sale under market value.” No. A bank owned (foreclosed) house is not a short sale. A seller deciding to lower their price and take less profit is not a short sale. An old lady that owns her home free and clear, selling a 0k home for k, IS NOT A SHORT SALE. For it to be a Short Sale, someone must be getting “shorted.” Either the seller, or the bank. I will explain how both of those happen in more detail presently.

Free Foreclosure List

Another important definition of a short sale is how it differs from foreclosure. In foreclosure, the homeowner falls way behind on their payments and the bank repossesses the house and sells it. In almost all cases, THE BANK PURSUES THE HOMEOWNER FOR THE DEFICIENCY!!! No one seems to know or believe this, but just ask someone who has gone through foreclosure, they will tell you the only way out of this was to file bankruptcy.

How It Can Happen – The Arrangement

Most short sales arise when a seller owes more on their house than they can sell it for (upside down). The owner of the home then attempts to make an arrangement with their lender to sell the house for less than is owed.

The term “arrangement” was used in the definition and is intentionally broad because the arrangement depends on the bank that holds the loan. Though there are general practices, every bank does it differently. This article will give you the most common arrangements, but if you take part in a short sale, it’s crucial you assume nothing until you have the bank’s policies in writing.

There are some overriding principles:

1. There is no such thing as a free lunch. This is not some dream come true alternative to foreclosure where the money you owe magically disappears. The deficiency will be accounted for. The deficiency can be 100% loaned to the seller in the form of a promissory note, which they then must repay. If any portion of the deficiency is “written off” meaning that the bank eats it, you can be sure that they will report it as 1099 income to the seller or even as a judgment which will show on your credit for 10 years (not 7 years, 10 years).

2. It is a cumbersome process. If you are entering into a short sale as a buyer or seller, don’t expect it to go as quickly as any other sale. There’s a lot of “back and forth”.

3. The employees of the lender that are negotiating the sale ARE NOT there for the benefit of the seller. Their only goal is to collect as much money possible for the lender and they will use whatever means necessary. You can be sure they will misrepresent their own policies and flat out LIE to the seller in order to intimidate and scare them into paying more money. If you think I’m exaggerating, the joke will be on you.

For instance, I was once told by a lender negotiating a short sale that, as a policy, they don’t “write off” any of the deficiency and that the seller would have to have a promissory note for ,000. This lender also told the seller that their hands were tied and this decision came directly from the investor who provides the money for the lender. The lender also said there is absolutely no negotiation on the amount owed, either pay the deficiency, or they will foreclose. The lender made the promissory note very manageable (20 years 0%) so that the seller would be more enticed to just roll over.

But the seller called the lenders bluff. The seller then provided a letter from an attorney stating they would qualify for a bankruptcy, thus rendering the lender incapable of collecting anything. That same day, the lender called the seller saying they would reduce the promissory note and write off ,000 of the debt! It would have to be reported as 1099 income, but it would not have to be paid. Amazing change of policy! Then the seller saw what was happening and just said, “no thanks, we don’t want to owe you anything, we’ll just go ahead with the bankruptcy.” Two days later the seller received a written offer that the lender would completely forgive the debt and simply report it as 1099 income! Wow!

The moral of the story is that the lenders will LIE to obtain their money. Many of the managers of the collections departments are paid on COMMISSION on how much they collect. Just imagine if that seller had rolled over on the first offer! That employee would have been responsible for keeping ,000 of his company’s money with one five minute phone call!

One other important thing to remember is that if the lender gets the property back (i.e. short sale doesn’t go through), they have to put it up for auction. This creates the risk that additional money will be lost if the house doesn’t sell for what it’s worth. In the case of the example, the short sale offer was for 0,000, and the amount owed was 0,000. The seller faxed in evidence to the lender that most similar houses in the area were now selling for 0,000. So this enabled the seller to make the argument that it was a much more prudent risk to write off ,000 instead of running the risk of losing 0,000. This enabled the seller’s representative to intimidate the employee of the lender asking him “did he really want to be responsible for losing his company 0k, when he had the option, right now, to settle for 40k?”

If it seems like I know a lot about “this example” it would be because I was the mortgage broker for the people making the offer and seller of the property happened to be my wife.

The Details of the Arrangement

Different banks have different policies. The best case scenario is to get a bank that actually “writes off” the deficiency. All that happens here is that the seller has some minor derogatory credit reporting, but doesn’t actually owe the bank any more money. This credit reporting can consist of anything from “creditor settled for less than the amount due” all the way to “foreclosed.”

As the example noted, many banks will do a promissory note for the deficiency.

Some banks are stupid enough to require that the deficiency be paid at closing. Think about it. This does no good because it’s the same thing as the seller selling their house without doing a short sale and simply bringing cash to the table. If a bank tells as seller they need to bring cash to the table in a short sale, they are either idiotic, or more likely LYING.

In cases where the money is “written off” it’s important to understand that the lenders will never actually “write something off.” In most states (I don’t know the law in every state), the lender has the ability to show any deficiency as 1099 income for the seller. All this really means is that the seller has to pay taxes on that income. Depending on one’s situation, it could mean that people that are dependent on some form of aid because of “low income” will have some explaining to do come tax time.

Another way that the deficiency can be written off is in the form of a judgment. This will often occur in conjunction with the 1099 reporting. It might say something on the seller’s credit report such as “judgment filed against John Doe in the amount of $ xx,xxx by ABC lender.” This will appear in the “public record” section of the seller’s credit report for 10 years (7 years is only for late payments, 10 years for public record info, don’t argue, trust me). It can either show up as satisfied or unsatisfied. Satisfied is obviously better because it means that the worst thing that can happen is that the lender will report 1099 income.

Unsatisfied could be a problem, because it means that a court has found in favor of the lender to collect the deficiency from you. Now they still might simply do the 1099 thing, or they might try to collect it from you. They can keep trying to collect it from you until they get it. They can garnish your wages. Your only hope then is that you qualify for a chapter 7 bankruptcy.

This brings up an important note. NEVER EVER ASSUME THAT A DEBT THAT YOU OWE A LENDER IS GONE UNLESS YOU HAVE THE DETAILS OF THE RELEASE OF THAT DEBT IN WRITING. For instance, someone who had done a short sale had a first and a second loan. The bank agreed to the short sale, which ended up being enough to pay off the first loan, but not the second. The seller had assumed that because the bank agreed to the short sale that they wouldn’t have to worry about the deficiency from the second mortgage. Now they are

Navigating A Short Sale

A short sale represents a great opportunity for a homeowner who owes more than their home is worth.  Ideally, it gives them a chance to sell their home without owing the difference to their lender.  As home values continue to decline, short sales have become one of the most viable solutions for millions of underwater homeowners who are facing foreclosure.  Unfortunately, it is very difficult to successfully negotiate a short sale with most lenders today.

A short sale can also benefit the community in which the home is located. Foreclosed homes often stay vacant for many months before they are finally sold. Lenders have a policy of not performing any maintenance or repairs on a foreclosed property. As a result, the home begins to deteriorate and causes the values of surrounding properties to drop. When a short sale is purchased by a buyer or investor, the property is often fixed up and inhabited rather quickly, as these individuals have some real stake in the property. They will not let the property fall apart over time.  Thus, the surrounding homes’ values will not suffer.

A short sale is only for the patient, however. A typical short sale process can take months without any guarantee of even being approved by the lender. It’s not uncommon for a month or two to elapse without an update from your lender. It’s important to recognize that the banks are understaffed and overwhelmed with homeowners seeking assistance with their mortgage payments. Homeowners who have second mortgages on their property will have an especially difficult time negotiating a successful short sale. They usually negotiate each mortgage separately, so it becomes doubly long and difficult to accomplish a short sale. You must also prove to your lender that you are incapable of staying current on your payments or paying off your mortgage in full. Your lender will also demand to see the contract between seller and buyer to ensure they are receiving all of the proceeds from the sale. Another point to consider is whether you will have any tax implications after a short sale. The IRS may consider the debt forgiven as income and tax you accordingly. A good attorney or accountant can assist with this. Between foreclosures, short sales, and loan modifications, the banks are beyond their limits. The best way to ascertain if you will qualify for a short sale is to determine how much you will be “short” on the sale.

Here is a basic way to determine just how “short” you will be on your short sale.

1. Home Value/Worth:  Determine the approximate value of your home.  A good way of doing this is to enlist a real estate agent to perform a Comparative Market Analysis on your property.  A Comparative Market Analysis (CMA) is  an in-depth analysis of a home’s current value by comparing properties in its surrounding area that have been sold, current listings, expired listings, and pending sales. A real estate agent uses a combination of these tools to estimate the value of a home.

2. Cost of Sale: This is where you calculate the approximate cost of a short sale. A property sale can include expenses such as broker fees/commissions, advertising costs, legal fees, and closing costs.

3. Total Value of All Loans: Calculate how much you owe on your property (this can include second mortgages, home equity loans, etc. ).

Next, subtract the total amount owed on the property and the estimated cost of the sale from the expected sale revenue.  The number remaining is how much you will owe after the sale. This number is a good indicator of your chances of having a short sale approved by the bank. An experienced real estate agent can assist with this.

Here is a brief example:

1. Estimated Current Value of Home = 5,000

2. Amount owed on first mortgage: 0,000

3. Amount owed on second mortgage: ,000

4. Estimated Sale Cost: ,000

-          Add up values 2,3,and 4 = 5,000

-          Subtract from expected sale revenue (#1)

-          =,000. This is the amount you are “short” and will need your lender to forgive.

Anyone can negotiate a short sale on their own, but this could be detrimental to the outcome. Having a professional negotiate a short sale for you can significantly increase your chances of success. With so many fly-by-night companies cropping up, it’s becoming difficult to hire someone you can trust. A law firm is always the best option when seeking to hire someone to negotiate on your behalf. A law firm is familiar with your State and Federal laws, and is also bound by them. Most lawyers will not risk their license and livelihood to make a quick buck off a consumer.  Your lender will also take requests from a law firm much more seriously, and your short sale can move along much more quickly. An important obstacle to avoid during a short sale negotiation is a Promissory Note.  A promissory note is essentially a promise to pay the bank back the difference after a short sale. This is very bad for the homeowner trying to negotiate a short sale, because it leaves them responsible for the balance of their loan. An attorney can assist a homeowner with dealing with a Promissory Note, but there are no guarantees.

Fortunately, lenders are beginning to understand the benefits of a short sale. The Comptroller of the Currency showed that lenders completed three times the amount short sales in the 4th quarter of 2008 than in the first quarter of 2008. Now is the best time to try to negotiate a short sale with your lender. They have begun to realize that in many cases a short sale is a better alternative to foreclosure. After a foreclosed home sits and falls apart over time, it becomes extremely difficult for the lender to sell it at a competitive price. A short sale also gives the homeowner the responsibility of making their home “sale ready” to increase the chances of selling the home for a fair price. This helps the lender recoup more money than they would from attempting to sell a foreclosed property that has fallen apart over time.

If you would like more information or need assistance with a short sale, please contact the CreditLawGroup at (800) 508-0041

The Five Steps to a Successful Short Sale

The Five Steps to a Successful Short Sale

Regardless of whether you are a home owner attempting to get out from under a crushing mortgage payment, or a Realtor attempting to assist that home owner, you’ll need to understand all the steps necessary to get a short sale accomplished.

The short sale process can be long and complicated. The following steps are the most common steps required by most lenders to facilitate a short sale. The length of time to obtain an approval on a short sale request has risen significantly over the past twelve months. Some lenders are actively telling us that they need ninety days to review a short sale request.

One of the challenges of putting a short sale together, whether you are a property owner or a Realtor, is that many buyers are unwilling to wait sixty or ninety days to find out whether or not they’ve been able to purchase a home. There are many properties on the market for sale for a buyer to choose from without having to wait, so we have to entice a buyer to hang in on the transaction.

An additional complication occurs when the home owner has more than one mortgage against the property. There may be a second mortgage that the home owner took out at the time of purchase, or there may be a home equity loan or line of credit the owner used to make some improvement, or any other lien against the property.

Requesting a short sale, in a nut shell, is finding a buyer, negotiating an offer on the home, contacting the lender, obtaining all the documents the lender requires for approval, and then staying in contact with the lender until they approve, deny or counter your proposal.

As I stress in every article I write about short sales, have an expert assist you with this process. Seek the advice of an attorney, Realtor, accountant and any other professional you might require to insure the process is done correctly, and to insure you’re making the appropriate decision for your situation.

Step 1: Contact Your Lender for Information

Most lenders will not approve a short sale until there is an actual offer to negotiate. Banks and mortgage services are typically understaffed and very busy trying to work out situations with other clients who already have offers on their properties. They don’t have the time and resources to analyze every possibility.

However, since short sale approvals are taking considerable periods of time, it makes sense to find out who you need to speak with and what the lender requires the owner or Realtor to supply. In most cases, the lender has a “short sale” package that includes a list of all the forms the lender requires.

Step 2: Market Your Property and Find a Buyer

Marketing a property that requires a short sale may also be a challenge for several reasons. First, you must notify any potential buyers that any offer must be approved by your lender. This will scare some buyers away from your home because they don’t want to wait for someone else to approve the sale. This will attract some investors who believe they can “steal” the home, because they’ve seen on late night television that banks will accept almost any offer. This is simply not true. Although they may get a very good price, they are not likely to “steal” the home in the current environment.

The components of marketing any property successfully include pricing, staging and marketing. Staging is simply presenting your property in the best possible light in order to attract buyers to offer on your property rather than competing properties. Pricing entails carefully selecting the correct asking price in order to attract potential buyers. There are methods to selecting correct price positions based on recent sales and competing properties for sale.

Step 3: Negotiating an Agreement

The typical home requiring a short sale sells for a bit less than other properties. The primary reason for this anomaly is that the buyer must have a reason to go through the pain of purchasing a home through a short sale. Historically, short sale properties sold to investors because they were the few with the fortitude to wait weeks to months to find out whether or not the sale would actually go through.

Imagine the stress of moving to a new home and perhaps a new school district. Consider the stress on your family. Now add to that stress the idea that unlike most real estate transactions, where a buyer knows within a day or two whether or not the owner will accept the offer, the buyer may have to wait several months for an answer. Worse, if the lender accepts the buyers offer, the buyer needs to be prepared to settle and move quickly.

Most buyers who are selling another home need to plan their move very carefully. They can’t rely on the hope that this transaction will settle. They need to be out of their home by a certain date and need a place to move. If they have a sixty day window to move from their home and they won’t find out a response about the short sale from the lender for forty-five days, that gives them little or no time to find another home should this transaction fall through.

Because short sale transactions are typically limited to investors and those who do not “have” to move by a certain date, the pool of potential buyers is smaller than for that of other homes. Enticing buyers to purchase a short sale home over one that doesn’t have the same challenges often requires some consideration in price.

If you’re an owner is this situation, you may be offended at selling your property slightly below market, but please consider that the lender won’t allow you to receive any proceeds anyway, so you’re not taking that direct loss.

An added complication is that many of the owners of homes requiring a short sale are in default on their mortgage or at risk of default. That means that the owner may have to get the home sold more quickly than the typical home in the area. If the Sheriff is locking the doors and auctioning the home in ninety days and the typical market time in a slow market in your area is six months, you need to be priced below the market in order to attract buyers to your property first.

Step 4: Put Together a Short Sale Package for Your Lender

Hopefully, by the time you receive an offer on your property, you’ll already have the full short sale package and you’ll have started filling it out. It is imperative to get this package to the lender as quickly as possible and then to follow up with the lender to make sure they received it and that they are processing it.

Whether you are the home owner, negotiating with the lender directly, or a Realtor or attorney attempting to work on behalf of the home owner, there is a lot of information that needs to be provided to the lender. Some of the information will have to be filled out by the home owner, because it directly involves the home owner’s financial situation. Some of the forms are better prepared by a Realtor, title insurance agent or attorney.

Although every lender is slightly different, the typical documents required in a short sale package include:

1. A Cover Letter

2. An authorization for the Realtor or attorney to speak with the lender

3. Seller’s Hardship Letter

4. Hardship Documentation – Copies of documentation related to owner’s hardship

5. Seller’s Financial Statement or Income, Expense and Asset Worksheet

6. W-2 forms for past two years

7. Two months pay stubs

8. Two to three months bank statements

9. Repair estimate for any necessary repairs to property

10. Agreement of Sale or Contract to purchase the property

11. Realtor’s competitive market analysis

12. Photos of the home (interior and exterior)

13. Seller Net Sheet

14. Payoff statements from any other lenders or liens against the property

15. Preliminary HUD 1 settlement sheet

Other forms that the lender may ask for include:

1. Title search of the property

2. Special forms

Step 5: Start Calling the Lender!

Remember that there are many people in the same situation across the nation. Lenders are swamped with phone calls and packages. When you complete the package, call and email the lender to determine the best method to get the package to the lender. My suggestion is to send it to them in two forms.

If the lender tells you they’d like the physical package by mail, then I would express the package in order to insure the package gets to the lender quickly and in order to insure it is delivered and can be tracked by who signed for it. I would additionally scan the entire package and email it to the same person to whom you expressed the package.

My goal is to insure they have the package and can begin working on it. If the lender asks the information to be faxed, which some are now doing, I would again both fax it and email it.

Expect a Counter Proposal

Hopefully the lender will simply accept the short sale proposal as written and allow the sale to be consummated. Don’t be surprised if the lender refuses the initial offer and makes a counter proposal. Should this happen, you may have to go back to the buyer and ask for more money in order to settle the transaction.

If you are a Realtor, you should be preparing your buyers to understand that this is a negotiation. The lender may accept the deal, or may counter.

Getting to Settlement

As with any transaction, title insurance must be ordered and settlement must be scheduled. In instances where an owner may be behind on their mortgage or may be considering a short sale, a wise move for either the Realtor or home owner would be to contact an attorney, title agent or escrow company to run a preliminary

Homeowner Short Sale Secrets

SHORT SALES – CUTTING THROUGH THE MYTHS
a primer for homeowners

Introduction:

There are many myths and rumors, as well as much valuable information available about one of the hottest topics in real estate – Short Sales.  It is the intention of this article to cut through the myths and rumors and provide the homeowner with the information they need to understand a Short Sale and the process.

I have written this article with the specific goal of answering important questions about Short Sales while helping the homeowner avoid common and potentially costly pitfalls. It is comprised of excerpts from my comprehensive report “Insider Short Sale Secrets”.

If you are currently behind on your mortgage payments, if you are borrowing from Peter to pay Paul, if the stress of keeping your home afloat is killing you, then please read this information immediately.  Whether you hire someone, or try to do it yourself, take action now!  Time is not your friend, but there is light at the end of the tunnel!

Maurice Thomas

Our Disclaimer:

The information in this work is believed reliable but is not warranted or guaranteed, and before any reliance or use, should be independently verified. Suggestions, advice, strategies and all other like information are general in nature, are not based on knowledge of your specific circumstances, and should be used only after your own independent verification of reliability, application of independent business judgment and due consultation with your tax, technical, legal, real estate, investment, accounting and/or other professional advisors.

What is a Short Sale?

Everybody’s talking about Short Sales as a way to prevent foreclosure, but not everybody understands exactly what a Short Sale is. You’ve may have heard about them, and may be looking for a definition.
Simply put, a real estate Short Sale is when a homeowner sells their property for less than is owed on the existing mortgage balance.  To accomplish this, the homeowner or a third party negotiates a discount on the payoff amount due to the bank or mortgage company.
When a homeowner owes more on their mortgage balance than the current value of the property they have negative equity, commonly referred to as being “underwater” or “upside down.”  In order to sell a property that is “upside down”, the bank must agree to accept less than what is currently owed.
Mortgage companies take big losses when they foreclose on a home and will many times try hard to avoid it. A Short Sale is a viable alternative to taking the house back in a foreclosure.
The lender agrees that selling the property at a moderate loss is better than pressing the current debtor. Both parties consent to the Short Sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrower.

Is a Sort Sale a questionable practice?

The Short Sale of real estate is not a questionable practice in today’s softening real estate market it may in fact be a necessity. The Short Sale transaction is a legal and a much more beneficial alternative to foreclosure or even bankruptcy and is often the most economical solution to a problem. The short sale of your home can result in the best solution for all parties involved.  A few of the benefits of a Short Sale are:
Homeowner: The Short Sale helps you get out of a financial predicament and regain peace of mind.  Your family is relieved of the constant pressure and stress of being pursued by creditors.  Your property is saved from foreclosure, which can help save your credit rating. Allowing your home to proceed into foreclosure may adversely affect your credit for up to 7 years. (How will a Short Sale impact my credit below:)
Lender: The lender avoids timely and costly foreclosure proceedings which could lead to an even more costly expense of ownership of the real estate by the by the bank.
Buyer: The buyer of your property gets a solid property at a good market value.

How do I know if I might qualify for a Short Sale?

If the market value of your home is less than what you owe on your current mortgage, you may qualify for a legal, lender approved Short Sale.

What are my chances of getting a short sale approved?

Your chances of getting your short sale approved will vary greatly depending on:
- Your individual circumstances and how they are presented
- The quality and completeness of the package put together,
- The ability and experience of the negotiator handling your package,
- Whether or not you have a contract from a qualified buyer for the property and if there are contingencies in the contact
- Whether the buyer for your property is paying cash with proof of              funds or needs to qualify for a loan
Understanding the process, making sure your package is complete, having a qualified buyer with a contract and minimal contingencies, are critical in presenting a Short Sale offer that will be considered and approved by your lender.

Do I have to be behind in my payments?

The answer to this is; it depends. 
Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority have a pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies greatly.
A Short Sale can be used as an exit strategy for a homeowner who is not delinquent but rather just staying afloat and anticipating a delinquency. It can be more difficult when a homeowner is not behind in their payments, but recently banks are taking the potential for default into consideration.
Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered currently, they are now more willing to accept short sales than ever before. This presents an opportunity for “upside down” borrowers who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure.

How will a Short Sale impact my credit?

This is one of the most asked questions about a Short Sale.
 Unfortunately the answer is, yes.
Lenders and servicers have different methods of reporting short payoffs. Short Sales are a type of settlement, and they adversely affect a person’s credit report.

The general consensus is that a Short Sale will show up on your credit report as a “settlement”, “settlement for less than owed” or a “pre-foreclosure in redemption”.  While these are not good things on a credit report, it is usually possible to get them off of your report within a few years or less.  the negative impact is most often significantly less than that
of foreclosure or bankruptcy.  A short sale can drop your credit score.  by 80 – 100 points.  A foreclosure on your credit report can take 7 years to remove and can cost your credit rating up to 200 – 280 points, a very big hit.

Philosophical input:
If you are borrowing from your 401K, IRA, friends and family, just to keep making your payments trying to keep your “upside down” property afloat, or if you are behind in your payments and facing foreclosure, you should pursue a Short Sale aggressively.  Burning through your liquid assets and doing nothing is not a good plan.

Can I still owe the bank for money forgiven?

STOP!  This is a very important question! 

The answer is yes, if you are not careful.  PLEASE READ THE FOLLOWING

In a Short Sale a home is sold for less than the actual mortgage balance owed.  The lender’s loss or “deficiency” is the difference between what the lender nets from the sale and the actual balance owed.  According to the terms of most mortgages you are liable for that deficiency!
There are two ways a bank can attempt to recoup this loss, one is by a promissory note, and the other is by a deficiency judgment.
A promissory note has to be agreed upon by the lender and the borrower (homeowner).  It will usually consist of the amount of the deficiency (which can include attorney’s fees and other costs) or a reduced amount agreed to by the parties.  The borrower agrees to pay the note according to the agreed upon schedule.
If the no agreement for a promissory note is reached in advance, the lender in most states has the option of seeking a judgment for the loss called a deficiency judgment.  They can then come after the former homeowner for their loss.
To add insult to injury historically any amount of a mortgage that was forgiven by a lender was considered income, and taxes had to be paid on that amount!

Are there ways to avoid owing additional money after the sale?

The good news is: YES!  – if you are careful and plan ahead. 
This will be easier to negotiate if the borrower has ongoing financial hardship and harder to negotiate if the borrower has assets.
Negotiate with the lender in advance to eliminate either the lender requiring a promissory note or coming after the borrower with a deficiency judgment.    This is essential! 
Philosophical input:   You can negotiate these elements yourself but it is often difficult when you have no experience and are thrust into an adversarial relationship with your lender.  We recommend using an experience professional.

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