What is a short sale?
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. You should note that short sales may not be for everyone, call or read on to see if it is a viable option for you.
IS A SHORT SALE RIGHT FOR EVERYONE?
NO! There are too many agents, especially here in San Diego, that make it sound like anybody can do one, with very minimal credit consequences, the bank will give you a full release of your debt and you can happily move one and buy your next home in two years. The bottom line is that these agents make it sound like it this 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 or view my video consultation here and when you are ready call Kurt Wannebo 858.405.5878 (personal cell), where he will give you a FREE, NO OBLIGATION 1 hour phone consultation to determine what solution is best for you, and what your likely outcome will be. Thank you for reading…
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. But 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 income for you and is taxable. For example, 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 taxed on that according to your tax bracket.
Federal Taxes: The Home Mortgage Forgiveness Debt Relief Act of 2007 states if the property is your primary residence and the debt discharged was from your original “purchase money” loan, and 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. Find up to date information on this exemption and its rules at the IRS website HERE.
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: The state of California conformed to the federal tax exemption (Home Mortgage Forgiveness Debt Relief Act of 2007) with its own senate bill 401 but it does have some differences. Ask your tax adviser if you qualify for an exemption of the state taxes for a short sale. The State of CA also has an insolvency exclusion to ask your tax advisor about. See My Video about this topic HERE.
It is important to understand tax implications can apply whether you do a short sale, deed in lieu or a foreclosure.
What are the CREDIT benefits or 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 cases, short sale and foreclosure, the delinquent mortgage will negatively affect their credit rating, at least short sellers will have type of verbiage 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 point wise and there are cases where the damage was as little as 50-100 points, compared to a foreclosure which mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will possibly reduce your credit score by over 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. And YES you can do a short sale even if you are not behind on payments. (See below)
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. While if you have a foreclosure on your record you will have to wait 7 years with financing backed by Fannie or Freddie. See my video about this HERE.
How Can I Repair My Credit After A Short Sale?
Recently many of my clients have been very concerned with recovering their credit after a short sale. This is a bit different from years before because back then, many of my clients were in such distress that they often had missed payments on car loans, credit cards, and other items that they simply 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 such distress and maybe are only missing their mortgage payments and don’t experience as great of a point loss after it is completed and are interested in repairing their credit right away. Not only that but credit awareness seems to be much more prevalent in the short sale market, as news and information has been circulating more frequently for people.
Now for years, I have searched and vetted numerous credit repair companies to help my clients. I have to tell you however there are not a lot of them that are very good and some charge thousands of dollars. I have found through my research that most of these companies simply charge thousands of dollars to do some very basic work and even if they are unsuccessful, will still charge you and keep your money.
But now I have found someone that is one of the top experts in credit repair, has an entirely different educational approach. And has been in the business for over 10 years. This company has 3 levels of services from “Do-it-Yourself” to “Full Service” and charges only a few hundred dollars. The way it works is that they evaluate your situation, and come up with a strategic plan geared specifically for you. They educate you on the entire process and teach how to repair your credit and maintain it even after a short sale. For a few hundred dollars they will teach you how to do this, or provide a complete full service plan for you and take care of everything.
This service is not only very cheap and affordable compared to every other credit repair company I have ever seen, but you can receive a discount if you are one of our clients. If you are interested in this service please contact me and I will be happy to go over everything with you about how the plan works. So if you are considering a short sale, you can be rest assured we have a plan for after your short sale, that we can get your credit repaired as quickly as possible so that you may be able to buy another home in a few years.
What Are My Alternatives to Foreclosure?
So, your house is in foreclosure… now what?!? Try to look at the situation without attaching your emotions. If viewing 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 sit and take serious thought of 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 most likely will 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. Not the best option.
2. Payoff/Refinance – Completely paying off the entire loan amount plus any default amount and fees. 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. With this option, there should be 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. I can refer you to a qualified bankruptcy attorney.
* Chapter 7 (Liquidation) To completely settle 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.
Should you make your house payments OR NOT in s short sale?
I get this question asked to me all the time from homeowners who might be able to scrape by and continue making them, but also have decided to pursue a short sale. Well the first thing I have to say is this. I CANNOT nor 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 I can do is offer you information in regards to the pro’s and con’s of making your payments in a short sale or not. 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. I 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. I 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.
So with that being said here are the Pro’s and Con’s to making payments and 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.
- – 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 go late. (This is a requirement of FHA and the new HAFA program, as well as some other lenders)
- – The process may take longer to complete, 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 reported on your credit history
- – Might be more difficult to find a place to rent and live
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 the state of California? This certification is recognized by the California 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 chose to work with needs to be familiar with the government programs, the servicer (lender) guidelines, and 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. I am certified and fully informed of ALL of the guidelines for this government program for short sales (HAFA), which went into effect on April 5th of this year. Please call or email if you are interested in learning more about the new government short sale program (HAFA).
Why would a bank choose Foreclosure over a Short Sale?
View my Article about this HERE.
Should my real estate broker be familiar with MY BANK?
View my video about this HERE.
Should you use an AREA Specialist for your SHORT SALE?
I give free consultations all the time to people who are in need of help and information about a short sale. Many times near the end of the conversation after I talk about my experience, my success rate and my contacts and relationships with the bank, a homeowner will ask me, “ What is your experience with selling homes in MY AREA?”
Well first let me say that I have sold homes in nearly every zip code in San Diego County and am fairly familiar with most popular areas. Likewise I have a team of many agents who help me with my listings and their marketing, all of whom specialize in areas all over San Diego.
Next I 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. And 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 I have as a large listing broker I can pretty much find out all the same information very quickly, and we do research the property for hours and the surrounding community before implementing a listing or the marketing for a listing.
In a short sale however, I have to say that the easiest part of doing a short sale transaction is obtaining an offer. And because of this, marketing all the nuances of a particular community, complex or development is mostly irrelevant. The real meat and potatoes of a short sale, lies in communicating with the banks, negotiating the best possible outcome for the homeowner or borrower, get 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 CA state franchise tax board, the local property tax assessor, private party liens, the buyers, the buyers agent, and the buyer lender who all need to agree to the short sale transaction terms. This in and of itself are very difficult and require a certain skill and level of experience. Most real estate agents stay far away from short sales in San Diego because they require so much knowledge and work. Some real estate agents attempt short sales not even knowing what they are getting into because they need to try and maintain a pay check.
With this being said in a short sale it is my opinion that consumers should NOT be worried about a real estate agents local area expertise, but rather the level of knowledge and experience of their short sale agent. Your entire financial future depends on it and because you as a homeowner or borrower DO NOT pay any fees to the real estate agent, why wouldn’t you want to work with the best? If you don’t chose the most capable and experienced real estate agent to work for your financial future, you are in essence selling yourself short!
What is the new government Short Sale Plan (HAFA)?
What is this exactly? Well the government initially announced forthcoming plans and guidelines back in May 2009, which was a bit premature, to coincide with the loan modification program put into place (HAMP). Since then nothing had been mentioned until Nov 30, 2009. On this date 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 is set to go into effect April 2010 and the second portion of the plan for Fannie Mae and Freddie Mac loans went into effect 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
• 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 Licensed real estate broker certified with HAFA and familiar with the HAFA guidelines to list property.
• 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
View my video about this HERE.
What is the Difference Between a Release of Lien and Release of Deficiency?
What is the Difference Between a Release of Lien and Release of Deficiency?
How Do I Start the Process?
First thing to do is contact Kurt Wannebo 858.405.5878 (personal cell) for a free 1 Hour phone consultation to make sure a short sale is right for you, or fill out our website form. From there he will set up a time to come to your home and again counsel you in person and go over the entire process and his methods of doing short sales. There is NO OBLIGATION and NO FEES! Or You may want to go and watch his FREE video consultation on this page HERE.
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. No Fees and No obligations!
What does your success rate REALLY mean?
When I talk about my success rate, it means the ratio of short sale listings I have taken, to the amount of short sale that have sold before a foreclosure occurred. It is important to understand, that I do NOT take every short sale listing I am presented with. I 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 I take the listing. I 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. I also 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 I feel that they are good candidates and still want to move forward, I will take their listing. Have I done a short sale where the home owner receives an approval letter where the deficiency issue was not addressed? Quite honestly yes, but the seller was well informed and it was a calculated risk on the home owners part. I have also had sellers who did not agree to the terms of the approval letter and chose another option. I do NOT count those, as properties I lost to foreclosure in my numbers. I have also had clients who have decided to cancel their listing even before the approval letter was issued for different reasons, I do NOT count those against my record either. Simply put, my approval rating means that I was 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 I count against my record are those where I was 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 I brought to them and they chose to foreclose instead.
Do I Need An Attorney to Do a Short Sale?
In some instances YES! I have been doing short sale since 2005. While we still can get full release from about most of the banks out there, if your ultimate goal is to obtain an approval letter stating that they will not pursue for a deficiency even with the new CA laws in place, we will have to work with the attorneys whom we have teamed up with, who specialize in this. Attorneys do cost additional fees, so be sure to talk to me us about this if interested in 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 NOT 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.
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 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 in time, in order to pay off the lender in full if they ever decide to sell.
Should I Do a Loan Modification?
If you would like to try and keep your home, then yes 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, however you are trying to show to 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, and have give you a fee consultation.
Please also read my article about this as well HERE.
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 its 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.
How Long Have You Been Doing Short Sales?
Since Early 2005. Kurt Wannebo started seeing short sales in early 2005 in certain areas that experienced great appreciation and were also the first to see the decline. In the beginning Kurt Wannebo 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. Kurt Wannebo 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.
The problem with that is that 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 have developed a proven system, that you should even consider listing a short sale with them.
- Be sure to ask your agent these questions?
- How long have they been doing them?
- How many lenders have they worked with?
- How many listings have they closed?
- And 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.
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 12 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 Kurt Wannebo to monitor the progress and handle all of the final and difficult negotiating with the bank when the time comes. His expertise is infused in every file and he knows what is going on EVERY file from start to finish. If you wish to talk to him at anytime you can call him directly on his cell phone (858.405.5878) or email him for a quicker response, and he 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 all they do is go through the motions, and 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 97% success rate, and also find we have been doing this much longer than some of the 3rd party vendors out there.
Please read my article about this as well HERE.
How Long Does a Short Sale Take?
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 the list goes on. With an inexperienced agent it could take 6-8 months, with our system, and contacts with each lender we have an average turnaround time of 4 months. Our fastest record of getting a home on the market and an approval is 3 business days, but that is not the case for everyone. Each scenario is different.
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 858-405-5878 for a free consultation with our head broker and short sale specialist Kurt Wannebo.
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, which ever 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 (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.
Do I Have to Stop Making Payments on My Mortgage in order to do a Short Sale?
Not Always. Just because you called you 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 borrowers 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, well then there is no need to worry. Be sure to call for a consultation before to decide to miss any payments if you don’t have to.
UPDATE: 7-26-11: It is becoming more and more difficult to do short sales while staying current. A lot of the investors of these loans, including Fannie Mae and Freddie Mac, have put guidelines in place that state the homeowner needs to be at least 30-60 days behind on their mortgage. Not only that but HAFA also has their own guidelines as well. It is best to talk to a professional about your situation first, and understand that it will be a personal choice whether to continue making payments or not, and nobody can advise you of this decision.
Some of the legitimate reasons why a bank would allow someone to stay current on their mortgage but still allow a short sale are as follows, but not all inclusive:
- Impending Divorce
- Impending Job Loss
- Living off of savings or retirement that may soon be depleted
- Job Relocation
- Impending Retirement
- Expansion of Family
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
- Death of spouse or significant other
- Divorce or separation
It is best though to get a free consultation to see if you would qualify.
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 out of your lenders pocket. We typically can negotiate to have any past mortgage payments to be eliminated, and negotiate to have the lender pay for all the costs associated with selling the home. Also any past property taxes and possibly any past HOA dues outstanding, allowing you to have to pay nothing out of pocket. We have even negotiated to have the lender pay for repairs on the home as well as buyers 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.
Also see my video about this HERE.
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 liability on the property, but they may demand alot of money in order to do so. Why? Because if the property were to go to foreclosure they bank could still come after the homeowner for the entire remainder of the unpaid balance. Recourse HELOC’s are like credit cards with a lien on a property. If the lien is released from the property in a foreclosure, it doesn’t always mean the line of credit is closed. MANY inexperienced short 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 first position is willing to pay (1%-3% of loan value). Because of this many HELOC lenders have become extremely more aggressive in requiring a 10%-30% payout from borrowers to allow a borrower full release from these loans and will continue to do so because of the new law that went into effect July 15th, 2011 that removes the banks ability to come after a homeowner after a short sale. Banks such as Chase, Greentree, Etrade, and PNC have been the most aggressive so far requiring at least a 20% 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 they may force the 1st lien holder to foreclose which would devestate your credit. In order to get this done, the banks are no longer allowed to ask for any money from the homeowner BUT the homeowner can VOLUNTEER to pay money in order to allow the short sale to go through.
After a consultation we will be able to talk to you about your goals and likely scenario outcome. You will also 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!
What About The New Set Of Fannie And Freddie Timeline Requirements For Short Sales?
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 where you short sale agent understands the difference between these two types of loans.
Even though the new law that went into effect on July 15th of 2011 wipes about the ability of the lender to be able to pursue the deficiency after a short sale, it does not change their ability in a foreclosure. Because of this it is more difficult to get a HELOC, or “recourse loan” approved in a short sale scenario and you need to work with an experienced short sale broker.
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 or your financial future, you may not want to move forward without talking to a real estate attorney. But some home owners are willing to accept an approval letter with a without a deficiency removal for the following reasons:
- If they are in CA, they are comfortable with the new law CCP 580(e) and its provisions regardless of what the approval letter states. (ALWAYS consult with an attorney in these instances)
- 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.
Will Bank of America (Countrywide) Come After me For the Difference?
UPDATED 7-18-11: We now can get a release from deficiency from Bank of America in almost all of our BofA short sales
Can My Lender Come After Me For the Difference?
There are two types of loans in CA. 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.
UPDATED 7-18-11: Due to CA Senate Bill 458, that modified the CA Civil Code Procedure 580(e), a bank may not come after a homeowner for the remainder of the balance on a short sale for any loan. Not only that but banks are not even allowed to ask for any money or contribution in the short sale process. This is a BRAND NEW law that went into effect on July 15th, 2011. There are a certain amount of exclusions for homeowners so it is important to talk to someone qualified and knowledgible in short sales. This law DOES apply to any home including primary residence, investment properties and second homes. If does NOT apply however for homes owned by a corporation or LLC. (see below for the actual law 580(e).
This may however cause some problems with short sales as 2nd lien holders may not accept a lower amount of money to go away and may ask for more money. This could result in the the 1st lien holder not contributing that the second wants and cause a foreclosure scenario. This again is why it is so important to work with an experienced short sale broker, to be able to get the two banks to agree to the short sale when there are two lenders involved.
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 me, you will have the opportunity to review the approval letter with a real estate attorney.
Here is the actual CA Civil Code procedure 580(e) that addresses short sales.
580e. (a) (1) No deficiency shall be owed or collected, and no deficiency
judgment shall be requested or rendered for any deficiency upon a note
secured solely by a deed of trust or mortgage for a dwelling of not more
than four units, in any case in which the trustor or mortgagor sells the
dwelling for a sale price less than the remaining amount of the indebtedness
outstanding at the time of sale, in accordance with the written consent of
the holder of the deed of trust or mortgage, provided that both of the
following have occurred:
(A) Title has been voluntarily transferred to a buyer by grant deed or by
other document of conveyance that has been recorded in the county where
all or part of the real property is located.
(B) The proceeds of the sale have been tendered to the mortgagee,
beneficiary, or the agent of the mortgagee or beneficiary, in accordance
with the parties’ agreement.
(2) In circumstances not described in paragraph (1), when a note is not
secured solely by a deed of trust or mortgage for a dwelling of not more
than four units, no judgment shall be rendered for any deficiency upon a
note secured by a deed of trust or mortgage for a dwelling of not more than
four units, if the trustor or mortgagor sells the dwelling for a sale price less
than the remaining amount of the indebtedness outstanding at the time of
sale, in accordance with the written consent of the holder of the deed of
trust or mortgage. Following the sale, in accordance with the holder’s written
consent, the voluntary transfer of title to a buyer by grant deed or by other
document of conveyance recorded in the county where all or part of the real
property is located, and the tender to the mortgagee, beneficiary, or the
agent of the mortgagee or beneficiary of the sale proceeds, as agreed, the
rights, remedies, and obligations of any holder, beneficiary, mortgagee,
trustor, mortgagor, obligor, obligee, or guarantor of the note, deed of trust,
or mortgage, and with respect to any other property that secures the note,
shall be treated and determined as if the dwelling had been sold through
foreclosure under a power of sale contained in the deed of trust or mortgage
for a price equal to the sale proceeds received by the holder, in the manner
contemplated by Section 580d.
(b) A holder of a note shall not require the trustor, mortgagor, or maker
of the note to pay any additional compensation, aside from the proceeds of
the sale, in exchange for the written consent to the sale.
(c) If the trustor or mortgagor commits either fraud with respect to the
sale of, or waste with respect to, the real property that secures the deed of
trust or mortgage, this section shall not limit the ability of the holder of the
deed of trust or mortgage to seek damages and use existing rights and
remedies against the trustor or mortgagor or any third party for fraud or
(d) (1) This section shall not apply if the trustor or mortgagor is a
corporation, limited liability company, limited partnership, or political
subdivision of the state.
(2) This section shall not apply to any deed of trust, mortgage, or other
lien given to secure the payment of bonds or other evidence of indebtedness
authorized, or permitted to be issued, by the Commissioner of Corporations,
or that is made by a public utility subject to the Public Utilities Act (Part 1
(commencing with Section 201) of Division 1 of the Public Utilities Code).
(e) Any purported waiver of subdivision (a) or (b) shall be void and
against public policy.
SEC. 2. This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the meaning of
Article IV of the Constitution and shall go into immediate effect. The facts
constituting the necessity are:
In order to mitigate the impact of the ongoing foreclosure crisis and to
encourage the approval of short sales as an alternative to foreclosure, it is
necessary that this act take effect immediately.