Real Estate in the Inland Empire

Short Sale Your Home

What Is A Short Sale?

1)  Borrowers that can prove a hardship that has caused them to either become delinquent on their mortgage or delinquency is inevitable.

2)  Borrowers whose mortgage debt is greater than the property’s value.

3)  Borrowers who are insolvent (debts outnumber their net worth and their bills are more than their income).

Why Is The Number Of Short Sale Rising?

Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing.  Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.

A short sale can also be the best option for homeowners who are “upside down” on their mortgage(s) because a short sale may not hurt their credit history as much as a foreclosure.  As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.

How Does a Homeowner Benefit From a Short Sale?

1)  Less negative impact on the borrowers credit.

2)  Eliminate or reduce their mortgage debt.

3)  Can possibly qualify for a Fannie Mae home loan in 2 years with 20% down.

Why Would a Mortgage Servicer/Investor Agree To a Short Sale?

A short sale minimizes their losses in comparison to a foreclosure.

Who Is Eligible For a Short Sale?

1)  Borrowers that can prove a hardship that has caused them to either become delinquent on their mortgage or delinquency is inevitable.

2)  Borrowers whose mortgage debt is greater than the property’s value.

3)  Borrowers who are insolvent (debts outnumber their net worth and their bills are more than their income).

What Is the Short Sale Process?

Step 1. Come talk to me, experienced real estate professional, about your situation.  Only work with an agent who is experienced in short sales.

Step 2. If short sale is an option, list the property for sale at near fair market value.

Step 3.  Procure an offer near fair market value with a qualified buyer.

Step 4. Submit the offer, settlement sheet (HUD-1), the financial disclosure, last 2 pay stubs, last 2 years tax returns, hardship letter, and third party authorization to the mortgage servicer/investor.

Step 5.  Wait “way too long” for the mortgage servicer/investor to approve the short sale in writing.  If there are multiple loans, all loans need to approve the short sale.

Step 6.  Study the verbiage in the short sale approval letter and consult a real estate or bankruptcy attorney and a tax professional about the potential consequences of the terms therein.

Step 7. Assuming the borrower decides to go forward, the real estate professionals and the buyer work toward closing the transaction in the time specified by the mortgage servicer/investor.

How Long Does a Short Sale Usually Take-Start to Finish?

In today’s market, a short sale usually takes anywhere from 4~6 months depending on the circumstances (i.e. foreclosure status, buyer commitment, types of mortgage loans, etc.).

Do Mortgage Servicers/Investors Always Approve Short Sales?

No.  In some rare cases the mortgage servicer/investor will not agree to a short sale.  Many times it is the 2nd mortgage or an HOA lien holder that does not agree to a short sale.

What Does a Short Sale Cost the Homeowner?

Generally, nothing.

However, in very few cases, the mortgage servicer/investor will request a cash contribution from the borrower in order to agree to the short sale.

Will a Borrower Be Responsible for the Deficiency Balance (forgiven amount) After the Short Sale Closes?

On the approval letter, the mortgage servicer/investor can either agree to “release” or “fully satisfy” the deficiency debt. Release means the debt may be collected via deficiency judgment or third party collection company.  Full satisfactiondisqualifies the debt from ever being collected.

Does a Homeowner Have to Pay Taxes to the IRS on the Forgiven Amount?

The mortgage investor is required to send the borrower a 1099-C for the forgiven amount.  This forgiven amount is considered income to the borrower.

However, two major exclusions exist…

1)  Under HR 3648, if the amount forgiven was on a mortgage loan that was used to buy, build, or substantially improve aprimary residence, the borrower will more than likely not have to pay taxes on this amount.  HR 3648 expires at the end of 2013.

2)  Under 108 (a)(1)(B) a borrower may not have to pay taxes to the IRS on the forgiven amount if they are deemed insolvent at the time of the debt discharge.  This is not a real estate specific exclusion and is not restricted to a borrowers primary residence.

NOTE:  PLEASE CONSULT A TAX PROFESSIONAL ABOUT THE SPECIFIC DETAILS OF THESE EXCLUSIONS.

Can a Distressed Homeowner Initiate a Short Sale as a Backup While Waiting for a Loan Mod to be Approved?

Most loan servicers/investors will not permit a borrower to attempt two foreclosure relief options at the same time.  This is why it is very important to have a strategy in place in the event the loan mod is not approved or takes too long to gain approval.

HAFA – The Home Affordable Foreclosure Alternative

Features:

1)  Borrowers receive $3,000 relocation incentive.

2)  Short sales gain a uniform and streamlined process.

3)  Loan servicers/investors pre-determine the list price.

4)  Investors waive right to pursue deficiency (on all liens).

5)  Loan servicers/investors’ participation is voluntary.

Eligibility Requirements:

1)  Must be on primary residence.

2)  Loan amount must be $729,750 or less.

3)  Loan investor must be participating in program.

4)  Monthly mortgage payment must exceed 31% DTI.

5)  Must be in default (60 days late +) or default is eminent.

 

HAFA – What About Junior Liens?

2nd mortgages (junior liens) can receive up to 6% of their outstanding loan balance up to $6,000 total, in exchange for releasing their liens (optional participation also).

Example: a $50,000 second mortgage would receive $3,000 to fully satisfy under HAFA.

Fannie Mae and Freddie Mac’s HAFA

Is your loan owned by Fannie or Freddie?  Let’s find out now…

www.FannieMae.com/loanlookup

www.FreddieMac.com/corporate

 

Under Fannie Mae/Freddie Mac’s HAFA

1)  Borrowers cannot have cash reserves more than $5,000 or 3x’s the total mortgage payment amount.

2)  HAFA short sale may not be considered if the borrower is not 60 days late. (Freddie)

3)  HAFA short sale may not be considered if the property is within 60 days of foreclosure.  (Fannie)

4)  Borrowers must consider and apply for all other home retention options first (i.e. loan mod)

5)  More differences between the Treasury version and the GSE versions exist.

Short Sale in a Nutshell

A short sale is very similar to a traditional sale in many ways.  Actually, the only major differences is that the loan servicers/investors must agree to the terms of the sale (i.e. sales price, commission, closing costs, etc.) in order for us to complete the transaction.  If foreclosure avoidance is a priority, and a loan modification is out of the picture, a short sale is a great way to move on and start on the road towards financial recovery.

Final Thoughts

1)  I would like the opportunity to help you with a short sale in order to solve your current mortgage situation.

2)  I have the experience, the training, and the resources to help you cross the short sale finish line!

3)  Have I clearly explained the short sale process?

4)  If a short sale is right for you, may I have the privilege of being the listing agent for your property?

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