F.A.Q.
FREQUENTLY ASKED QUESTIONS
* What is a Short Sale?
* Is a Short Sale right for you?
*If I do a Short Sale, how much will I have to pay to sell my home?
* How do I get started on a Short Sale?
* Can I simply deed my property to someone else and avoid the hassle?
* What sort of hardship would my lender consider legitimate?
* I am current on my mortgage; will my lender consider a Short Sale?
* Why would a mortgage company agree to accept a Short Sale?
* Do lenders approve all Short Sales?
* I have two loans, can I still do a Short Sale?
* My property is in rough shape and needs work; can I still do a Short Sale?
* I am concerned about my credit, how will a Short Sale affect my credit?
* My income problem was temporary. Do I need to sell my home?
* What is a Forbearance Agreement?
What is a Short Sale?
A Short Sale is the sale of a property for a value that does not cover all the moneys owed to the lender(s) and/or creditors. The homeowner avoids foreclosure and can eventually negotiate the lender(s) writing off any deficiency in the settlement (in other words, forgiving them the balance that they couldn't pay). The main purpose for a homeowner is to avoid a foreclosure.
Is a Short Sale right for you?
Mortgage lenders are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship that makes it likely you will be unable to meet your obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through foreclosure.
When you consider the option of pursuing a Short Sale, remember that lender will always try to minimize their loss to the least possible amount. Their purpose is to get a better deal than just going forward with a foreclosure. That means that your lender is willing to work with you because a short sale alternative is , most of the time a better deal than foreclosing on your home.
How will a Foreclosure affect my credit?
It could be one of the most damaging effects on your credit, that could linger for many years. The evidence of a foreclosure on a credit report could become more destructive to your ability to use credit facilities than a bankruptcy. Therefore, every effort should be made to prevent it.
What can I do to avoid Foreclosure?
The first step should be to contact your mortgage lender as soon as possible and let him know that you have problems and that you would like to work out something to avoid foreclosure. Your options could be:
- Sell your property if that would cover what's owed on it.
- Request a forbearance until your situation improves
- Refinance your loan if more favorable conditions could solve your problems.
- Do Nothing
If I do a Short Sale, how much will I have to pay to sell my home?
Nothing. You can rest assured that, in most cases, you will not pay any sales costs once your lender approves the Short Sale. All commissions, title and escrow fees, are paid by the lender as part of the Short Sale approval. It is recommended to include a clause in contract that establishes:
"Seller’s agreement to sell is subject to approval by the lender, as a Short Sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow."
That makes sense, since lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
I have received a foreclosure notice from my lender. Can I still do a Short Sale?
That is could be your last chance to initiate a short sale and you can surely do it. Remember that lenders always try to avoid foreclosure, which is a worst case scenario for them. But you should move fast. The short self does not automatically stop the foreclosure, but lenders will probably delay the foreclosure if they have a valid short sale proposal from you. However it must be well structured and somebody has to constantly follow up with it.
How do I get started on a Short Sale?
It’s easy. If you would like to get pre-qualified for a Short Sale, we can do it online.
If you would prefer to discuss it on the phone, or set an appointment please call me at (954) 296-6741. There is no charge and we can start to work immediately. If you later decide you don't want to go ahead with the short sale, or we conclude that this is not the right way to go, that is okay too.
Can I simply deed my property to someone else and avoid the hassle?
Deeding your property to someone without paying off the loan is not usually a good idea. You will still be held responsible for your debt . If the loan stays unpaid, or if the lender ultimately forecloses, this will definitely show on your credit report.
If you deed your property to anybody, you are giving away the physical control of the property. My recommendation: Do not deed your property to anybody without the advise of an attorney, who will most possibly recommend you to first pay off the mortgage.
Which are hardship reasons acceptable to a lender?
As long as you are submitting valid reasons that make sense, and the mortgage lender thinks that they make sense, you have a case. If the lender trusts your considerations that your loan is likely to become delinquent if nothing is dne, than you have a case. Lenders have all a "Loss Mitigation" department, or something with a similar name, which processes your paperwork. It is recommended that your hardship letter is a strong and impressive enough to immediately get your lender's attention. That's one of the reasons that you should get yourself a good short sales specialist.
Here are some example of hardships
* Family illness, incapacitating injury, hospitalization.
* Illness or injury in the extended family; especially if it forces relocation.
* Job relocation especially if your home is "underwater" – meaning that your mortgage is higher than the present value of your home, or that you have a negative equity.
* Job loss or other significant reduction in your income.
* Divorce.
* Adjustable mortgage that had kicked in a much higher monthly payment, or unexpected increase in your living expenses
I am current on my mortgage, will my lender consider a Short Sale?
The only way to find out is to submit your case to the lender. Some lenders will not start a file unless the loan is delinquent. Others could accept your case if it is evident that you are about to stop paying; even though your loan is presently current.
Why would a mortgage company agree to accept a Short Sale?
a) Government's pressure. In certain extent, avoiding massive foreclosures is important for a lender's image. They are encouraged to pursue alternative ways of resolving the problems that they have sometimes created themselves by inappropriate and careless lending.
b) Lenders are in the business for the long run. Cleaning up their portfolios will enable them to continue in the market of lending and selling their loans in the secondary market. Resolving these cases is essential for the continuity of their business.
c) Foreclosure is not a good option for a lender. They would have to manage, repair, maintain, pay taxes and utilities, until the foreclosed property is sold. Mortgage lenders are not in the business of managing real estate properties; they are not efficient builders, administrators, and maintenance companies. The sooner they resolve the problem, they will reduce and limit their losses. On the other hand, a foreclosure implies large legal expenses and attorneys' fees, and it often happens that a homeowner on the verge of foreclosure will quit taking care of his home and sometimes even damage it. By the time the foreclosure is completed, some of these homes are in a pitiful state.
d) Delinquent and non performing loans will weigh on a lender's balance sheet. Reserve Funds must be set up to allow for potential losses and these are funds that are at better use being lent to better borrowers, generating profits. There also other considerations regarding their standing with regulating authorities, their stock valuation in Wall Street.
Do lenders approve all Short Sales?
No they don't. Every case can be different, but one element is always important. The knowledge and experience of the agent who is negotiating with the lender is essential. It will be a determinant difference between a successful short sale and a failed attempt. The "Loss Mitigation" people that lenders use to handle these transactions are better approached by short sales specialists who can get the case to be moved smoothly and quickly.
I have two loans with two different lenders. Can I still consider a Short Sale?
This situation is common. Even though the holder of the second mortgage is at a much higher risk of being wiped out, they can force a foreclosure. However good negotiators often manage to have these second lenders to accept minimal recovery payments compared to a 100% loss. In the end, neither lender wants to own another home through foreclosure.
My home needs some work; I can't afford it. Can I still do a Short Sale?
Lenders might be even more motivated to accept a deal. A foreclosure on a property that needs substantial repairs will put the lender at a higher risk if the property is deteriorating and its foreclosure could substantially devaluate it. Lenders know how hard it is for an outsider to supervise repairs, workers, and contractors.
How will a Short Sale affect your credit?
Together with a foreclosure and a bankruptcy, the accumulation of late payments on your tax reports is one of the worse factors in ruining your credit. A foreclosure is, however, the most negative element since it will show for many years and will cause a great damage on your score. A short sale will typically show for two years. It will surely affect your score but much less than a bankruptcy or a foreclosure. You will be able to re-establish your consumer credit in a relatively short term.
Are there any taxes in a short sale?
When you sell your property through a short sale deal, a "deed in lieu of foreclosure" or lose it through foreclosure, there are tax consequences.
You might be tax liable and might receive a 1099 Form. The amount that has been reduced from your debt, might be considered as a taxable "debt relief income".
There have been some new rules to mitigate these consequences. I can just point out the recently passed Act HR-3648. Check Form 982 from the IRS (revised in 2009) which might give you a break on these taxes. Publication 523 from the IRS is also a good source of information. While you can get an idea about the subject, by reading these publications on the internet, you should consult the professionals and I absolutely recommend that you contact a tax advisor and a CPA about this matter.
Your hardship is temporary. Can you avoid selling your home?
Yes you can. You will have to prove to your lender that there was health problem, an accident, the loss of a job, a divorce, and that they have affected your payment capacity. You could convince your lender that it was a temporary situation and that it is being corrected and that you will be able to repay your loan if they accept a "Forbearance" , a Loan Modification or any other creative solution that will allow you to keep your home and your lender to avoid major losses.
What is a Deed in Lieu of Foreclosure?
A Deed in lieu of foreclosure is a deed instrument in which you, as a borrower, convey possession of your real estate property to the lender, in order to satisfy a loan that you are unable to repay, avoiding a foreclosure.
What is a Forbearance Agreement?
A Forbearance Agreement is a agreement between a borrower and a lender, by which they agree to correct the delinquent situation through a payment plan which could restructure the loan and facilitate its payment while the borrower can get on his feet again.