Thomas Vo, Realtor®
Posted Sun Feb 28 08:26AMQuestion: Should You Choose a Short Sale Over a Foreclosure?
A reader asks: My husband and I have been making our mortgage payments every month even though our home is underwater. We owe a lot more than our home is worth. Now, my husband has lost his job. We're thinking about walking away from our home and letting it go to foreclosure, but my parents are telling us that we may qualify for a short sale. Which is better for us? A short sale or a foreclosure?"
Answer: Whether you should do a short sale or let the home go to foreclosure depends on several factors. While for some homeowners, it is easier to throw up your hands and let the bank take your home, that might not be the wisest thing to do.
Short Sale Benefits
Here are a few benefits for doing a short sale that may not have occurred to you:
· You are in control of the sale, not the bank.
· You may sleep better at night knowing who is buying your home.
· You will spare yourself the social stigma of the "F" word, foreclosure.
· Contrary to popular belief, you can be current on your payments and still effect a short sale.
· Your home sale will be handled like any other home sale.
Buying Again After a Short Sale
If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait for an FHA loan is 3 years.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.
Buying Again After a Foreclosure
With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.
Affects on Credit After a Short Sale
A short sale is not a derogatory mark on your credit because credit bureaus do not show the word "short sale" on your credit report. It may say "pay as agreed" or "paid as less than agreed," among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.
The point drop is typically due to being in default, that is behind on your payments.
Affects on Credit After a Foreclosure
A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years.
Credit Reports After a Short Sale
All lenders report short sales differently and some do not report them to the credit bureaus at all.
Credit Reports After a Foreclosure
If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.
Deficiency Judgments After a Short Sale
Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.
Deficiency Judgments After a Foreclosure
Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee's sale.
Loan Application Questions After a Short Sale
Loan applications do not ask questions about a short sale. You may report that you sold your home.
Loan Application Questions After a Foreclosure
You are required to answer the question: "Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years." If the bank sees you have had a foreclosure, your loan most likely will be denied. If you lie, you may be subject to investigation by the FBI for mortgage fraud.
Length of Time to Move After a Short Sale
If you've had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for short sale approval can be from 2 to 3 months, or longer.
Length of Time to Move After a Foreclosure
Unless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings.
Taxation After a Short Sale
A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions.
Taxation After a Foreclosure
Same as with a short sale. Except some lenders immediately send out 1099s, even if the owner is exempt.
In closing, always obtain legal and tax advice before making a decision between a short sale or a foreclosure.
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Posted Sun Feb 21 11:25PMIf you have been following the local MLS, Redfin, Realtor.com, or any of the myriad of other MLS related service offerings available in today's market place, you may come across property listings with sale prices that may appear to be too good to be true. For the most part, they are. Some more so than others, but the old adage holds true: Caveat emptor or "Let the buyer beware."
The majority of the properties on the market today are either short sales or bank owned. Once in a while, you may find some that are being sold by the home owners as traditional sales. In order to create buyer interests, many of these short sale or bank owned properties are often listed approximately 10-15% below (short sale) market value. As a result, this practice can lead buyers to think that the list price is indeed the true market value of a property much to their subsequent disappointment.
The more reliable method to determine the real market value of the list price of a property is to have your agent perform a CMA or comparable market analysis. This data will provide you with more realistic expectation of whether the property is within your budget "before an offer is submitted."
Last but not least, keep in mind that the average time that it takes for a typical lender to process a short sale approval request is between 6-9 months as of this writing.
Good luck and happy hunting!
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Posted Sun Feb 14 10:11PMShort sales are now averaging 6-9 months to process from the 3-6 months just this past summer. Additionally, many short sale lenders (both primary and junior lenders) are becoming increasingly challenging to work with for reasons including but are not limited to assigned negotiators being changed in midstream without reasons, lengthy delays before reviewing submitted files, misplacing files months after they have been approved and forwarded to 2nd phase negotiators requiring complete files to be submitted again, closing out files without notice, last minute demands for additional funds even though approvals had already been granted following months of negotiation.
As if the constant requirement changes identified above are not enough, lenders in the 2nd position or junior lien holders (or 2nd mortgages) are increasingly demanding up to 100% of the debt to be satisfied before lien releases would be issued. Demands such as these along with a myriad of others required by junior lien holders have forced some homeowners into foreclosure proceedings as a result. This trend will likely continue if not increase as more and more junior lien holders take the position that if they can't have what they want, no one else should either.
For buyers and sellers, please be aware that lender requirements can change on a weekly basis and have, and these changes can and do affect the terms of the approval process, not to mention the amount of time required. As Realtors experienced in short sales, we diligently work with these challenges on a daily basis. Since there are no set guidelines with the approval process and every lender has their own requirements, we cannot predict the eventual outcome from one transaction to the next.
The key to a successful short sale is to be patient. A 6 to 9 month wait for the necessary approval is to be expected present day. However, keep in mind that, for the most part, the wait is well worth the average $100K or more in savings that you will realize when the short sale is approved!
Call or email me with any questions. Enjoy!
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Please explain how a short sales can save a buyer $100k or more. My experience is that the banks are asking for the top market price on the houses regardless of the condition of the home
Posted Mon Aug 30 05:08PM by Marty Cull
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Posted Sat Feb 13 11:49AMAbout Program 3648
The federal government enacted H.R. 3648, the Mortgage Forgiveness Debt Relief Act, to help stem the tide of foreclosures by removing the tax burden resulting from debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with short sales. H.R. 3648 has been extended through 2012 under The Emergency Economic Stabilization Act, H.R. 1424. The Obama Administration has continued to pursue the foreclosure problem with the Financial Stability Plan that helps homeowners and lenders find solutions and alternatives to foreclosure.
Program 3648 is a privately sponsored nation-wide initiative to reach out to homeowners who are struggling with their mortgage payments and provide them with the information, guidance, and actual work that is required to avoid foreclosure. Certified Program 3648 Representatives volunteer their time to assist as many homeowners as possible and all services provided by Program 3648 are always free for every homeowner.
Our mission at Program 3648 is to help millions of homeowners avoid foreclosure and take advantage of the programs that have been instituted to help them. We realize that the only way that we can accomplish this goal, is though a ground army of volunteers that are willing to go directly to homes, hold homeowners hands, and walk them through the process of working with their lender, and proactively remedying the mortgage problem.
Call or email me, thomas@thomasvo.com, for more information.
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Posted Mon Feb 08 12:30AMRegardless 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, complicated and at times, extremely frustrating. 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 taking up to 6 months or more to review a short sale request.
One of the challenges of putting a short sale together is that many buyers are unwilling to wait the ninety days or more to find out whether or not they’ve been able to purchase a home. There are many other similar properties on the market for sale for a buyer to choose from so the goal is to entice a buyer to hang in on the transaction. Whenever a buyer backs out, the initial file sometimes gets closed by the lender(s) and a new one opened resulting in more delays.
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 improvements, or any other lien against the property.
Requesting a short sale, in a nut shell, is listing the property, 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 the offer is approved, denied or countered.
When it comes to 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 what the lender requires. In most cases, the lender has a “short sale” package that includes a list of all the forms necessary to start the process.
Step 2: Market the Property and Find a Buyer
Marketing a property that requires a short sale may also be a challenge. 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. If the marketing process is not carried out correctly, it will only contribute to more frustration for all parties concerned, not to mention unnecessary delays.
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.
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 either completed and/or submitted. 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. Cover letter with a checklist of items enclosed. Include a brief synopsis.
2. Completed financial disclosure (requirements typically provided by the lender).
3. Hardship letter. (Hand written.)
4. Purchase Agreement/Contract.
5. Net sheet or HUD‐1 form. (Typically prepared by escrow.)
6. Proof of income for past 2 pay periods.
7. Copies of last 2 bank statements.
8. Copies of last 2 years of full tax returns with W‐2s and 1099s.
9. Third party authorization form.
The following are optional but recommended.
10. Deferred maintenance photo pages with captions.
11. Comparative Market Analysis (CMA).
12. Itemized cost breakdown.
13. Neighborhood foreclosure statistics.
14. Proof of active listings in the area that are lower and not selling. (This helps prove the offer you have on your listing is a reasonable one.)
15. Copy of MLS printout if property has been on the market for a long time.
Hardship Letter
Sellers must have experienced some type of financial hardship that can justify their delinquency. The three main acceptable hardship cases are called “the three Ms.”
- Medical hardship.
- Marital hardship.
- Money (job) related hardship.
Hardship, however, may be less drastic depending on the financial position of the lender and their leverage in the transaction. For example, a lender may approve high gas prices as a hardship if the lender feels accepting the short sale is their best option. Many times, it’s all about the bottom line for the lenders.
The hardship letter should be hand‐written to attempt to invoke human emotion from the lender. Lenders want to see specific dates, dollar amounts and supporting documentation as much as possible. (i.e., Medical bills, death certificates, etc.)
The purpose of the hardship letter is to tell the lender your client’s “story” of why they have missed payments and why they will not be able to make them in the future.
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 so make sure that the short sale package has ALL of the requested documents and that it gets submitted (all of the documents at the same time instead of piecemeal) to the lender as soon as possible. An incomplete package will only lend frustration to an already understaffed workforce and potential cause subsequent delays and/or denial of the short sale request. If you are working with a Realtor, attorney, etc., make certain that the individual you are working with is qualified and/or has the experience and training to do so. The consequences can be adverse for you if they are not.
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 title search of the property. Make sure there are no other liens against the property.
Once a lender agrees to accept a short payoff, the owner needs to be ready to move quickly to complete the transaction.
Typical Lender Timelines (for each step in the short sale process)
- Get authorization on file with lender 2 days
- Compile short sale documents 7-14 days
- Get short sale package on file with lender 3-7 days
- Short sale package assigned to negotiator 10-14 days
- Get BPO/Appraisal ordered 14-21 days
- Schedule BPO/Appraisal with agent 5-10 days
- Time for BPO/Appraisal to get to negotiator 21-28 days
- Negotiate/obtain approval from negotiator 15-20 days
Total: 77-104 days
Things to Keep in Mind:
- There is no guarantee that all offers will be accepted! Depending on the offer price and other conditions, the lender may say ‘no’ to the first offer that is made on your property.
- The Short Sale Process can take anywhere from 3 to 6 months or longer depending on the foreclosing lender.
- Your Lender or Bank will not allow you to receive any funds at closing. (FHA loans have a pre-foreclosure sale program that allows a Seller incentive)
- You may be liable for a taxable event or deficiency judgment for the difference owed to your Lien holder(s). There are exemptions you may be eligible for. Ask your Realtor, accountant or attorney for details.
- You may be able to qualify for another home in 2 years provided you maintain your credit and income.
- You should always seek legal counsel and the advice of a tax professional.
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