Short Sale May Be an Option When Mortgage Debt Looms Too Large

 

 

OUR SHORT SALE TEAM CAN HELP!

We are here to assist with every facet of the ever-growing short sale business. Whether you are looking to efficiently and effectively reduce the number of challenged loans you have, or a buyer looking to have your offer accepted on one of these properties or a seller who is simply looking to avoid foreclosure or bankruptcy, we can help you! As you have certainly heard, this is a nationwide challenge, which seemingly changes and worsens on an almost daily basis. We simply provide assistance to help you travel through these troubled waters . . . without becoming lunch for the nearest hungry shark! It is our intent and our belief that all parties, lenders, buyers, sellers and real estate agents benefit from the services we provide. We take the unique approach of always asking "What can be done so that we can help you today?"

To learn more, please read on to see specifically how you can get started now so we can help you to realize the best possible outcome

SELLERS

We are here to assist good people in getting themselves out of bad situations in the most efficient manner possible. As you are undoubtedly aware, we are facing an as of yet, not fully known American tragedy, millions upon millions of US homeowners are, or will over the next several years be, facing situations where continuing to struggle to own a home either simply is impossible, or at the very least no longer makes sense. The supposed American dream of home ownership, for most, no longer makes financial sense. You, or people you know, may be feeling caught in this correcting market and simply seek a way out. We can help you. Are you ready to do the smart thing and simply let us help you today?

A short sale is when your lender agrees to take less money than is owed to them due to a hardship on the part of the seller. You can choose Cardany Realty Group to work with who is highly trained and specialized in this process. This process is similar to the one in which you went through when you obtained a mortgage on the property. You probably met with a lender's representative and had to provide them lots of documentation that supported the fact that you could qualify for the mortgage. Now, we're doing it in reverse. Have a question? Check out our FAQ section, it may already be answered.

 

BUYERS

Congratulations on considering this great value! As a savvy home buyer you certainly realize that the best buys available today are most likely to be in short sales. All costs, fees, commissions, payoffs, etc. are subject to the lender’s approval. We have found that your offer will have the highest chance of being accepted if you present it with the buyer paying the $2,500.00 fee to our Short Sale Specialist back support Team as part of the buyer's closing costs. Remember to take this into account when writing your initial offer. Many buyers and their agents adopt this approach and simply ask for the seller to pay all or a portion of the buyer's closing costs.

Please remember, with the current mortgage fallout across the country, most lenders are being inundated with short sale requests. As a result, this has become a somewhat lengthy process. Average response time from the lender is 6-8 weeks and can be as long as 90 days or more. However, the RCA Team’s Short Sale Specialist back support Team has been able to establish relationships with certain lenders to expedite this process.

F.A.Q's - List from Buyers and Sellers

What is a Short Sale?
A short sale is when your lender agrees to take less money than is owed to them due to a hardship on the part of the seller. The agent you've chosen to work with is highly trained and specialized in this process. This process is similar to the one in which you went through when you obtained a mortgage on the property. You probably met with a lender's representative and had to provide them lots of documentation that supported the fact that you could qualify for the mortgage. Now, we're doing it in reverse. Have a question? Check out our FAQ section, it may already be answered.


Will I Owe Money After I Have Been Foreclosed On?
When the lender or bank forecloses on the property and they eventually sell the property for less than what was owed, then a deficiency exists with the loan. The deficiency is the difference between what the homeowner owed and the amount the property sold for.

Will the bank come after me for the difference?
During the short sale process, we can negotiate with the lender to not seek a deficiency judgment against the homeowner.

There is a second issue as it relates to the deficiency and the infamous 1099. When you complete a short sale the lender will report that loss to the IRS.
If this is your primary residence the IRS cant tax you on the deficiency anymore please see the link for more information.

http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

It is obviously in the best interest of the homeowner to be proactive and deal with the prevention of foreclosure NOW. At least there is a chance that we can negotiate a deal for you during your short sale period.

What about My Credit?
The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event a credit status can encounter - worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit.

By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly. Your credit will recover much quicker from the credit dings of a few late mortgage payments, if you keep your other accounts current. Always stay on top of your consumer credit. So, consider allocating your funds to meet basic necessities (food, utilities, household needs, auto expenses and such) first. Beyond paying for necessities plan to pay other bill to keep as many accounts current as possible. Keep “necessary” Accounts Current when deciding which credit bills to pay. If you are using a credit card to temporarily pay for necessities, you want to be sure to not jeopardize the availability of that account. A short sale may be just one part of a larger effort to get through a tough period. I want to help make it possible for your credit to recover quickly.

YOU need to avoid Foreclosure or Bankruptcy – and that’s where our Team can assist you.



Is a short sale right for me?
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, and are 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.

As you consider the option of pursuing a short sale, remember your lender is looking to limit any potential loss on your loan. By completing a short sale, your lender has arrived at a solution that is, for them, much better than a foreclosure.

What sort of hardship would my lender consider legitimate?
To some extent, that will depend upon the mortgage company considering the short sale request. Generally, as long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the short sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter with a strong offer. The hardship letter, proper packaging, with a solid offer sets the tone for the entire file.

I am current on my mortgage; will my lender consider a short sale?
From our experience, only mortgages that are in default (late or missed payments) are being accepted.

Why would a mortgage company agree to accept a short sale?
There are actually several reasons why a mortgage company would approve a short sale payoff, including the following:

· Legal Concerns: Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.

· Wall Street is Watching Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. A successful short sale gets the loan payoff resolved quickly.

· Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets - homes – spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful short sale eliminates most of these costs.

· Reserve Requirement- Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful short sale lets the lender put more money to work.

 

I have two loans; can I still do a short sale?
Yes.

My property is in rough shape and needs work; can I still do a short sale?
Absolutely. In fact, lenders are more motivated to do a short sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work. Aside from expense of completing the work, lenders are simply not set up to get the work done. They are in the loan business, not the fix it business.

Who pays for the RCA Team, Inc.’ Short Sale Specialist back support Team?
We have found that you stand the best chance of getting your short sale passed when the buyer pays their fees. Most realtors disclose their fee up front in the listing. Example if the buyer was going to offer $100,000.00 for the property, maybe the offer should be $97,500.00 and our fee will be paid by the buyer at closing.  Charge to the Sellers will be $1,200 for one mortgage per property, $100 for each additional mortgage payable to our S.S.S. support team and will be paid prior to the submission of the necessary forms and at the beginning stages of our working relationship. In the past, our S.S.S. support team have experienced several unfortunate situations of working very hard on a file up to the time of closing, only to be dismissed by the Seller withdrawing, receiving nothing for our time and efforts.  We feel, as I'm sure you do, that our time is valuable and we should be compensated for our efforts. 

 

HUD Hardship Conditions

The underlying reason behind most delinquent mortgage payments is what the mortgage industry defines as a "hardship condition." A hardship condition is basically an unexpected financial crisis of some sort.
HUD recognizes the following situations as valid hardships and reasons for default:

 

    • Death of Principal Mortgagor
    • Death of Mortgagor's Family Member
    • Illness of Principal Mortgagor
    • Illness of Mortgagor's Family Member
    • Marital Difficulties
    • Curtailment of Income
    • Unemployment
    • Excessive Obligations
    • Abandonment of Property
    • Distant Employment Transfer
    • Property Problem
    • Inability to Sell
    • Inability to Rent Property
    • Military Service
    • Business Failure
    • Casualty Loss
    • Energy-Environmental Costs
    • Servicing Problems
    • Payment Adjustment
    • Payment Dispute
    • Transfer of Ownership Pending
    • Fraud
    • Incarceration

 

Foreclosure Procedures

Procedural rules governing bank and government foreclosures

Foreclosure is governed by state law, and different states observe different procedures

Typical foreclosure methods

- Strict foreclosure: the lender, mortgagee, automatically becomes full owner of the property when a borrower, mortgagor, defaults.

- Judicial foreclosure or public sale: court decides on title questions and approves each step of the foreclosure procedure.

- Foreclosure by power of sale.

- Foreclosure through the deed in lieu method.

Steps in foreclosure procedures

Following an alleged default, the lender or claimant will typically be required to serve the borrower a property owner with a summons and a complaint for foreclosure (lis pendens). The borrower or property owner must promptly file responsive pleadings to answer the complaint, and appear at any hearings to explain the alleged default. Borrower or property owner can get the foreclosure law suit dismissed at any time during the foreclosure proceeding by making the entire payment claimed to be due by lender.

Judicial sale of property

If the borrower or property owner does not timely file responsive pleadings to the complaint, the court will typically enter a default. Subsequent to the entry of a defaultor the tiling of responsive pleadings, the court will generally enter summary judgment in favor of the lender or claimant if there are no genuine issues of material fact and the court finds that (a) obligations exist between the property owner and the lien holder, (b) the property owner is in default of the performance of his obligations to the lien holder, and (c) the lien holder is entitled to assert his lien or interest against the real estate.

The court will order the sale of the real estate at a public sale and lender or claimant gets paid for the full loan amount. Balance, if any left, goes to the borrower or previous owner upon application. If the sale amount is less than the loan amount, borrower still owes such balance to the lender. This amount determined as a result of deficiency proceedings.

If the borrower has a right of redeem, sale notice indicates such right of redemption and the redemption value of the property. As a final step, the court transfers the deed to the purchaser or new owner after all taxes, sale-related expenses, and other additional defendants, if any, are paid.

 

What are your options?

Usually when clients call us regarding our services, they have missed a few payments and they are in various states of the foreclosure process. We will try to explain what can be done to avoid foreclosure.

They are only a few options and here is a quick list:

1. Reinstatement-This where the homeowner reinstates the mortgage by paying up all missed payments andfees and becomes current with the mortgage. After all the fees have been payed up then the homeowner can continue to pay the mortgage payments as they had.
2. Forbearance-More commonly known as a re-payment plan. Allows the homeowner to negotiate a re-payment of missed payments and fees to reinstate the mortgage.
3. Sell The Property-If there is equity in the property then the home can be sold and the foreclosure can be "cured" thus avoiding the foreclosure.
4. Rent The Property-The property can be rented however the mortgage must be made current. A rental agreement will not stop the foreclosure process.
5. Refinance-If the credit rating hasn't been too badly damaged, a refinance may help especially if the monthly payments can be reduced.
6. Deed-in-Lieu of Foreclosure-Commonly known as the friendly foreclosure. This involves for the bank to agree to foreclose and take the property back without the lengthy process. This is not recommended for properties with equity because the owner gives up the right to the property and any equity. This option is technically still a foreclosure and will show up as such on your credit report. Sometimes the bank will forgo any other recourse but that will also have to be negotiated.
7. Bankruptcy-Can not avoid the foreclosure but may allow the owner to reorganize debt. It rarely stops a foreclosure it usually only stalls it. Another drawback is that it makes it difficult to sell the property and almost impossible to negotiate with any third parties.
8. Short Sale-When the homeowner owes more than the property is worth, a sale can be negotiated and an approval obtained from the bank to accept an amount less than is owed.

Most of these options involve negotiation with the bank and a decent credit rating. If the credit has been affected already, then the only real option that can help is the short sale. In our experience when homeowners use the other options available, they wind up in the same predicament a fews months down the road because the underlying cause of their situation was never resolved.

Also important to note... there are only two things that follow you for the rest of your life, a felony conviction and a foreclosure. True after 10 years it will drop off your credit report, however almost every lending institution has the magic question: Have you ever had a foreclosure? If you've had one you must answer yes, answering no could be considered fraud and that would open you up to a host of other legal problems.


Deficiency Judgment

The amount of money owed to a bank after a short sale can attempt to be recovered through a suit known as a deficiency judgment. Equally important to note, if the bank sells the property for less than what was owed or the foreclosure auction nets them less than what was owed they can also file a deficiency judgment against the former owner.

In terms of a deficiency judgment after foreclosure or short sale, the bank may be able to go after other assets, but any retirement funds the former homeowners have are generally protected. Especially if they invest their retirement savings in an IRA or through work in a 401(k), 403(b), then the bank can not try to seize any of these savings. However, if their retirement funds are "invested" in a second home or a other assets, then the bank may be able to to go after those assets. That is because specifically designated retirement accounts are protected from creditors, while assets simply invested in for the purpose of saving for retirement without the special designation are not protected.

In most cases, the lender rarely pursues the deficiency judgment. They may file suit so it appears on the former homeowners credit report, but little else after that. Mortgage companies know that people in foreclosure do not have the money to pay the monthly mortgage payment, let alone pay the entire foreclosure judgment or a deficiency judgment after foreclosure. Thus, it is just not worth the lenders' time to keep suing homeowners with no expectation of ever collecting anything from the lawsuits.

A CDPE can negotiate with the bank to forgive the balance owed as the result of a short sale. Yet another reason to hire a competent Realtor with the CDPE designation.

 

Foreclosure ABC's

Foreclosure is the means that a bank has a legal right to take possession of a property if the mortgagor (owner) has failed to live up to the commitments as outlined in the mortgage agreement. Usually a missed payment will trigger this process.

Foreclosure in itself is pretty straight forward. The process doesn’t start until after the bank has failed to receive payment and has filed suit to foreclose. In Florida the legal term is Lis Pendens. Lis Pendens is the formal notice that starts the legal process. (Note: In Florida formal notice could mean a notice published in a newspaper-it doesn’t have to be actually served or given to the mortgagor in person.)

Once a Lis Pendens is filed, the mortgagor is required to appear in court to answer to the allegations in the suit. At this point, the mortgagor can ask the judge for an extension to buy time. Nowadays the extensions are being granted regularly. If the mortgagor didn’t respond to the suit at the initial hearing, a judgment against the mortgagor will be found and another date is set for a ‘foreclosure sale’ or auction of the property, typically 30 days after the judgment.

Floridalaws allow the homeowner to redeem the property at any time before the auction date. This is known as the ‘Redemption Period’. After a certificate of sale is issued, the right to redemption is lost and the homeowner in effect no longer owns the property.

The entire process from the time the mortgagor missed the first payment to the time the property is actually sold at auction typically is 180 days. It is has been taking longer because the mortgage companies have been back logged from the recent rash of foreclosures. The timeline can be extended considerably by asking the court for extensions.

What is a Short Sale?

The recent rave in the real estate community seems to be the infamous 'Short Sale'. We want to take a little time and briefly explain what a short sale is how it is being used in the real estate community to liquidate distressed properties.

A short sale is a phrase used to described a sale in which the cost of the product or service being sold is actually more than the sales price of the product or service in question. Another common term to describe a short sale is being 'upside down'. The term short sale has become synonymous with any real estate transaction where the lender is agreeing to accept an amount less than is owed. Short sale has other definitions in the financial sector such as when a financial instrument is sold before it is actually owned. There are other variations of the meaning of short sale but for our purposes we will only discuss real estate transactions.

Short Sale Process
In real estate, a short sale is a rather lengthy process in which an agreement is made between the bank and seller for the bank to accept a lesser amount than owed. The steps in the process are as follows.

1. The seller needs to be in a distressed state, most of the time the property is in foreclosure. If a homeowner is current on mortgage payments the bank will not approve a short sale. The loan is said to be 'performing'.  

2. A lengthy package of documents needs to be assembled to prove to the bank that the seller can no longer make payments. Most of these documents are the same ones used to qualify for the loan. You are basically disqualifying the property owner. In addition to those financial documents a hardship letter needs to be 
drafted explaining what caused the financial hardship. Also market trend reports, recent sales, market analysis, news clippings and other information that can help the bank make a better determination as to why they should accept a short sale.

3. The property has to be put on the market for sale and one must show a concerted effort to sell the property at market value. There is misinformation out there where people believe the bank will accept any amount. This is 
not true. The bank will only accept market value whatever it may be. A detailed record of activity needs to be kept and submitted to the bank along with all the other documents.

4. Once a buyer is found, the purchase contract along with all the other documents is submitted to the bank for approval. Once approved the sales process is continued as any normal real estate transaction would.

Most homeowners don't know that the bank will pay almost all required fees and commissions to all parties on behalf of the seller. Essentially the homeowner walks away paying nothing. The exception being that the bank may require an appraisal in which case the homeowner might be asked to pay for it. Also important to note, in no case may the homeowner walk away with any proceeds from a short sale. In some extreme cases you may negotiate with the bank for the homeowner to receive a small amount (Usually no more than $1500) for moving expenses and help with rent. Again this is rare and not the norm.

Along with the steps above, diligent communication and follow-up is a must in order to successfully negotiate, process and close a short sale. The entire process can take anywhere from 3-6 months to complete depending upon how quickly an offer is received. The bank approval typically adds 30 to 60 days to the normal sales cycle of a property. You can see why it is important to hire a competent Realtor with a knowledgeable team to expedite the process.

Frequently Asked Questions Regarding Short Sales

 Why would a lender agree to lose money?

· Financially, it's a smaller loss to accept a short sale than it would be to incur the additional expenses of a foreclosure.

· Lenders are in the business to lend money not home ownership. The more resources they have tied up on a property the less they have to lend out.

· With prices dropping so rapidly, even if the lenders decides to foreclose they will lose even more money when they finally try to sell the property later rather than sooner.

How does a short sale help me?

· It helps you avoid an emotionally draining foreclosure process.

· Avoiding a foreclosure with help save your credit. Typically a foreclosure will drop your credit score up to 200 points per loan.

· Avoid having a foreclosure on your credit report anywhere from 7 to 10 years, which affects your future purchasing power and interest rates.

· It could help you avoid a "deficiency judgment" from the lender after the foreclosure as they try to recuperate their loses. 

But I've already received my foreclosure notice, is it too late for a short sale?

· The short answer is no, but there are a few variables that can affect the foreclosure timeline.

· A qualified Realtor or better yet, a Certified Distresses Property Expert can help you extend the foreclosure timeline up to 6 months and in many circumstances up to 7 or 8 months.

· A sale of a home can be done and approved up to the day of the bank sale or auction of the home.

I haven't missed any mortgage payments; can I still do a show?

· Typically the lender will not consider a short sale if there have not been any missed payments but can be overcome if we can show a compelling reason why the payments have been made but the payments are not sustainable into the near future.

   We would need to show if the payments were made with your credit cards, by borrowing from family members or even if the money came from retirement accounts, as an example. This will not guarantee the lender will accept but there are instances where they have done so.

How do I pay the Realtor commissions, taxes and other expenses associated with a home sale?

· The homeowner does not pay any of the expenses associated with the sale of the home, such as commissions and other closing costs. Those expenses are also paid by the lender.

· In December 2007, President Bush signed into law the Mortgage Forgiveness Debt Relief Act which eliminates the income tax that used to be levied on the forgiven portion of the primary home's sale. The tax is still in force for second homes and investment properties

 What is a Certified Distressed Property Expert (CDPE)?

Before we can define what a Certified Distressed Property Expert is, we need to define what a distressed property is. A property can become distressed for a variety of reasons but the most common is a foreclosure. Any situation that has caused a property owner to have difficulty making mortgage payments or even selling the property is said to be in a distressed state. Basically any property which has foreclosure looming.

Now that we have defined a distressed property, what is a Certified Distressed Property Expert (CDPE)? This is not only a designation earned by a licensed Realtor but it is also an acronym that signals to the public that the person displaying it has gone through extensive training to successfully mitigate a foreclosure. This can be done by negotiating mortgage terms, helping to negotiate a refinance or the most likely-help sell the property.

Sometimes these properties have lost significant value either by physical damage, changes in the zoning, lack of curb appeal or host of other factors one of which occurring today is market conditions. If the value of the property drops below what one could sell the property for then the property is said to be short and any sale would be considered a "Short Sale", which has become very common lately. Negotiating a short sale mis where a CDPE really shines.

These transactions are extensively time consuming and tedious. They require diligent follow-up, tons of paperwork and detailed analysis. Not to mention all the work that goes into drafting market reports and gathering all the information to convince the bank to accept a sales amount that will net them less. Not an easy task. Some of these sales can take anywhere from 6 to 12 months to close.

All this is done in addition to the normal marketing efforts required to sell the property. You can see why less than 1% of Realtors nationwide have the training and knowledge to successfully negotiate a short sale.We are in that small group of less than 1% that has dedicated our time, effort and finances to educate ourselves in this sector of the market.

In March of 2008 50% of all homes sold were in some sort of distressed state.......Half! If you have a distressed property you can't chance your home sale on someone who doesn't have the tools to get things done. This market is going to be here for sometime. Experts predict 2 to 3 years, we predict closer to 10 years which began in 2006 so we are 2 years in to the 10 year cycle.

Buyers are not immune to the phenomenon. They are getting great deals on these distressed properties but guess what, if they are dealing with someone who doesn't know the mechanics of a short sale, the deal will fall apart after waiting months. It is equally important to buyers and sellers of distressed property to use a trained expert who can get these transactions to the closing table.