Real Estate Information Archive

Every short sale situation is unique, so it’s impossible to give a one-size-fits-all definition. However, there are some factors common to all of them that we’ll attempt to explain below.

Short sales are a complex process primarily used by those who find themselves in a financially distressed situation and are seeking to avoid foreclosure in order to alleviate supplementary fees and costs to the creditor and borrower. While short sales have consequences to one’s credit standing, the alternative – foreclosure – is worse still.

Short sales in Ann Arbor and elsewhere typically involve Home sales where the current owner is unable to repay loans and/or liens against the property. So, any proceeds resulting from the sale will inevitably be less than the homeowner owes on those loans and/or liens. 

Creditors in a short sale often not only have to take less than what is owed to them via the debt, but they also sanction the termination of their lien. This is not, however, a guarantee that the homeowner will have his or her financial obligations wiped clean, unless each party agrees to those terms.

Perhaps the only sure thing in a short sale is that before creditors agree to a short sale, they will require proof that the borrower’s financial or economic hardship is preventing him or her from paying the deficiency.

A short sale should not be entered into lightly. A central consideration is the credit impact for the seller; the impact can be significant negative damage to the homeowner’s credit report. Nevertheless, in some situations a short sale is unavoidable because the impact of an actual foreclosure is worse.

Welcome to 2011, it is going to be a great year and I'm excited to see where it takes us!

Changing Short Sale Rules - The HAFA program has been a mixed bag, but last week the Treasury Department changed the rules to make short sales easier. 

Here are the primary changes to HAFA: 

- Those seeking a short sale must get an answer within 30 days
- Lender Servicers are no longer required to verify a borrower's financial information
- Lender Servicers are no longer required to determine if the debt-to-income exceeds 31%
- Though Second lien holders no longer must accept 6% of the unpaid balance - 

Overall, these changes should help expedite short sales, which is good news for Home owners, realtors, investors and ultimately the banks.

If you are looking for a way to sell you home that you feel is worth less than you owe on it, we can help.  Please contact us on this link or try the chat button at the bottom of the page.  You can also stop by this helpful short sale information site as we by clicking here.  

Here is to a healthy, wealthy, and exciting 2011!

A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for.

Step One

Verify the value of your property.  If you are selling the property through a real estate broker, your broker will provide you with an estimate of market value.  If you are selling the property yourself, do your own market analysis of the area and your property.

Step Two

Add up all the costs of selling your property.  If you are using the services of a real estate broker, the broker will provide an estimate of closing costs.  If you are selling the property on your own, call a local title company or real estate attorney and ask, as a seller, what the closing costs will be.

Step Three

Determine the amount owed against the property.  This will be the total of all loans against the property.

Step Four

Do the calculations.  Subtract the total amount owed against the property from the estimated proceeds of the sale.  On a short sale, this will be a negative number.

Step Five

Contact the lender or lenders.  Talk to someone in the customer service department and tell them the situation.  They may direct you to a specific department.  Talk to a supervisor or manager if possible; this person will have more authority.

Step Six

Ask the lender what its procedures are for a short sale.  Some lenders are willing to work with you by reducing the amount owed or making other arrangements.  Others will look to the agents involved (if any) or anyone who’s making money off the transaction to see if they can make concessions to make the transaction happen.  Still other lenders will tell you, the debt is your responsibility, one way or another.

Step Seven

Sell the property.  Select a real estate broker to assist in marketing your Home.

Tips

Closing costs will include title and escrow fees (if the seller is responsible for any portion of them, which will depend on your county), attorney fees, a portion of unpaid property taxes, re-conveyance fees, notary fees, delivery fees, documentary fees and/or transfer fees.  Remember that the amount on your monthly loan statement does not include interest.  Interest is accrued until the date a loan is paid off, so you may have as much as 30 days of interest on top of the balance owing, and you’ll need to include this interest in the total payoff amount.

Warnings

If a property is sold under a short sale, the lender may require the buyer to make up the difference, either through a personal obligation or collection.  The IRS often gets involved with short sales, because they are seen as a relief of debt and may be treated as income.  Check with your accountant.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

What type of property qualifies for a short sale?

• Banks may consider a short sale for various reasons
• A Home in any location, size, style and condition may be considered

Normal steps to start the short sale process.

• The property must be in distress and have a sales offer in writing
• Discuss the potential short sale option with the homeowner
• The homeowner must sign an authorization to release form.
• You must have a signed sales contract for an amount less than what will cover all of the sellers’ costs
• Contact the Loss Mitigation department at the bank

Fax your offer along with the following to the bank.

• Include a cover letter explaining why the offer is less than full price, the sales contract, justifying comps for the area and pictures, if you have them.
• A net sheet or closing statement (a sheet that shows the bank exactly how much they will net after closing costs, taxes, etc are paid)
• A hardship letter from the homeowner that mentions the dreaded word….bankruptcy
• Estimate a cost of repairs using retail repair prices that the normal homeowner would pay for these items

What happens to the homeowner’s credit?

• Keep in mind that the agreed upon price is payment in full.  However, the homeowners may still owe the difference between the mortgage balance and the discounted amount via a deficiency judgment.
• If granted, this judgment will affect the homeowners and their credit report just as any other judgment.  You must get the bank to agree to accept payment in full without pursuit of any deficiency judgment.
• In addition, the difference between the mortgage balance and the short sale may be declared as income on your income tax returns by means of a 1099.
• Homeowners should speak with their accountant for advice.

What other options are available?

• Since Fannie Mae and Freddie Mac have additional programs to assist sub prime borrowers, many lenders are more willing to offer loan modification options.  This option can extend the term of the loan, add on delinquent payments to the loan principal, and/or reduce the interest rate to make the loan more manageable for the homeowner.
• Also, there may be an option to utilize a repayment plan that requires homeowners to increase their monthly payments until the loan is current.  Check with the mortgage lender and a real estate consultant who specializes in short sales.  It may be possible to refinance an adjustable rate loan with a Federal Housing Authority (FHA) or Conventional Fixed Loan.  Noe that lenders will not postpone a foreclosure just because a property is listed, although they may delay the process, if you have a reasonable offer in the works.
• The idea candidate for a short sale is still making loan payments and has a credit rating worth preserving.  Otherwise, it may not be worth going through the complicate process.

What are the seller’s options if a short sale is rejected by the lender?

• There are a variety of reasons a bank will reject a short sale – from too low a price to too many files on the loss mitigator’s desk.  You can look for another buyer or even try resubmitting the same contract.
• A short sale might be rejected if the loan is less than a year old.  In this case, the loan servicer that bought the loan may require the original lender to buy it back.

What financial liability will the sellers incur as a result of the short sale?

• Many lenders ask sellers to sign a promissory note for all or part of the difference between the proceeds of the short sale and the debt obligation as a condition to a short sale.  In such cases, the note gives lenders the right to sue a seller and attach other assets if the note is not paid when due.
• According to many professionals, it’s important to understand this difference if you work in a non-recourse state which may not allow the lender to pursue a deficiency judgment against a seller for any deficiencies after a property is foreclosed.  Seek the advice of an attorney and your lender to determine what financial obligations exist for both parties involved within your state.

Are there tax liabilities as a result of a short sale?

• Seek the advice of a tax expert.  The IRS requires lender to submit a Form 1099 stating the forgiven amount.  Sellers who meet the Internal Revenue Service definition of insolvency (either bankruptcy or with debts exceeding assets) may not have to pay taxes on the forgiven amount.
• The U.S. house of Representatives has introduced the Mortgage Cancellation Tax Relief Act (H.R. 1876), which would eliminate taxes on any debt forgiven on a principal residence through either short sale or foreclosure.
• Ask an accountant or attorney to provide more information on this bill.

Are For Sale By Owners qualified for Short Sales?

• Homes that qualify for short sales are identified primarily by word of mouth.  However, we have agents that specialize in short sale counseling which happens prior to filing bankruptcy.
• For Sale by Owners are another source since many homeowners look for ways to cut their costs when selling their property.  Their concern may not be warranted because many FSBO’s don’t realize that the bank covers the commission.
• With many more adjustable rate mortgages ready to reset to higher loan amounts in the next couple of years, short sales represent a growing sector of the market.

Legitimate businesses generally don’t advertise on utility poles or on temporary signs along the side of the road.  Be wary of anyone who calls or stops by your Home with an offer too good to be true.  Predatory buyers or scam artists may pretend to help you.  What they really want is your property.  A potential predatory buyer/lender:

• seeks you out to “solve” your financial problems
• pressures you to make a quick decision
• demands large up-front fees
• tells you not to contact your current lender or bank
• tells you not to contact a lawyer
• asks you to sign papers without giving you a chance to read them
• asks you to sign papers with blank spaces
• asks you to sign a deed
• offers to file bankruptcy for you

Legal Services of South Central Michigan

Click here for More Info on Predatory Lendors

Green Path Debt Solutions

1-800-630-7410

Stop by Tom Stachler's web site or call us should you need further assistance. Or you can Click Here to get an email report providing you with a valuation of your property.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

There are different options available to you when you no longer have enough income in the household to support the mortgage and all other bills.  These options assist with preventing the foreclosure, but do not mean keeping the Home.

Short Sale

The mortgage company allows the homeowner to sell the home for less than what is owed on it.  This option can be utilized before the Sheriff’s Sale.  Prior arrangements need to be made with the mortgage company before the official sale of the home.

Deed-in-Lieu

The mortgage company allows you to give back the deed to the home in exchange for “forgiveness” of the debt.  This must be done before the Sheriff’s Sale.  The mortgage company may require you to have the home listed on the market for a period of time before considering this option.

Sale of Home

List the home for sale.  This can be done before or after the Sheriff’s Sale.  However, to prevent the foreclosure from going on your record, the sale must be completed before the Sheriff’s Sale date.

During this time, the best thing for you to do is to stay in contact with the mortgage company.  This is important to prevent the foreclosure of your home, if at all possible.  Unfortunately, it may not mean keeping your home, but will allow you to “spare” your credit, so that you may purchase a home in the future when your situation improves.

You have up until the date of a Sheriff’s Sale to “work out” arrangements with your mortgage company.  So, if you can re-establish sufficient income before that date, then options that involve keeping your home become available to you.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

While a short sale may be a last resort for many homeowners facing foreclosure, it also represents a great opportunity for potential Home buyers and real estate investors. This article is designed to help answer a few basic questions about the substantial risk and reward involved in this extremely complex and often drawn out process.

What is a Short Sale?

A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. And, while short sales are not by any means common or easy, because of increasing inventory levels and foreclosures in some parts of the country, lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages. For potential home buyers and real estate investors, a short sale also offers a great opportunity to purchase property at a significant discount.

However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department.

Of course, lenders are not looking to bail out "flippers" or other borrowers who simply overextended themselves. In most cases, a borrower must have suffered a serious financial hardship that directly caused him or her to default on the mortgage: the loss of a job, a serious illness, or the death of a loved one.

A written declaration and supporting documentation demonstrating financial hardship will definitely be required by the lender. This may include pay stubs, tax returns, and liquid asset statements, among other documentation.

Key Considerations to Keep in Mind

The lender will likely issue a 1099 to the seller for the difference between what is owed and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges. This means that the difference or deficiency can be considered as taxable income to the borrower. Some lenders may even attempt to get the existing homeowner to sign a note for the remaining amount due.

If there are multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale. This is why an experienced real estate agent and mortgage professional become so valuable to this process.