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The Short Sale Process

Tuesday, December 18, 2007
by Group One Realty Team - Real Estate One

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.

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Frequently Asked Questions about Short Sales

Tuesday, December 18, 2007
by Group One Realty Team - Real Estate One

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

Tuesday, December 18, 2007
by Group One Realty Team - Real Estate One

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.



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What is a Sheriff's Sale?

Monday, December 17, 2007
by Group One Realty Team - Real Estate One

Sheriff Sale (also called Mortgage Sale)

                    

  1. A Sheriff Sale occurs after 4 consecutive weeks of newspaper publication (“insertions”) and posting of a notice on the property.
  2. Sheriff Sales are scheduled every Thursday, at 10:00, in the Washtenaw County Courthouse in downtown Ann Arbor.  You are not required to attend a Sheriff Sale.  Sheriff Sales for individual properties are sometimes adjourned for a week at a time.  The homeowner is not given additional notice of an adjournment; it is only posted at the Courthouse.
  3. Most properties are purchased by the bank that holds the loan (a “credit bid”) for the amount of the outstanding loan balance plus various fees and interest.  Sometimes another person or company will outbid the bank.
  4. The purchaser receives a Sheriff’s Deed (Sheriff’s Deed on Mortgage Sale) but does not yet own the property.
  5. The purchaser records the Sheriff’s Deed with the County Register of Deeds.  Once the sale occurs, the redemption period begins.

 

Your Rights After Sheriff Sale

 

  1. Even though an auction has been held and a Sheriff’s Deed issued, you have not yet lost your property.
  2. Most foreclosures give you a 6-month redemption period which usually begins on the date of the Sheriff’s Deed (if your property is large or you have a lot of equity, your redemption period may be longer).  If you know you won’t be able to redeem, you can use this time to find new housing.

a.)    You do not have to pay anything to your lender; save your money for moving expenses and/or a rental deposit.

b.)    Seniors can contact the Housing Bureau for Seniors for assistance in finding rental housing; others can call SOS for help:

Housing Bureau for Seniors: (734) 998-9339

SOS Community Services Housing Crisis Center: (734) 484-4300

c.)    Don’t feel pressured by the lender or its attorney or property management company to move out during the redemption period unless you are ready to go.  If you do move early, your property can be declared “abandoned” and the redemption period can be shortened.  If you get a notice of abandonment and you have not abandoned your property, be sure to respond quickly and in writing that you have no abandoned.

 

  1. You can get your property back if you can “redeem” it by paying the full amount to the holder of the Sheriff’s Deed, often your original lender or its attorney.  The amount due may change from the amount noted on the Sheriff’s Deed; so ask the lender’s attorney or the owner of the Sheriff’s Deed for the correct amount.  If you are able to redeem the Sheriff’s Deed, make sure that your redemption is recorded so your ownership remains clear in the public record.
  2. You can also try to sell your home during the redemption period, especially if you have a lot of equity (“equity” means the difference between the value of your Home and the remaining amount of the loan).  Again, work with the lender’s attorney or the owner of the Sheriff’s Deed so that you know for certain the mount needed to pay off the debt.  You may have to pay a broker’s commission and there may be other costs.
  3. At the end of your redemption period, if you have not already moved out, you will be served with eviction papers.  A court hearing will be scheduled, usually within 10 to 20 days.  You will then have an additional 10 days after the hearing date to move and remove your possessions (lenders’ attorneys will often give you more time if you ask).  If you don’t, a court officer will go to the house to remove you.  Your lender or its attorney or property management company may imply that you must move out immediately but the only legal eviction is one that is court ordered by a judge.
  4. Once your redemption period ends, you no longer own your home.  It is rare but possible that your lender will sue you for any deficiency.  “Deficiency” means the difference between the amount of the Sheriff’s Deed and the amount your former home is sold for (plus additional costs).  Being sued for a deficiency is somewhat more common with second mortgages or home equity loans.  If this happens to you, you should contact an attorney to respond to the lawsuit.

 

Being sued by your lender is very rare.  It is more common that the lender may file an IRS form 1099 which treats the deficiency as income to you.  You would then owe taxes on the deficiency.  You can protest this with the IRS – contact an attorney, certified public accountant, or qualified tax preparer to assist you.

 

  1. Scam artists target people who are facing financial difficulties, including foreclosure.  You should be very suspicious of anyone who contacts you offering to “help.”  One common scam is someone who offers to help save your house if you pay a fee.  Another scam is an offer to buy your house and allow you to stay on as “renters.”
Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.
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Timeline of Mortgage Foreclosure

Tuesday, December 4, 2007
by Group One Realty Team - Real Estate One

First Month Missed Payment:  The first month your payment is missed your mortgage company is likely to contact you by mail and/or telephone to inform you of your delinquent status.  A late charge is assessed on the missed payment.

 

Second Month Missed Payment:  The second month your payment is missed your mortgage company is likely to begin calling the contact numbers they have for you, in order to discuss why you have not made a payment.  It is important that you not avoid their telephone calls.  Try to stay calm on the telephone and explain to them your situation and what you are trying to do to resolve it.  You still may be able to make one payment at this time to prevent yourself from falling three months delinquent.

 

Third Month Missed Payment:  At this point, you are likely to receive a letter from the mortgage company stating the amount you are delinquent, and that you have 30 days to bring it current.  This is called your “Demand Letter” or “Notice to Accelerate.”  If you do not pay the specified amount or make some form of arrangement by the date given, they are allowed at that time to refer you to foreclosure or accelerate your mortgage.  They are unlikely to accept less than the total due without prior arrangements if you have received this letter.  Foreclosure/acceleration means that they forward your account to their attorneys.  You still have time to work something out with the mortgage company.

 

Fourth Month Missed Payment:  Now you are usually nearing the end of the time allowed in your Demand Letter or Notice to Accelerate.  If this expires and you have not paid the full amount or worked out arrangements, then you will be referred to their attorneys.  At this time, you incur all attorney fees as part of your delinquency.  The attorney then schedules a Sheriff’s Sale, which is the actual date of foreclosure.  The Sheriff’s Sale will be scheduled for approximately six weeks after the attorney receives your file.  You will be notified of this date by mail, along with a notice taped to your door.  This is NOT a move out date.  The attorney publishes notice of foreclosure over four successive weeks in the local legal newspaper.  After the insertion on your property is published in the legal news, you have 4 weeks until the Sheriff’s Sale! Contact your lender NOW!

 

Sheriff’s Sale:  You have up until the date of the Sheriff’s Sale to work out arrangements with the mortgage company or to pay the total amount owed (reinstatement amount).  At the Sheriff’s Sale your house will be sold.  An outside party may bid on your Home.  If no bids are received, the home goes back to the lender.

 

Redemption Period:  If nothing is done to resolve the situation and the Sheriff’s Sale is completed then you enter the Redemption Period.  The redemption period starts from the date of the Sheriff’s Sale.  State Law requires that this period is not less than 30 days and no more than one year.  Most mortgages allow the homeowner six months to redeem property with the lender/bidder, paying the amount owed plus interest and fees.  If property is over 3 acres, you may have a 12 month redemption period.  You will be notified of your time frame on the same notice that states your Sheriff’s Sale date.  This is still your time to reside in the home.

 

 

End of Redemption Period:  If the homeowner has not redeemed the property, ownership is transferred to lender or bidder.  If the homeowner has not left, the new owner starts eviction proceedings.  An eviction hearing is held within two weeks, followed by a 10 day grace period for the former homeowner to vacate the premises.  When the grace period ends, eviction is certified.  Court bailiffs are notified and empty the premises.

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