Short Sale Information

What is a Short Sale?       

A Short Sale can happen when the proceeds from the sale of a home do not fully pay off the existing loan(s) and the lender(s) accepts a discounted payoff to fully satisfy the loan(s). The existing lender usually pays virtually all sales costs, including commissions, escrow and title fees and any repair costs. You get your home sold, the loan(s) paid off and avoid foreclosure. A possible down side is that you may be hit with a 1099 tax bill from the lender(s) for the forgiven part of the loan. Please seek advice from qualified legal and/or tax advisers about such a possibility.
What is an approved Short Sale?

An “approved” Short Sale typically occurs when the lender(s) have worked the file to completion and have accepted the value of the property and approved that price.  Frequently, though, an original buyer has walked away from the transaction, but, at least the listing agent now has a good idea what price the lender will accept. These are the best short sale listings to go after if you´re a buyer.

Is a Short Sale right for me?       

Lenders are becoming increasingly willing to work with borrowers who are faced with 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, now, as opposed to taking the property through the expensive foreclosure process. Remember your lender is looking to limit any potential loss on their loan to you. By completing a Short Sale, your lender has arrived at a solution that is usually much better for them, and for you, than a foreclosure. The Federal Government and Lenders are currently working on programs to help people in your situation.

How much do I have to pay to sell my home in a Short Sale?     

In most cases, you will pay ZERO sales costs if your lender approves the Short Sale. The lender pays all commissions, title and escrow fees, and perhaps even some repair expenses as part of the Short Sale approval.  In some cases, lenders are even giving the distressed seller a financial incentive, if they’ll undergo a short sale.  That might be anywhere from a few thousand dollars, to $10,000 to $30,000, depending on the lender, and the price range, of the property.  I am trained in proper verbiage to put into the contract to protect you during a Short Sale. Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid even bigger losses through foreclosure.

How do I get started?

The Short sale process usually requires proof of financial hardship. ( See below.) You should not have any available funds which could be drawn upon, and must show that you have taken every possible step to avoid not being able to make your loan payment. We should talk in person, about your options. My goal is to help you avoid losing your home. Sometimes we can work things out, to help you stay in your home, and other times it is better to list and sell it. It all depends on where you are at in the process, as to what our options are. If you would like to get prequalified for a Short Sale, please shoot me an email at BobPhillipsRE@gmail.com . If you would prefer to discuss it on the phone or set an appointment, call or text me at 949-887-5305. There is no cost to you, or obligation, to get started. It is as simple as contacting me and talking about it. If you later decide you don’t want to do a short sale, or we find a better option for you, that is OK too.

Can I deed my property over to someone else, to avoid all the hassle?

Deeding your property to someone without paying off the loan is almost always a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit. Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property. Do not deed your property to someone without paying off the loan unless you have been advised by an attorney.

What is a legitimate hardship?       

Below is a list of “hardships” that are common and frequently accepted by mortgage lenders.

• Family illness or injury
• Illness or injury in the extended family ? particularly if it forces relocation
• Job relocation when the property is equity deficient
• Job loss or significant income loss
• Divorce or split of domestic partners
• Adjustment in mortgage payment or unforeseen increase in living expenses

The lender´s Loss Mitigation Department handles all Short Sales, and to some extent, will decide if the hardship is legitimate. If the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will usually be processed by the Loss Mitigation Department. A strong hardship letter is a big key to getting Loss Mitigation to accept a hardship. The hardship letter sets the tone for the entire file. I find this is usually best written by you, since your emotion and feelings will be put into it. I help you compose this letter.

Will the lender consider a short sale if I am still current with my payments?

Maybe, and it is increasingly likely. Some lenders will accept a Short Sale file for approval on loans that are not delinquent, while others will not accept the file until the loan is delinquent. We can put your Short Sale file together within a couple days and submit it for approval. (Remember, there is no charge for this). That is the best way to determine if your lender will accept a file for approval on a loan that is current.

Why would a lender agree to a Short Sale?      

Below is a list of reasons why a mortgage company would approve a Short Sale;

1.  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.

2.  Investors are 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.

3.  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

4.  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.

Do lenders approve all Short Sales?       

The answer is no. From the presentation of the Short Sale package to the lender, to working with the lenders Loss Mitigation’s Department, I know how to keep the file moving towards approval. I have a team of experienced individuals who can help, if needed.The first step is to get pre-qualified for a Short Sale. Call or text me at 949-887-5305 or send me an email. ( BobPhillipsRE@gmail.com )

Can I do a short sale if I have additional loans?

Yes. It requires more work, but we will work with all lenders to put together a transaction. We can usually get the lenders to cooperate, even if the balance of the 1st mortgage is greater than the value of your home. Many times the same lender holds both the 1st and the 2nd loans, which simplifies the process. In the end, neither lender wants to own another home through foreclosure.

Can I still do a Short Sale if my property is in need of repair?     

Yes, and in fact, lenders are usually more motivated. 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 not in the handyman business, but rather the loan business.

How will a short sale affect my credit?

The big key here is that you avoid foreclosure. A foreclosure, by nearly any measure, is worse than bankruptcy, and the most damaging event to your credit. If you miss your mortgage payments during the course of getting your short sale approved, these will show on your credit, but by avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly. ( Usually, within 2 or 3 years.)

Do I need to sell my home if my income problem is temporary?

You may be able to keep your home. You need to convince your mortgage company of two things:

• The problem that caused the mortgage payment disruption was beyond your control ? illness, injury, temporary disability or forced job change are a few examples
• You are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount.

This is usually done by a Forbearance Agreement. I recommend that you have a lawyer draw this up for you.

What is a Forbearance Agreement?

This is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:

• The borrower´s promise to remain current on the mortgage going forward
• Some plan for making up the delinquent interest and other charges. It may mean making additional payments to the mortgage company or the delinquent amount could be added to the loan to be paid later.

To get things started, call or text me at 949-887-5305 or send me an email, ( BobPhillipsRE@gmail.com )

The sooner we start, the sooner you can begin to breathe easier.