Pre-Foreclosure Information for Real Estate Short Sales :
Why a negotiated Short Sale?
Negotiate to stay in the property until it is sold and closes escrow
Negotiate to stop making payments due on your loan
Negotiate to lower your loan balance to allow for a quick sale
Negotiate to allow your lender to pay all sales commissions
Negotiate to avoid a foreclosure on your credit or a deficiency judgment
Negotiate to take advantage of Debt Relief Act of 2007which removes the IRS tax consequences for many sellers Nationwide. In California, Click Here for the State of California Franchise Tax Board website and look for the link to Publication 1016 regarding withholding, pay attention to Loss or Zero Gain sales on page 8. Consult with your Tax Preparer regarding this.
In California, well over 60% of all conventional loan workouts are done through the short payoff method.
Read the following to see if a short sale is right for your situation. Call me directly at 619-861-5657 with any further questions, or Contact us for more info, click here.
What if I want to keep my property and re-negotiatewith my lender?
If you are not in need of a Short Sale and need some advice on how to re-negotiate with your lender and save your credit, we can assist you with this need also.
If you are current or not current with your mortgage payments, there still may be time to talk with your lender and re-negotiate your current mortgage (called a loan modification).
What you need to know about Short Sales or bank short sales
A short payoff sale, commonly shortened to Short Sale, is generally defined by loan loss mitigation professionals as "A sale in which a lender allows the property securing a mortgage or deed of trust loan to be sold for less than the existing loan balance, due to factors such as the borrower's financial circumstances, the property's physical condition, and local real estate market conditions."
A "short payoff sale" occurs when your lender agrees to accept less than the total owed in exchange for a release of the mortgage as a lien on the property. Other terms for a short payoff include short sale, pre-foreclosure sale, or pre-sale.
According to HUD, short payoffs account for well over 60% of all workouts on conventional loans. This option is on of the oldest and most frequently used, and it is the one that lenders are most familiar with. Since they are the most familiar with it, it is the option they prefer more than any other.
You must determine how much time you have to sell your home. Refer to the timeline in The Foreclosure Process for this purpose.
If you decide to sell your home to avoid foreclosure, the way to handle it depends upon whether or not you have equity in your home. You have equity in your home if there will be enough money to pay off your mortgage in full after all the expenses are paid when you sell. If not, then you must apply for a short sale.
If you have equity in your home, you can sell it just as you would if you were not in foreclosure. The only difference is that you must order the loan payoff statement from the foreclosure attorney or trustee instead of getting it from your lender. Your only concern should be closing the sale and paying off the loan before the end of the redemption period.
You must apply for a short payoff if the sale of your house will not leave enough money to pay off all the mortgages, liens, back payments, and sales commissions on your property. If this is the case, call your lender immediately and get a financial package from them to make your request for a short payoff. The sooner you do this, the sooner the lender can complete it's review of your short payoff request. Different lenders have a variable of packages for your individual loan workout options. Make sure that you request and receive the package for a short payoff or short sale.
Time is of the essence! The longer you wait to receive and complete the package and return it to the lender, the longer it will take to get the short sale approved. In this time, potential buyers of your property can and do get impatient which leads to their voiding the purchase and finding another property.
The purpose of the financial package is:
To make certain the reason for the default was unavoidable, involuntary, or beyond your control
To make certain that you have experienced financial hardship
To make certain that you do not earn enough money now to pay the deficiency in installments over time
To make certain that you do not have enough money to pay some or all of the deficiency in a lump sum.
Here are some important points to remember about selling your house if a short-payoff is required:
The listing agreement that you sign with your realtor MUST provide:
"The seller's obligation to perform on this contract is subject to the approval of the lien holders on the property. The seller may cancel this agreement prior to the ending date of the listing period without advance notice to the broker and without payment of a commission or other consideration, if the seller tenders a Deed-In-Lieu of foreclosure."
If your lender does not approve the contract, this language will allow you to back out. If the contract does not have this language and your lender does not approve a short-payoff, you must either bring money to the closing to make up the shortage. Your lender's decision to approve or deny the short-payoff will depend upon many factors, as each case is different.
FHA- Insured Mortgages
HUD has clear guidelines for reviewing short-payoff requests. As long as you meet the criteria, your request will be approved. The basic guidelines for approval are as follows:
You must live in the property
The reason for the default on the mortgage must be unavoidable, involuntary, or beyond your control
The house must appraise for at least 70% of the unpaid principal balance
The contract price must be at least 95% of HUD's appraised value
The net amount to your lender, after all closing expenses are paid, must be at least 87% of HUD's appraised value.
After your lender receives all of the written documentation from you, they will have the house appraised.
VA- Guaranteed Mortgages
Unlike HUD, the VA has set no guidelines for reviewing short payoff requests. Rather, they conduct their own analysis to determine if they would lose less money by completing the foreclosure or allowing you to sell the house.
There are no guidelines available for reviewing short sale requests on conventional mortgages. Conventional loans usually have an investor such as Fannie Mae or Freddie Mac and private mortgage insurance. All the parties to your mortgage (the lender, the investor, and the private mortgage insurer) must approve your short sale request. This process takes time, so prepare the buyers to wait about 60 days from the contract date until closing.
A Short Sale request is akin to an art form. Each one is different and the parties to the contract must bring the following qualities o the transaction: patience, persistence, knowledge, experience and creativity.
The more liens on the property, the more difficult it is to complete the short sale.
In some cases, filing bankruptcy may be your last and only hope of avoiding foreclosure; however, it is unlikely that a bankruptcy by itself will be your ultimate remedy. It is best used to your advantage in combination with other options such as HUD's Partial Claim Program, or to delay foreclosure long enough to sell your home. Most Chapter 13 bankruptcies fail! If you file a Chapter 7 bankruptcy, your lender will probably still be able to foreclose on your home.
There are certain limited situations in which a bankruptcy might be necessary or helpful, but before you throw good money after bad and do more unnecessary damage to your credit rating, get informed and understand what a bankruptcy can and cannot do for you. Here are the basic points you need to know:For most people, a bankruptcy should be the last option, not the first.
Most lenders have a stringent hardship test that borrowers must pass in order to have the short payoff of their loan approved. In most cases, the borrower must be experiencing one or more of the following financial hardships:The borrower or an immediate member of the borrower's family has experienced a catastrophic illness that has wreaked havoc on their personal finances.
The borrower's spouse has died or divorced and they have insufficient income to pay the loan payment.
The borrower's employer has transferred them out of the area and they're unable to sell or rent the property.
The borrower has been called away to active duty military service for an extended period and lacks the monthly income to pay their loan.
The borrower has suffered a disabling injury that precludes them from ever working again.
The borrower is unemployed and has no realistic expectations of finding employment in the foreseeable future, due to local economic conditions that are beyond their control.
The borrower has become financially insolvent, and there's no realistic expectation that their financial condition will improve within the foreseeable future.
The borrower has been incarcerated and no longer has the income to pay the loan payment.
The following factors generally influence a lender's willingness to approve a short sale:The number of non performing loans that the lender has in their portfolio. The lender's overall financial condition. The financial condition of the third party investor who owns the loan. The loss mitigation policy of the third party investor who owns the loan. The loss mitigation authority of the lender servicing the loan. The loss mitigation policy and procedures of the government agency insuring the loan. When deciding whether or not to approve a short sale, lenders consider these factors:The borrower's overall financial condition. The property's "as-is" value. The cost to put the property into resale condition. The property's "as repaired" value. The cost of securing and maintaining the property while it's being marketed for sale. The cost of marketing and selling the property.
Lastly, in almost all cases, the lender or loss mitigation company that's servicing a loan in default isn't authorized to approve a short sale. That's because approval for a short sale usually must come from the investor who actually owns the loan. Often times, it can take thirty days or longer for an investor like Fannie Mae or Freddie Mac to approve a short sale.
