The prospect having to sell your home in a short sale - for less than you owe on it

   is a scary time for most people.

Here are some of the main questions people ask me about the process. If you are looking for in dpeth information on the process please read the section below or better yet call us and let us walk you through it.

DON'T Be Scared! Be informed.  Alway remember it is a process and not a scary unpredictable event.  Once you know the time line you are empowered to make better decisions.

Now May Be The Best Time To Modify Your Loan

You may find - depending on your needs and goals - that a loan modification is the best way to go.  Ask yourself this question "Do I want to be or Can I be in this home in five years?" If the answer to that is yes, let us tell you how you can pursue a loan modification. There is no charge and we will help with the information you need to make that descion. Right now the banks have more modification programs than ever and are under pressure to try to work those out with you.

Contact Michael for a no pressure, no cost short sale consultation

Michael@PSagent.com

760-408-5300

Top Short Sale Questions:

1) Will the bank let me sell for less than I owe?

Yes, it is a process and there is paperwork involved but you can sell.

2) What if I have two mortgages?

It is a little harder but it can still be done.

3) Why shouldn't I call one of those companies that does it for me?

The biggest part of a short sale is gathering all the documentation Guess who does that? 
YOU!  There is no magic pill and while Short Sales are not sexy or fun they are not hard.

4) How much money will I make in the Short Sale?

None, you are prohibited from making any money on the sale

5) How much will the short sale cost me?

Should be none.  Costs and fees are paid by the bank.

6) Can I take all the upgrades I did to the house?

This is not really proper. Personal property - not attached - can be reomved but you should leave the basic components of the house, such as ceiling fans, stove, dishwasher, basic light fixtures

7) Why did I get turned down for a modification?

There are many reasons - but the main answer is that no matter what terms the bank renegotiates on your original loan you have to requalify for the new program. If you are out of work and have other bills that have gone late you may not be able to qualify even for a reduced payment. Loan modification does not mean you can pay whatever, whenever. It means new terms with set payments.

8) I heard that through the HAFA program I can get $3000 to move out after my short sale?

Yes, but that does not come without restrictions.

What is a HAFA Short Sale?

HAFA (Home Affordable Foreclosure Alternatives Program) is a federal government program designed for homeowners who can no longer afford their mortgage payments and wish to avoid the negative impacts of foreclosure when home retention is not an option. 

The Benefits of a HAFA Short Sale:

• No Deficiency Judgments
• No Cash Contributions at Closing
• No Promissory Notes
• $3,000 to Seller for Relocation Assistance
• Additional Incentives for 2nd Mortgages, up to $6,000 more at closing

Eligibility Requirements for a HAFA Short Sale:

• Home must be or have been the primary residence in the last 12 months
• Seller must have a hardship
• First lien mortgage cannot be a government loan
• Mortgage originated on or before 1/1/09
• Mortgage is delinquent or default is foreseeable
• Current unpaid principle balance is $729,750 or less

A short sale happens when the seller cannot sell the home for as much as they owe the bank.

 Short sales are different from lender owned homes, homes in foreclosure or auction homes.
 
  In a short sale the seller is usually still occupying the home.  Showings and the selection of the realtor listing the home are still in the hands of the seller. However, the big difference is that when an offer is received all parties start to work with the bank to see if the offer is acceptable to them. What the seller wants for the property does not matter. Yes, they could refuse to sell the home but they are usually desperate and have no choice but to try.

Benefits to the Buyer of a short sale:

Typically the main benefit is price. You are getting a home at a substantial discount compared to similar homes in the area.

Inspection and negotiation.  Unlike an auction or a foreclosure the seller in a short sale voluntarily listed their home and really does want to sell, so they are usually pretty cooperative. You will be able to inspect the home and have time to decide if the home is right for you and in acceptable condition.  Typically you will have a full 17 day (standard in CA) period to inspect the property after your offer is made.

Banks in short sales will sometimes negotiate.  If you are a strong qualified buyer or a cash buyer you can usually bargain a little with the bank. The negotiation can take several forms if not in actual sales price at least on some closings costs or repair costs if there is a defect with the property.

Negatives to the Buyer of a short sale:

The time period for a bank to respond is controled by them.  They may take 2 weeks they may take a month. If you are on a tight schedule or trying to move by a certain date a short sale is not the way to go for you.

It is commonplace now for banks to come back with a list of things they won't pay for. Normally these items are "extras" inspections and reports, home warranty policies, termite inspections and home owner association fees.  Buyer beware when buying in a gated community or any community subject to a homeowners association. Banks will normally,as part of their agreement to sell,  not pay more than 3 months past due fees and usually no fines.  The problem here is the seller usually has no money and everyone in the transaction is going to look to you as the buyer to make up the difference.  Be sure to ask if the seller is current on Homeowners fees and penalities.

Banks often times continue their foreclosure action even though the home is being negotiated on.  Once they reach the point of no return you could have the house pulled out from under you and it could go to full foreclosure.  Make sure you know if and when the seller received a Notice of Default.  They only have 120 days ( in California) from that point to sell the home.  While it is possible that they have negotiated to delay that date you as the buyer MUST know if the seller has received their Notice of Defaiult.

Important news for CA homeowners involved in a short sale. New legislation going into effect immediately prohibits lenders who accept a short sale from pursuing them for any difference in the payoff and the loan amount.

News Release:

July 15, 2011

CALIFORNIA ASSOCIATION OF REALTORS® applauds Gov. Brown on signing SB 458 into law 

LOS ANGELES (July 15) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds Gov. Jerry Brown on signing SB 458 (Corbett) into law.   SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.

Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance of the loan, but unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.

“The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce.  “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

SB 458 contains an urgency clause making it effective upon signing.

THE PROCESS:

Short Sales & Foreclosures

Know the difference: A short sale is not a foreclosure it is a way to sell your property before it is foreclosed on

I have been told that a Deed in Lieu  (owner walks away from property voluntarily signing it back to the lender) is worse than a short sale.  A short sale shows not paid in full whereas a Deed in Lieu shows as a foreclosure.

In a short sale situation the bank will look closely at cash out refi’s in the last 18 months and will probably ask tougher questions about that.

The bank may ask for an unsecured promissory note for the portion of the money you do not repay.  These typically carry no interest and you are suppose to be able to negotiate the due dates for these payments. If it is your primary residence it is probably a "non-recourse" loan and you do not have to agree to this though the bank may still ask.

Banks typically do not offer a workout package in advance, though some banks are slowly stariting to change this procedure and let you get some of the work out of the way upfront. You must list the property for sale and get an offer before they will discuss what they will or won't take for a property. This may be changing and there are some test markets where a few of the banks are trying a pre-negotiated price for short sales.

Once an offer is received we will need to prepare a package to send with the offer.  This package must include: (The first four items are things you must provide)

1)     A Hardship letter – You write this. Short and sweet with the main reasons you can no longer pay the note as agreed.  Best answers are health, job relocation, job loss etc.

2)     Pay stubs and/or a couple months Bank statements – if you are self employed these need to be business and personal

3)     A list of all monthly expenses you have on the property with the name and address as well as account number of who you pay. Include all utilities/ service people you use to keep the property running.

4)     Authorization Letter for Title/Escrow and Realtor to talk to the bank directly

5)     The Estimated Closing Statement from Escrow (HUD1)

6)     A Copy Of the listing and purchase agreements.

Time Frame for acceptance of a Short Sale offer:

up to 30  Business days to be assigned to a negotiator

up to 60 days total for acceptance or counter offer

Other considerations:

If there is a second loan on the property a release letter from the junior lien holder must be received before the first lender can close the deal. Usually the first lien holder will give them a token payment of $3000 to release their lien.  Most junior lien holders will cooperate but you must know that some will not.

If the property is part of a bankruptcy proceeding the lenders cannot do anything. If you file Bankruptcy while a short sale is going on everything will come to a halt.

A lender may issue a 1099 for the portion of the money that they did not get repaid after the sale of the property.  This is considered debt forgiveness by the IRS.   It may be a good idea to specifically ask the lender not to issue a 1099 against you for their loss.  If it is your primary home and you did not refi the home since you bought it you probably will not have this issue.  If you refinanced the home multiple times or have lines of credit against the home this will probbaly mean that you could be subject to a deficiency lien. I was informed by a CPA that the primary home exclusion does not included investment property or second homes.  Please check with your tax professional to see how this affects your personal tax situation.

Most importantly ask for help from your lender.  Faced with many cases these days lenders are offering to adjust terms, put you in new loan programs or delay payments if you need temporary relief.  If there is no chance in sight that you will be able to pay these obligations a short sale is probably your best alternative to make the most of the situation.

As always, everyone has different circumstances.  It is vitally important that you discuss your options with your tax and legal advisors.  This document is a general overview of the process and does not substitute for the advice of your attorney or tax preparer.

New Laws in 2011:

No deficiency judgement in California if the bank agrees to a Short sale.

*See Update above 7-15-2011 no deficiency Judgement on Second mortgages either.

If you or someone you know is having trouble making their mortgage payment it is vital that the responsible party talk to the lender as soon as possible. Here is a list of numbers that you can get started with. 

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CitiMortgage Inc.  866-915-9417

Bank of America  800-846-2222

Household Mortgage  800-395-4489

Household Finance  800-340-7505

OCWEN  877-596-8580

GMAC  800-850-4622, 800-766-4622

LBPS (IBM)  888-917-6004

Ditech  800-852-0656, 800-449-8582

Washington Mutual  Call Chase Bank

Wells Fargo Loss Mitigation  866-261-5642

Chase Manhattan Mortgage Corp  800-446-8939 x 3553

US BANK  888-780-3997

Greentree  877-816-9125

National City Mortgage/ PNC 1-800-367-9305 x54949

Homecomings (GMAC) 800-766-4622

Wells Fargo Home Loans: 877-216-8448

Wells Fargo Bank: 800-678-7986
 

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