SHORT SALES – FREQUENTLY ASKED QUESTIONS
As a Short Sale Listing agent, we get many questions regarding the process, lenders, what course of action should be taken… There are an endless number of questions that come up. So, we decided to list the Top 10 FAQ regarding Short Sales that we get asked. Our intention is to try to paraphrase the Short Sale question and provide the simplest answer we can.
What is a Foreclosure?
In simple terms: You have not been making the payments, and it is the action the financial institution can use to take the house back. You borrowed money using your house as collateral with the agreement that if you could not pay it back, and then the lender could take the house.
First of all, you should never ignore letters from your lender. When you have problems with making payments you should contact your lender right away, explain your situation and possibly provide them with supporting information.
If you had temporary financial problems, and you have recovered, but your net income is now less than it was before the default, you may qualify for refinancing or mortgage modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level.
Another alternative in case of temporary problems may be a special forbearance. Your lender may be able to arrange a repayment plan based on your financial situation. They may even provide for a temporary reduction or suspension of your payments. In short – your missed payments may be put at the end of the mortgage loan term. You may qualify for this if you have recently lost your job or your source of income or if you had an unexpected increase in living expenses. You will have to provide your lender with proof that you would be able to meet the requirements of the new payment plan.
You also may want to try a pre-foreclosure sale/Short Sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage a foreclosure would cause to your credit rating. You may qualify for this solution if the amount of mortgage you owe is significantly lower than the Fair Market Value of your house. It is not a “dream deal,” but considering the circumstances it may be the best option. If you decide that a Short Sale is your best solution, time is crucial, and you must get stared right away. Do NOT believe the stories of how this person or that lived in thier home for free for 2 years without paying and then decided to short sale. Lenders can be understanding, but will NOT be taken advantage of should they suspect that to be the case.
Can the bank just come and kick me out of my house?
No. Sometimes people are told by collectors, “Just leave the keys in the mailbox”. You still have time until the sale has occurred, and the house is no longer yours. At that point, there may be an opportunity to discuss timing with the person(s) handling the asset for the bank. In some cases, you may be eligible for a small incentive to vacate the property in a timely fashion without damaging anything. Each situation will be different.
You can avoid this situation by working with the lender to complete a successful Short Sale prior to a foreclosure which will most often benefit all parties.
What are a Home Owner's Options on an Underwater Mortgage?
Clients want to know, are the only choices Foreclosure or Short Sale? Clients want to know, what are all the options besides Foreclosure or Short Sale on an Underwater Home? Clients want to know THE BASICS…
To Keep a Home:
- Continue Paying the Loan
- Refinance (must be in an “Equity” position)
- Loan Modification (Making Homes Affordable Program)
- Personal Loan to cover short-term shortfall
- Forbearance (A.K.A. – Workout)
- Bankruptcy (Consult CPA & Real Estate Attorney)
To Not Keep a Home:
- For Sale By Owner
- Deed-in-Lieu of Foreclosure (1099A)
- Short Sale (1099C)
- Bankruptcy (Consult CPA & Real Estate Attny)
- Foreclosure (1099A)
Sometimes “SIMPLE” is best. Each of these Home Owner Options for an Underwater Home may be a considerations depending on individual situations. To know more about YOUR Options call Ken with TPR Properties @ 916-751-1800
When in the foreclosure process should I move out of my house?
What Lenders have you worked with on your other Short Sale Listings?
Is it "Right" to Short Sale?
This is a question that is one that generally has an opinion or judgment already attached. My response is simple and 3 fold:
- Every situation is subjective. What is “Right” for one may not be “Right” for another. I do not attempt to Judge one situation over another.
- The lender or lenders will determine if they are willing to modify the previous mortgagor/ mortgagee agreement. If the parties all agree, what is there to judge? Don’t people and companies make agreements and modify them in every aspect of life? If you take a job, work there for the agreed to wage for a period of time, then ask for a raise – You seek to modify the employee/ employer agreement. Bottom Line – there are many many ways to look at any situation. Many many outside ethical standards applied… However in the end, it comes down to a business agreement that either will or will not be modified (SHORT SALE).
- Then I discuss the economics of the property and homeowner in question.
And on goes the discussion… I short sold my own home 2 years ago. It was NOT what I wanted. It was what I needed. I lost a HUGE down payment. My situation changed and the market tanked so far that I could not do what had been traditionally done – Sell and Divide the proceeds. So, I had to sell and take the loss along with my lender. Mine is ONLY 1 of THOUSANDS of situations…
What is the Mortgage Forgiveness Debt Relief Act of 2007?
What will I owe the Bank?
Effective July 15, 2011, California has prohibited Junior Lenders (2nds, HELOCs, etc) from having any deficiency recourse claims against the borrower if the lender agrees to take part in a short sale. Gov. Jerry Brown signed SB 458 (Corbett) into law which only impacts 1 to 4 unit dwellings and it took effect immediately. California already prohibits lenders from having any further rights against a borrower if the lender forecloses or agrees to a short sale.
This law may or may not be beneficial to folks attempting to short sell their homes. Only time will tell. In the past, it has been my experience that generally both 1st and 2nd mortgage lenders that allowed a short sale would also grant the borrower (Seller) a release from any further obligation or recourse. Sometimes in order to get this agreement as part of the settlement, the seller would be asked to contribute a payment at close. This will no longer be an option for either lender or seller with this new law. Thus, options to successfully complete a short sale transaction may now be limited.
What do I write in a Hardship Letter?
When does The Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act of 2007 Expire / End?
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Roseville Short Sale Advice | Sacramento Short Sale | Foreclosure Advice
Roseville Short Sale Advice | Sacramento Short Sale | Foreclosure Advice