Stay in your home while it sells. We can help; let us show you! Avoid Foreclosure! Whether you're buying or selling, we know the process so we can do the leg-work for you. Short-Sale Definition: A Short Sale is the process by which a homeowner can, if successful, sell their home for less money than they actually owe on the mortgage(s). This is done by providing proper documentation to the mortgage lenders to convince them to reduce the mortgage balance(s) and allow a Short Sale. The mortgage lender (or bank) actually takes a loss on the mortgage because the value of the home has fallen below the mortgage balance AND the homeowner is in a financial condition that will not allow them to continue making payments. If the lender(s) approves the discount on the mortgage(s), the home can be sold for a lower price without the seller having to come up with cash to cover the shortfall. The mortgage(s) is satisfied and the foreclosure process stops. Why would a bank or mortgage lender want to do a Short Sale?Banks do not want to own real estate, they want to lend money and collect interest. When a bank takes a property back via foreclosure, it is a long and expensive process and often results in holding the property in their inventory as a non-performing asset. Banks have a limit to the amount of non-performing assets they want to hold. Once this limit is exceeded, they have strong incentive to get rid of the properties at discount prices. For a lender, doing a Short Sale avoids many of the costs associated with the foreclosure process. Attorney fees, delays from a possible borrower bankruptcy, damage to the property, costs associated with resale, property tax, insurance, etc. all must be paid by the bank during a foreclosure. In a Short Sale scenario, the lender is able to cut these losses by getting rid of the property faster. This is particularly true right now because the number of foreclosures are high. Benefits of Doing a Short-Sale: New Guidelines went into effect on April 5th, 2010. See how you might Modify your loan or help save your Credit Rating by using the Short-Sale Method. We can help! Call us with any questions: 941-235-3528 or Toll Free: 877-75HOYLE Contact Us In early 2009, the National Association of REALTORS® (NAR) urged the U.S. Treasury Department, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac to improve the short sales process. Home Affordable Foreclosure Alternatives Program (HAFA) on November 30, 2009 and released an updated version on March 26, 2010. April 5, 2010 is the effective date for the program. TIMELINE Determination of Eligibility and Notification Servicers must consider HAMP-eligible borrowers for HAFA Does not qualify for a HAMP trial period plan Does not successfully complete a HAMP trial period plan Is delinquent on a HAMP modification (misses at least 2 consecutive payments) Requests a short sale or DIL If the servicer determines a borrower is eligible based on its written policy and the program rules, the servicer follows the following steps. If a servicer has not already discussed a short sale or DIL with the borrower, it must notify the borrower in writing of these options and give the borrower within 30 days after the borrower does at least one of the following: 14 calendar days to respond, orally or in writing. If the borrower does not respond, that ends the servicer’s duty to give a HAFA offer. If the borrower asked for consideration but a short sale or DIL is not available, the servicer must inform the borrower with an explanation and provide a toll-free number. Short Sale Agreement The borrower has 14 calendar days from the date of the Short Sale Agreement (SSA) to sign and return it to the servicer. The SSA must give the borrower an initial period of 120 days to sell the house (servicers may extend up to a total of 12 months, if agreed to by the borrower). Purchase Offer Within 3 business days A copy of the sale contract and all addenda Buyer documentation of funds or pre-approval/commitment letter from a lender All information on the status of subordinate liens and/or negotiations with subordinate lien holders. of receiving an executed purchase offer, the borrower (or agent) must submit a completed Request for Approval of Short Sale (RASS) to the servicer, including Servicer Approval Within 10 business days after the servicer receives the RASS and all required attachments, the servicer must approve or deny the request and advise the borrower (with a statement of the reasons in the case of disapproval). Closing and Lien Release The servicer may require the closing to take place within a reasonable period after it approves the RASS, but The servicer must follow local or state laws to time the release of its first mortgage lien. If local or state law does not require release within a specified time, the servicer must release its first mortgage lien within 30 days. Investors must waive rights to seek deficiency judgments and may not require a promissory note for any deficiency. Rules also apply to participating junior lien holders. not sooner than 45 days from the date of the sales contract unless the borrower agrees. NAR FAQs HAFA is a complex program with nearly 50 pages of guidelines and forms. To help you better understand the process, NAR has prepared some frequently asked questions that address the basics. For more information on HAFA and more detailed NAR FAQs, please visit Who is eligible for HAFA? www.realtor.org/shortsales The borrower must meet the basic eligibility criteria for HAMP: Principal residence. The property may be vacant up to 90 days before the date of the Short Sale Agreement (SAA), Alternative Request for Approval of Short Sale, or DIL but only if the borrower documents they were required to relocate at least 100 miles from their home for purposes of employment and they have not purchased another property in the 90 day period. First lien originated before 2009 Mortgage delinquent or default is reasonably foreseeable Unpaid principal balance no more than $729,750 (higher limits for two- to four-unit dwellings) Borrower’s total monthly payment exceeds 31% of gross income How is the program being implemented? Supplemental Directive 09-09 (revised March 26, 2010) gives servicers guidance for carrying out the program. Check www.realtor.org/shortsales for future updates. A short sale agreement (SSA) will be sent by the servicer to the borrower after determining the borrower is interested in a short sale and the property qualifies. It informs the borrower how the program works and the conditions that apply. After the borrower contracts to sell the property, the borrower submits a "Request for Approval of Short Sale" (RASS) to the servicer within 3 business days for approval. If the borrower already has an executed sales contract and asks the servicer to approve it before an SSA is executed, the Alternative RASS is used instead. The servicer must still consider the borrower for a loan modification. What are the steps for evaluating a loan to see if it is a candidate for HAFA? 1. Borrower solicitation and response 2. Assess expected recovery through foreclosure and disposition compared to a HAFA short sale or deed in lieu of foreclosure (DIL) 3. Use of borrower financial information from HAMP 4. Property valuation 5. Review of title 6. Borrower notice if short sale or DIL not available (to borrowers that have expressed interest in HAFA). What are the HAFA rules regarding real estate commissions? Under updated guidelines and forms issued on March 26, 2010, the servicer sets the amount of commission in the SSA as a "reasonable and customary" closing cost. NAR is challenging this change to the November 30, 2009, guidelines that had set the commission at the amount in the listing agreement, not to exceed 6 percent. However, if the Alternative Request for Approval of Short Sale is used (where an executed sales contract is submitted to the servicer for approval before a SSA is executed), the amount of the commission continues to be the amount in the listing agreement, not to exceed 6 percent. At the urging of NAR, the Treasury guidelines issued on March 26 rescinded the November 30, 2009 policy authorizing the servicer to reduce the real estate commission by a specified amount to pay a vendor/negotiator hired to assist the listing broker. This is a major improvement. Neither buyers nor sellers may earn a commission in connection with the short sale, even if they are licensed real estate brokers or agents. They may not have any side deals to receive commission indirectly. What else should I know? The deal must be "arms length." Borrowers can’t list the property or sell it to a relative or anyone else with whom they have a close personal or business relationship. The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end of 2012, however, forgiven debt will not be taxed if the amount does not exceed the debt that was used for acquisition, construction, or rehabilitation of a principal residence. Check with a tax advisor or the IRS. The servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment, which may hurt credit scores. Buyers may not reconvey the property for 90 days. March 30, 2010 NAR’s concerns were first addressed on May 14, 2009, when the Obama Administration announced the outline of a program to provide incentives and uniform procedures for short sales and deeds-in-lieu (DIL) of foreclosure under the Making Home Affordable Program. The Obama Administration released guidelines and uniform forms for its Modified HAFA rules for loans owned or guaranteed by Fannie Mae or Freddie Mac are being developed (check www.realtor.org/shortsales for updates). HAFA does not apply to FHA or VA loans. HAFA, which will help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP), provides incentives in connection with short sales and deeds-in-lieu of foreclosure. The program: Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home. Uses borrower financial and hardship information already collected under HAMP. Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds and acceptable closing costs). Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holders receives an incentive under HAFA, those debt as well (no cash contribution, promissory note, or deficiency judgment is allowed). Uses a standard process, uniform documents, and timeframes/deadlines. Provides financial incentives: $3,000 for borrower relocation assistance; $1,500 for servicers to cover administrative and processing costs; and up to a $2,000 match for investors for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders. Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation. The deadline for implementation by servicers is April 5, 2010. The program sunsets on December 31, 2012. If your Short Sale is successful: - It will be up to you, but many folks at this point stop making their mortgage payments. This gives them a chance to begin saving up money for a move.
- You will keep a full blown foreclosure off your credit history. A Short Sale will impact your credit much less than a foreclosure. Before and after studies have shown that a foreclosure will likely lower your credit score much more than a Short Sale.
- You don't have to say "Yes" when asked on future loan applications whether "you have had a house go to foreclosure"
- You will most likely be eligible, under current Fannie Mae guidelines, to buy another home in about 2 years instead of about 5 years for a foreclosure. FHA and VA have not published wait guidelines, but if you get your credit score back up with a solid one year good pay history, you may be able to qualify for a new loan.
- For you, there is no out-of-pocket cost to you. I will negotiate with your lender(s) and strives to get full satisfaction of all debts that are against your house and to get a waiver of deficiency from the lender. If the house goes all the way to foreclosure, the costs continue to add up until the lender gets the house resold as a bank owned REO. In this case, the potential for deficiency will be much higher than if your lender agrees to a Short Sale.
- Working out a Short Sale may allow you to avoid filing bankruptcy.
- Retain some dignity in knowing that you sold your home.
- You won't suffer the social stigma of the "F" word: Foreclosure.
- Although you won't receive any funds at closing, it won't cost you anything either. All costs of the sale come out of the lender's proceeds.
- Typically homes sold in a Short Sale are sold "As-Is", so you won't need to spend any money fixing anything, unless you choose to do so.
Drawbacks of Doing a Short Sale- Waiting for the bank to respond to the new Short Sale offer can be frustrating.
- The bank will want to review some of your personal records such as tax returns, bank accounts statements, pay stubs, assets and liabilities, in addition to asking for a hardship letter from you.
- Accommodating prospective buyers will mean you allow agents to show your house. (If you have already moved, or plan to move soon, this may not be an issue.)
- There is no assurance the bank will accept a Short Sale offer.
- As a Short Sale represents a loss for the lender, they can report the amount lost as debt forgiveness to the borrower. They could issue a 1099-C as income to the borrower. However, the Mortgage Debt Relief Act of 2007 allows qualifying borrowers to exclude this income for a principal residence (Refer to IRS Publication 4681 and IRS Tax Form 982 for more info). It should be noted that the lender can send out this same report if your home goes to foreclosure as well.
- If you have significant unencumbered assets other than your home, you might be providing the lender with information that they may wish to try and pursue.
We have the expertise to evaluate your situation. Call us for a free, no obligation consultation regarding your home and your options. You're not alone! We're here to help: 941-235-3528 |