Today, there are thousands of homeowners facing financial hardships for numerous reasons whether loss of job and income, unexpected medical expenses or excessive consumer debt. Many homeowners who purchased real estate during the last five years find the current market value of their home less than the loan balances owed to the lender. Fortunately, there is a solution for most people who are encountering a financial hardship in making their mortgage payment. The "Short Sale" is a transaction where the existing lender(s) agrees to accept less than the full amount owed by a homeowner on an existing mortgage or loan(s) in order to allow the property to be sold to a qualified buyer.
The lender(s) agrees to discount the current loan balance, accrued interest, delinquent fees and related costs of a sale in order to avoid foreclosing on the property. The legal process of foreclosing on a property normally results in a greater financial loss to the lender and further damage to the borrower's future credit.
Most people facing foreclosure or a financial hardship who cannot sell their home for what is owed will qualify. However, each lender and loan type has a different set of requirements.
• True financial hardship • Job transfer/loss • Facing imminent default while in a ‘Must Sell’ situation • Have NO Equity in your home • Excessive medical bills • Divorce • Death • Expenses exceed income • Loan is adjusting higher and borrower cannot afford the new payment
Most short sales are successful for properties heading toward foreclosure. This means the homeowner is at least 3 months behind and the foreclosure process has already begun. Recently, more mortgages that are behind or in "default" are considered short sale candidates without actually being in foreclosure. NOTE: Some lenders DO NOT require homeowners to be behind on payments in order to qualify for a short sale.
Next, the homeowner typically has no equity in the home. The total balance owed to the lender(s) is equal to, or greater than, the price the house can be sold for.
Lastly, the homeowner must have some type of "financial hardship" which is preventing payment of the mortgage(s).
The process could take 2-4 months or longer to complete. Your patience, communication and cooperation are the keys to a successful short sale. Steps to complete a short sale:
1. List your home with a Realtor 2. Homeowner completes a financial hardship letter and financial package 3. Home is marketed 4. Offer received from a pre-approved buyer 5. Short sale package is submitted to lender(s) 6. Lender orders the appraisal 7. Negotiations between the seller, buyer and lender 8. Short sale is approved by lender 9. Property is sold and escrow closes
1. You pay no out of pocket expenses. All short sales are sold in "as-is" condition, meaning you won't have to spend time and money on home repairs. Your lender also pays for all commissions and escrow/title for the transaction.
2. Your credit damage is minimized. A short sale will have a recoverable impact of 80-100 points on your credit, compared to the devastating effect of 250-350 points a foreclosure has on a credit score.
3. You can buy another home in just two years. Fannie Mae Announcement 8-16 recently set the standard that homeowners who choose to short sale only have to wait two years before buying another home. Foreclosure prevents you from owning a home for at least 5-7 years. 4. You have an assured sense of relief. Short sales in lieu of loan modifications give homeowners a new start. The Department of the Treasury just released a study revealing that 55% of homeowners re-default again within six months of receiving a loan modification.
5. You may save money and pay fewer taxes. The Mortgage Forgiveness Debt Relief Act of 2007 allows short sale homeowners to not be taxed on the difference between their loan amount and the short sale price. With a foreclosure, you'll receive a 1099 for a home you don't even own. You need to consult with your CPA.
6. You have a dignified solution to a difficult problem. A short sale allows you to stay in your home during the negotiation period. A foreclosure can become an embarrassing situation as a bank representative comes by to lock up the doors and windows, change the locks, and put up "bank owned" signs on your property while the local Sheriff is contacted to have you forcibly evicted.
7. You'll have an easier time finding a nicer place to rent. If you chose to rent, a foreclosure and/or eviction are red flags for landlords that will make it very difficult for you to find a place to live in the future. However, while a short sale is being negotiated, homeowners have many more options and can easily select a new place to live at their leisure.
- No Foreclosure on Credit
- Generally, No money needed to close
- No repairs necessary – Sold "as-is" condition
- No taxable event for those who qualify
- No deficiency judgment - if negotiated
- Out from underneath your mortgage debt
- No need to file bankruptcy
- A positive step towards home ownership in only 24 months
- You can move forward with your life without having to worry about your house and your mortgage Reasons to Avoid a Foreclosure:
Foreclosure Follows You – Homeowners will always have to disclose that they have had a foreclosure on any mortgage and job applications. There is no seven year limit on this item.
Credit Score Negative Impact – Credit scores will be lowered by as much as 300 points or more. Along with a bankruptcy, a foreclosure is one of the most devastating credit issues you can have in relation to future credit availability. Ineligibility for a Government Insured Loan – Homeowners will be ineligible for a government insured loan for 5-7 years (only two years for a short sale). A foreclosure is the one credit report item that is almost impossible to have repaired. Possibility of Deficiency Judgment – Your lender can seek a deficiency judgment against you and collect any amount they do not recuperate at the bank sale. Negative for Employment Credit Checks – Many employers run credit checks on prospective and current employees. Foreclosure is one of the top items that will put a potential new hire and current employee in jeopardy.
You Have Alternatives – As your short sale specialists, Terry Yapp & Associates will explore every option with you and work toward the best resolution.
Do Everything You Can – While it may not seem like it now, there will come a time where you current financial troubles will pass. You will feel much better knowing that you did everything you could to avoid this devastating financial consequence that so many people face today.