Short Sale Information Booklet

Short Sale Guide

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This Guide may help clear up some options you have.

This information is provided by: Al Wagner ~ (910) 545-4351

Prudential Hometown REALTORS ~ 3466 Henderson Dr Jacksonville, NC 28546

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Intro

F eeling like there is no other option but foreclosure can be an overwhelming experience.

Know that you are not alone. Thousands of homeowners in the United States are facing the same challenges as you every single day. Now more than ever before there are solutions. You need help, guidance, and someone who understands the difficult choices you are facing about your home, your family, and your life. Quite often a homeowner facing foreclosure thinks they have to go through the process alone, forced into a daunting situation caused by unforeseen circumstanc-es beyond their control. Facing damage to your credit, and the possibility of not being able to pur-chase another home for 10 years can be a tough future to face, but by tapping into the expertise of a knowledgeable real estate agent, there are options available for you and you’ve come to the right place. This Booklet will provide you with information about how to avoid a foreclosure, explain the ef-fects it can have on you and your family, and offer other options that may be available to you. This includes a short sale, and I can help you determine if you qualify.



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How To Stop The Foreclosure Pro-cess

T here are a myriad of ways that unforeseen hardships can change the joy of owning a home

into an incredible burden. Maybe you’ve lost your job, got out of the service, received orders, have unexpected medical bills beginning to pile up, or your monthly mortgage payments have increased beyond your current budget. No matter what the cause of your troubles, ignoring the problem won’t help, it will only make it worse. You must act quickly to resolve the issue. The following are a few examples of how to stop a foreclosure on your home:

1. Look for Other Sources - Most homeowners don’t realize they have a variety of resources that can aid in making mortgage payments to avoid foreclosure. Consider the income created by un-employment or disability insurance and your savings as possible cash-flow resources. Other exam-ples include slashing the household budget by trading in expensive items like cars, boats, and motor-cycles for cash. Even retirement funds can be used, but beware that many people with access to their retirement funds can be penalized for early withdraw and face increased income taxes.

2. Contact Your Lender - If you have reviewed all possibilities of creating cash flow to pay your mortgage, then it’s time to reach out to your lender. Do this as soon as possible! If you can contact your lender before you get behind in payments, you may be able to refinance and reduce your pay-ments. Your ultimate goal in contacting your lender is to create an agreement that will alter your mortgage so that foreclosure proceedings can be stopped before they are finalized. Be cautious if you are behind in payments, your mortgage company will discuss options which may not be benefi-cial for you in the long run.

3. Review the Options - After contacting your lender, or in some cases the servicing company that handles the loan for an investor, you may have other options available. Typically lenders are not required to make adjustments to your loan, but many will consider it a viable option—one that ben-efits the lender and you and can include refinancing. Possible options to discuss with your lender include:

Deed in Lieu of Foreclosure - In this option, your lender may accept the return of the title to your home, but beware that the lender may still sue for loss and report any uncollected funds due to loss to the IRS as taxable income to you. This option may have negative effects on your credit re-port.



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Claim Advance - If you have a private mortgage lender, they will often provide a cash advance to bring your loan payments up to date. Sometimes this money is interest free and may not have to be repaid for years.

Re-Amortization - In this option the payments you have missed are added to the balance of the loan, making your account current. Your debt will increase and your monthly payments will be high-er unless the lender also agrees to extend the term of the loan.

Short Sale - Considered by many to be one of the best options available to avoid foreclosure, the short sale is an increasingly popular option. In this option, the lender accepts less than what you owe on the property, relieving the homeowner of debt. Lenders are often willing to accept a short sale because it greatly reduces the expense and time involved in foreclosure proceedings. In most cases, a short sale does less damage to your credit than a foreclosure. A qualified REALTOR® will be exceptionally helpful in completing the short sale process with you. One note of warning, beware of any company that guarantees they can stop any foreclosure no-matter what you owe. The Federal Trade Commission recently compiled a list of warning signs that a “foreclosure fixer” company may be a scheme. Those warnings include any company that requires you to pay for services up front, tells you to send mortgage payments to it directly, asks you to turn over the property deed, or tells you to avoid contacting your lender directly.



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Effects Of Foreclosure

T hese days more homeowners are facing a tough decision about whether a foreclo-

sure is the only option they have left. Deciding to foreclose on your home will have implications on your family and your credit for the rest of your life. When a homeowner can no longer make pay-ments to a lender for a home, the lender may repossess a home in the process of foreclosure, usually with the purpose of reselling it, to recover the amount owed on the defaulted home. Homeowners facing foreclosure proceedings will face lasting implications.

A few of the effects of foreclosure are: 1) Your credit scores will be significantly lowered, sometimes by more than 300 points. This is the single most devastating mark on your credit report and will affect all of your future credit possibili-ties.

2) A foreclosure listed on a credit report is nearly impossible to have repaired and will most likely remain a permanent mark on this valuable personal report.

3) Any future application for a mortgage you apply for will require you to reveal a previous foreclo-sure, greatly affecting your mortgage rates.

4) Most employers will also conduct a credit check. With a huge drop in your credit score due to a foreclosure, this may also hinder your future employment opportunities. This is especially true of many government positions, including military and law enforcement agencies.

5) If your current employer runs a credit check, then a foreclosure may even put your current em-ployment position in jeopardy.

6) In order to recuperate money they did not receive during a bank sale of the property, a lender may seek a deficiency judgment against you to obtain the balance.

7) Depending on your state law, you may be responsible for deficiencies after the foreclosure for an undetermined time period, placing you in a prolonged cycle of continued collections.

8) Your family will have to relocate. This is always a disturbance for children, marriages, careers, and other important aspects of your life.



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What Is A Short Sale?

F oreclosure on a home has consequences for the family, the community, the housing market,

and the economy. However, the option for a short sale provides a way for troubled homeowners to prevent foreclosure and many of the dire penalties involved. A short sale is an agreement in which your mortgage lender agrees to accept a payoff on the loan for less than the balance. Many lenders agree to a short sale because they receive more of the loan balance in comparison to the amount they would gain from selling the property following a foreclo-sure. This process also aids in maintaining home values in the community where the property is lo-cated and helps the homeowner maintain a better level of credit compared to a foreclosure. In most instances, homeowners considering a short sale must meet specific criteria to qualify: Though your mortgage company can not tell you this, you must be behind in your mortgage payments, you have to provide evidence of economic hardship, and have little or no equity in the property to the point where you will take a loss at sale. A short sale is not a typical real estate transaction. Most real estate transactions involve the home seller, their real estate agent, and a closing attorney as well as the buyer, their lender, their real estate agent and a closing attorney. In a short sale situation, all of those parties in addition to the seller’s loan servicer, a housing counselor, any junior lien holders, mortgage investors, and insurers may be involved too. With so many parties involved in a short sale, the process can be difficult to complete without a qualified REALTOR® to help guide you and act as a liaison between all of the parties involved. You will want the advice and expertise of a REALTOR who has your best interests in mind and will expedite the short sale transaction. It is essential to have a REALTOR who won’t allow you to miss a detail that could delay closing the transaction in a timely manner and to handle the specifics re-quired by all parties involved. A qualified REALTOR with experience in short sales will also be able to find a buyer to complete the transaction. Homeowners agreeing to a short sale should also con-sult a tax expert and obtain the services of an attorney to help protect themselves from any future claims by the lender.



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What’s The Difference Between A Short Sale And A Foreclosure?

R eview the following comparisons between short sales and foreclosures for a better under-

standing of why short sales are a better option for most homeowners. While a short sale is a long complicated process, the outcome is worth it in the end!

What are the implications to my credit score? Following a successful short sale, your mortgage will be reported on your credit score as either paid or negotiated, lowering your score as little as 50 points to possibly 200 points or more and affecting you for at least 18 months. After a foreclosure, however, your credit score can lower as much as 300 points or more and usually at a minimum of 250 points and affects your score for over three years.

What are the implications to my credit history? A short sale is usually reported as paid in full and is not reported on your credit history. A foreclo-sure will remain on your credit history for 10 years or more and will remain as public record.

Who decides if my home should undergo a foreclosure or a short sale? With both short sales and foreclosures, the decision is made by your mortgage lender. The most important aspects to getting a lender to agree to a short sale, and saving you the more damaging credit implications of a foreclosure, are to prove that you have no other way to pay the mortgage and that the amount received from a short sale is the fair price of the market. Lenders who believe they can receive more by taking possession of the home in a foreclosure and selling it themselves will not agree to a short sale.

How long will I have to wait to buy another home? After a foreclosure, you may end up waiting another 24 to 72 months before a mortgage lender will offer you an interest rate that is acceptable. Most mortgage lenders report that for homeowners who have undergone a previous short sale they may get a reasonable interest rate in less than two years. Fannie Mae guidelines allow a short seller to apply for a new loan immediately if payments were kept current and had no 60-day late payments on their record.

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What will be the effects on my future loans? For most mortgage lenders you will not be asked to declare or be questioned regarding a short sale on any standard loan application (1003). In regards to foreclosure, you will be asked on any future standard loan application (1003) if you have had a property foreclosed in the last seven years, there-fore affecting your rate. Fannie Mae-backed mortgages will be available to you following a short sale after two years. Fannie Mae-backed mortgages will not be available to you for at least five years if you have lost your home due to a foreclosure.

Does it affect my employment opportunites? A short sale does not appear on a credit report and will not challenge your current employment sta-tus. However, the late payments that are likely to incur during the sale process will most likely ap-pear on your credit report which may affect your employment. In comparison, if you have a fore-closure on your credit report, some employers consider it a reason for termination or reassignment since many run credit checks on employees for certain positions. A foreclosure can be extremely harmful to your chance of being selected for a new job if your credit report is taken into considera-tion.

How does a short sale compared to a foreclosure affect the deficiency judgment? If your short sale is handled successfully, the lender may give up the right to pursue a deficiency judgment against you. If the lender does pursue a deficiency judgment against you after a successful short sale, the amount will be considerably lower because your home was sold at a price closer to market value than that of an REO (Real Estate-Owned) sale. In all foreclosures, with the exception of those states without deficiency, the bank has the right to file a deficiency judgment against you. Since your foreclosed home will have to go through the REO process if not sold at auction for a lower sales price, this results in a higher deficiency judgment against you.



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Getting Started What’s the First Step?

First and foremost, contact your lender. This will aid in future communications by showing

your intent to resolve the matter with honesty to satisfy the loan balance on your home to the best of your abilities. Secondly, contact a qualified and experienced REALTOR®, an attorney, and ac-countant. As a local REALTOR and expert we may be able to recommend both an attorney and accountant to assist you with the activities in the process that requires a practicing law expert. You should also determine if you will qualify for a short sale by undergoing an analysis of your fi-nancial situation. An example of some of the documentation that you may be required to provide includes, but is certainly not limited to, the following:

Letter of Authorization - Lenders will not disclose your personal information with your REAL-TOR, attorney, or accountant without your authorization to do so. With so many parties involved in a short sale, a letter of authorization will aid in cooperation and information sharing. The authori-zation letter should include the address of the property, the loan reference number, your contact in-formation, the date, and your real estate agent’s name and contact information. Most mortgage companies have their own third party authorization form that your REALTOR will have access too.

Preliminary Net Sheet - This is an estimate of the sale price you expect and the expenses associ-ated with the sale of your property, including unpaid loan balances and fees. If you are unsure of how to calculate this information, a qualified REALTOR will be extremely helpful.

Proof of Income - Bank statements, savings accounts, and information regarding investments, cash, and additional real estate you own, should be provided to your lender. Your lender will require full disclosure of your financial situation in order to determine that your debt is worthy of for-giveness. Any document or evidence you can provide—from receipts for pawned merchandise, di-verse papers, copies of any late bills, and more—can be taken into consideration.

Comparative Market Analysis (CMA) - When markets decline and property values fall it often affects your ability to sell your home at a price that will satisfy the total loan amount. Proving this information to a lender through a CMA report prepared by your REALTOR® will show the price of homes similar to yours that are currently on the market, are pending sale, or have been sold in the last six months. Again, a REALTOR will be a valuable partner in providing you this information. There are many factors that will determine if you qualify for a short sale. If you need any help gath-ering this information, please feel free to contact me at any time!



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So What’s the Process? Most mortgage companies have their own systems and processes in place to manage short sales. This is a generic outline of the process.

Start – Gather your Documents and List Your Home For Sale – Contact your REAL-TOR and then start to gather all your financial documents. (see the attached list of typically needed documents). Your REALTOR will help guide you through the process and be your link to the mortgage company. Most lenders require your home to be on the market for sale with a licensed REALTOR for at least 2 months before they will consider you for a short sale.

Document Submission – Depending on your involvement with the mortgage company, you or your REALTOR will submit all your financial documents and needed forms to the mortgage com-pany. These will be put on file and will more than likely need to be updated during the process. Your mortgage company will review the documents and determine whether you are eligible for a short sale. They will not give approval on your short sale until an offer is submitted and reviewed. Some investors will give an approved marketing price, but this is not normal.

Offer Comes in – When the offer comes in for your home, you and your REALTOR will review the terms to make sure they are acceptable to you. This review process is mainly to see if the terms will fall in line with the mortgage companies guidelines. Your approval is irrelevant in the eyes of the mortgage company. The contract to purchase your home will also contain an addendum to en-sure all parties are aware of the ramifications, possible time lines, and final approval is determined by the mortgage company and investor.

Submission to the Mortgage Company – The closing attorney will then prepare a prelimi-nary settlement statement to submit to the mortgage company. Your REALTOR will then submit all documents to the mortgage company for review. The mortgage company will have a processor review all the documents and ensure everything is current and all is in place. This portion of the process is the longest as the processor normally asks for investor/mortgage company specific release forms to be signed by all parties involved (seller, buyer, and agents).

Negotiator Review – Things normally pick up from his point, here the processor forwards all the documents to the next level within the mortgage company which is the negotiator. Here the negoti-ator reviews the terms of the offer and makes sure figures fall within the investors guidelines. Nor-mally the negotiator either has changes needed on the settlement statement or they submit a counter offer to the buyer that is acceptable to the investor. You have no opinion at this point, it is between the buyer and the investor. If there are any changes made to the terms of the contract, you will need agree and sign documents reflecting these changes.



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Investor Approval – Once the negotiator approves the file it moves to the investor for final approval. Once the investor approves the terms, the file returns to the negotiator for a release to close. The investor will submit, in writing, acceptance and a timeline to close within.

Move to Close - Once the letter to close is received by your REALTOR, the buyer will then com-plete their remaining processes to meet their lenders requirements. This letter to close from the lender will also indicate whether you will receive a full release or only a release to close. A full re-lease will relieve you from paying back any of the loss the mortgage company incurs. This is also a good time for you or your attorney to start discussing with the mortgage company how everything will affect your credit. Once the buyer has all of their processes complete we will set a date to close. Your mortgage company will review the final settlement statement one last time and you and the buyer will sign all necessary documents to transfer ownership. Remember, you will not get any pro-ceeds from the sale. ** Again, though most mortgage companies follow the steps outlined above, this is a generic outline and each mortgage company has their own processes.



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Frequently Asked Questions Are there any other options? Outside of the options discussed earlier, some reach out to family members to help out. This can get costly, depending on how long it will take to sell, and could cause financial stress to the family member helping. Another option is for you to get a personal loan from a financial institution to cover the difference in the loss. Though a personal loan can be in the thousands of dollars with a higher interest rate, it is substantially less than the mortgage balance and can be managed to pay off in a much shorter period of time. These options are not detrimental to your credit.

I’ve missed a few mortgage payments, what will happen? Your home may undergo the foreclosure process, but there are ways for you to prevent this from happening. Some mortgage companies move to the foreclosure process faster than others. So seek help quickly.

What should I do once I’m behind on my mortgage payments? Don’t wait, get help early! By actively working to resolve the issue as soon as possible, you greatly increase your chances of avoiding the loss of your home through foreclosure. If you even see the possibility of missing a payment, contact your lender and explain your financial situation. This act of initial contact, before letters of delinquency arrive, will help your lender understand that you are fac-ing issues that impede your payments, providing your lender an incentive to find a proper “work-out” resolution, or to begin modifications to your loan.

What is a “work-out” resolution? Commonly, the term “work-out” resolution is an agreement where you continue making payments on your past due amount over a period of time, or a modification to your loan to lower your interest rate, or an extension loan period that will help lower your payments.

I am in the foreclosure process, should I stay in my home or leave? You should contact your attorney to determine the best course of action. Abandoning your property may have severe negative consequences on your qualification for assistance.

Do you have any other advice? Always be wary of potential scams. Any person or company offering a solution that sounds overly optimistic may be trying to take advantage of you during your time of financial troubles. Some warning signals of a scammer include anyone who charges a fee before any services are completed.



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Closing Please understand that a Short Sale is a team effort. With all parties that are involved, (you, the agent, the buyer, the buyers agent, the lender for the buyer, etc) patience is the most important thing. Each mortgage company has their own process and systems that need to be navigated through in order to get your home sold. If you are considering a short sale, gathering the needed documents and producing other documents needed through out the process in a timely manner is imperative. The goal in a short sale is to get your home sold, pricing is extremely important but more on the aspect of what the mortgage company will accept, not on what you hope to sell for. Since the short sale process can take 3 to 9 months (or longer), a short sale is not attractive or even an option for most buyers, therefore your home must be in presentable condition and priced below the current comparitive homes on the market in your area. Again, we will go over all of this. If your ready to talk more about your options and see how I can help, feel free to contact me any-time at (910) 545-4351.



Short Sale Information Booklet

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Transcript of Short Sale Information Booklet