A Short Sale is unique.  Although you are the homeowner according to the note & or deed recorded when you purchased your home…because the home is selling for “Less” than that original note, the lender/bank now has to approve the terms of the sale and will decide how much of a reduced price will be accepted for the property.  With that, the bank will also decide if they are going to offer money towards closing costs, home warranty, termite…fees etc.

When you are asked to sign a purchase offer, the buyer may ask the “seller” to pay closing costs.  Remember, the bank holding the title has the ultimate say on what will be paid in the transaction. These fees or costs will be paid from the proceeds of the sale.  If approved…the closing costs will be paid from the proceeds.  You as the seller, will not be responsible to pay for the closing costs at close of escrow. This is also true of real estate broker commissions. Commissions are negotiated by the broker and are also paid from the proceeds. Again, you will not be responsible to pay commissions.

Another very important thing to be aware of as the homeowner-

When you list your home for Short Sale, in Fresno you will be asked to sign a Short Sale Listing Addendum.  This form explains the Short Sale process and ultimately allows you to cancel the sale at anytime, for any reason.

What does this mean for you?

If you are not comfortable with the terms the lender has offered as an approval, CANCEL the sale.  You are in complete control.  Do remember that you will have to deal with the possibility of Foreclosure if you refuse the terms as agreed by the bank.

Make sure you have an experienced and trained Short Sale Agent represent you through the sale. Experienced? 10+ closed short sales. Ask to see previous clients Approved short sales.

I have never had a sale approved that the homeowners were not thrilled with.

Jeremy Smiley, Realtor
Short Sale Specialist
London Properties
Fresno, CA
(559)790-8760

Source: Elizabeth Weintraub, About.com Guide

•  You are in control of the sale, not the bank.
• You may sleep better at night knowing who is buying your home.
• You will spare yourself the social stigma of the “F” word, foreclosure.
• Contrary to popular belief, you can be current on your payments and still effect a short sale.
• Your home sale will be handled like any other home sale.

Buying Again After a Short Sale
If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait for an FHA loan is 3 years.

If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.

Buying Again After a Foreclosure
With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.

If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.

Affects on Credit After a Short Sale
A short sale is not a derogatory mark on your credit because credit bureaus do not show the word “short sale” on your credit report. It may say “pay as agreed” or “paid as less than agreed,” among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.

The point drop is typically due to being in default, that is behind on your payments.

Affects on Credit After a Foreclosure
A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years.

Credit Reports After a Short Sale
All lenders report short sales differently and some do not report them to the credit bureaus at all.

Credit Reports After a Foreclosure
If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.

Deficiency Judgments After a Short Sale
Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.

Deficiency Judgments After a Foreclosure
Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee’s sale.

Loan Application Questions After a Short Sale
Loan applications do not ask questions about a short sale. You may report that you sold your home.

Loan Application Questions After a Foreclosure
You are required to answer the question: “Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years.” If the bank sees you have had a foreclosure, your loan most likely will be denied. If you lie, you may be subject to investigation by the FBI for mortgage fraud.

Length of Time to Move After a Short Sale
If you’ve had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for short sale approval can be from 2 to 3 months, or longer.

Length of Time to Move After a Foreclosure
Unless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings.

Taxation After a Short Sale
A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions.

Taxation After a Foreclosure
Same as with a short sale. Except some lenders immediately send out 1099s, even if the owner is exempt.

In closing, always obtain legal and tax advice before making a decision between a short sale or a foreclosure.

Should You Choose a Short Sale Over a Foreclosure?

The Short Sales and Bank Fraud story continues to gain traction. After CNBC aired the story we brought them, dozens of other media outlets, bloggers and authorities have contacted me to discuss this topic.

Here is the story of how this fraud initially came to our attention, along with the evidence to back it up.

Last year, I was contacted by an experienced real estate agent in our network who negotiates many short sales. She had recorded a conversation between her and a supervisor in the loss-mitigation department at a major national lender, who she felt was trying to get her to do something illegal.

Here is the audio of that recording, along with the transcript. The names have been removed at the request of the agent to prevent backlash from the bank.

Listen: Recorded Conversation with Bank Supervisor

AGENT: OK, so the only way to settle with *LENDER* then is to get money from somebody else and pay it prior to – that’s what *LENDER-EMPLOYEE* suggested – pay it prior to close of escrow, outside of…. <unintelligible> Pardon me?

LENDER: That is something you can do.

AGENT: Pay it outside of escrow, off the HUD, prior to close.

LENDER: Right, that’s something you could do.

AGENT: And is that something you guys do regularly or you see people doing?

LENDER: Yes, that happens – we have people that send us money outside if they need approval letters <unintelligible> from the first, and once we receive the additional funds, the approval letter can be sent for what the first actually offered – so it happens.

AGENT: OK and what about the fact that the first says that, no more than you know, a certain percent is to go to the second?

LENDER: OK, if the first… Here’s the thing, if you’re asking what this is about – the first is saying “well here’s what I’m going to allow” and the first is saying “this is what we’re willing to pay out.”  If there’s a contribution, if you don’t want to be able to come up with the additional that we’re asking for – the first has already gave their approval on what they’re doing – what someone just comes up with has nothing to do with the first.

AGENT: Even if on this letter it says that “the second is not to receive any more than a certain amount”?

LENDER: The first can not dictate what we receive. The first is saying what they are only going to allow. That’s the amount that they’re allowing to us. If someone out there – the buyer – or a family member puts more money and says here’s what I want to give for you because here’s the additionally requested funds – that has nothing to do with the first.
You’re not asking the first to come out of their pocket any extra than what they are willing to give. So that that’s not any information that might have to be required on the HUD.
Hold on one second please.  <long pause>

LENDER: So I need to have the information – you’ve had the opportunity to go over this with *LENDER-EMPLOYEE* – did he explain all this to you on how this takes place?

AGENT: Well he does but I’m having a tough time, ******, I’m licensed and everybody else…

LENDER: It’s not illegal; it’s not a hard thing, this thing that has happened. The information that you’ve actually received from us – we’re actually trying to help you get this deal closed. If you choose to go back and tell the first what’s going on – you’re going to kill the deal.
So what actually happens prior to closing has nothing to do with the first. What happens at closing – that is information you can provide to them. If you are able to come up with additional funds not to get this deal closed prior to closing, then that’s fine – that’s irrelevant for the first. If you go ahead and you want to let the first know “well, here’s all the information that I have – here’s what’s going on” you will be the one to actually kill this deal. I’m trying to actually give you a way to go about getting this resolved. If you take our suggestion – you take the information that *LENDER-EMPLOYEE* has given you – you can have this done.
If not, then you know, those guys are going to foreclose on it and it’s a done deal. But it’s not like we’re holding up this process.

AGENT: Well, what about the form that the buyer’s lender puts out that there are – that everybody has to sign that says there are no side deals?  <long pause>
I mean that… How do I get around that?

LENDER: What you need to take care of actually is not going to be a problem. What they submit to us – there is $****** they are giving us – the only thing you have to worry about – I mean it sounds like you’re scared that you’re going to be fined for something because you are doing something you are not supposed to. This is what we do all day.

AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…

LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place. Nobody’s losing their license and nobody’s going to jail, nobody’s receiving a fine…
So and here’s the thing too, I’ll be really honest with you, if you are uncomfortable about working it, you can probably assign it over to someone else, where they would be able to do this – if it makes you feel that uncomfortable – you should probably just assign it over to someone else. Someone who’s actually been able you know – who’s done this before, who’s more familiar with it.
Not to be disrespectful or rude to you or anything like that, but we deal with this every day all the time, this is not something out of the norm. But if you feel like you are doing something that’s against your morals, please assign it to someone else who’s been able to do deals like this so they can get it done, and you can have a happy buyer and a happy seller.

AGENT: Well, how do I get, I mean what’s the logic or if I could understand – when I’m signing a paper put out by FHA that says there are no side deals – this is a side deal.
 

LENDER: This is a contribution. <long pause> You guys are able to come up with money in order to get this deal closed.
 

AGENT: OK

LENDER: OK. So the offer that we have it still stands – you can call *LENDER-EMPLOYEE* back and let him know if, what you’re going to do, and if you guys foreclose, we understand. If you’re not comfortable with this – go ahead and assign it over to someone else.

AGENT: <sigh> OK, well thank you for your time.

LENDER: No Problem

Jeremy Smiley, Realtor
Short Sale Specialist
London Properties
Fresno, CA
(559) 790-8760

1) 14.4% of ALL mortgages delinquent or already in foreclosure in the US.  That is a historic record.

2) PRIME borrowers (NOT SUB-PRIME) borrowers are now the leading edge of this epic housing mess. 33% of all delinquencies (and those already in foreclosure) are PRIME.

3) Next fun fact: 144% INCREASE in FHA delinquencies year over year. Anyone want to place any bets on the long term viability of the FHA in its current incarnation? Anyone?

4) Saved the most staggering stat for last…get ready…The total number of delinquent (and in foreclosure) homeowner/ borrowers is GREATER than the total number of homes for sale. Lets put this into perspective: There are currently around 4,000,000 homes for sale in the country. Thus, there are MORE THAN 4,000,000 homes delinquent or already in foreclosure. Rounding this out a bit, many studies have estimated the total number of homes in the US that are foreclosure bound (if the homeowner doesn’t wise up and sell the home via a short sale) is 13,000,000 to 15,000,000.

Via: ecreditdaily.com

The foreclosure crisis is taking a troubling turn. Even homeowners with good credit, and often employed, are walking away from their ‘underwater’ mortgages, experts are saying.

And this trend can be seen in the hardest hit states, starting with Florida. One in four mortgages in Florida were either past due or in foreclosure, followed by Nevada, California and Arizona, according to third-quarter 2009 figures.

The statistics hit home for Jose Rodriguez, 31,a resident of the West Kendall suburb of Miami, Florida. South Florida saw some of the highest property value increases before the housing bubble burst last year. It is now grappling with some of the highest foreclosure, or bank-owned, inventories in the hardest hit state.

Rodriguez, a prime borrower with a good credit standing, said he cannot justify making payments on a $275,000 two-bedroom townhouse whose value has collapsed to below $150,000. And he is willing to take the hit on his credit standing by voluntarily entering the foreclosure process. With the assistance of a lawyer, he figures he’ll be able to stay at his townhouse, purchased two years ago, for a few more months.

“I can save thousands of dollars by renting a similar space,” said Rodriguez, who works as a front desk attendant at a Miami Beach hotel. “We here also pay more on hurricane insurance and property taxes. It doesn’t make sense anymore.”

The Mortgage Bankers Association this week reported that fixed-rate loans to prime borrowers continued to represent the largest share of “foreclosures started and the biggest driver of the increase.”

About 33 percent of foreclosures started in the third quarter of this year were on prime fixed-rate loans. And those represented 44 percent of the quarterly increase in foreclosures.

“The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54 percent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure,” the MBA said.

Overall, the mortgage delinquency rate reached a record 9.64 percent of all loans outstanding for the third quarter of this year, according to the MBA.

That compares to 9.24 percent in the second quarter of 2009, and 6.99 percent in the third quarter of last year. The delinquency rate breaks the record set last quarter.  The records are based on MBA data dating back to 1972

Published: Nov. 20, 2009
By Steve Cook Real Estate Economy Watch
Investors buying homes to rent or sell accounted for only 15 percent of the housing market last month as they competed with large numbers of first-time homebuyers flooding the market to buy in time to qualify for the first-time homebuyer credit. The percentage of first-time buyers closing on homes rose from 42 to 47 percent of all home sales in October, according to an Inside Mortgage Finance/Campbell Communications survey released today.

However short sales—sales for less that the owner owes on the property—soared in October. The short sale inventory is booming as owners who are underwater on their mortgages seek to dispose of their homes. Short sales nationwide increased from 13 percent in June to 15 percent in October. Some 30 percent of properties sold last month in California were short sales, which were particularly popular with first-time buyers. They accounted for 57 percent of all short sale purchases, at an average price nationwide was $221,414.

Though investor purchases of bank-owned properties is declining, investors still accounted for more than half of the damaged bank-owned foreclosures sold during the month, and more than 72 percent used cash to make their purchases. About 13 percent of all homes sold were damaged REO properties.

Investors paid less on average than first-time and existing homeowners, an average of $186,831. First-time buyers paid $192,884 and existing owners $299,963 on average. Investors concentrated damaged REOs, which have declined from 20 percent to 15 percent of the market supply since July.

Competition is hot for damaged REOs; they attracted an average of four offers each in October. Damaged REOs sold for an average of $129,567, less than move-in ready REOs, short sales and non-distressed properties. However, the average price for damaged REOs has risen more than $30,000 since July while non-distressed property values are falling. Damaged REOs spent the least time on market of any property type, an average of 7.5 weeks.

Short sales, on the other hand, spent the longest on market, 17.5 weeks, and received an average of 3.1 offers. Forty-five percent of short sales were financed by FHA, which reflects their price and their popularity among first-time buyers. Sixty-one percent of first-time buyers used FHA financing.

The survey of 1500 real estate agents found that number of first-time buyers was easing as the deadline for the first-time buyer credit neared in October. The credit has since been extended until April 30 and expanded to include move-up buyers as well.

via Investors Fade While Short Sales Soar.

Short Sale Tip of the Month

This may seem like ShortSale101. So, no offense to the veterans among us. But, one of the number one reasons a short sale is denied or a short sale file is closed is due to a short sale package that is incomplete or one that includes out-dated paperwork.

A complete package means:

• You are using the most current lender specific short sale package.
• You submit everything requested on the lender’s document checklist.
• If a seller cannot supply any of the requested items, you MUST send a separate statement for each item that is signed and dated by the seller and includes a detailed explanation about the items absence.
• All items must be the MOST RECENT.
• All financial statements and hardship letters MUST be signed and dated.
• The hardship must be fully and understandably explained.

Some ideas:

• Clearly LABLE EACH ITEM when submitting the package to the lender.
• Consider having the seller officially file a tax extension if they have not yet com-pleted this years tax returns. The extension will be better received by the lender than a written statement explaining why taxes have not been filed.
• Have the seller submit any unemployment statements or other benefit or subsidy statements in lieu of pay-stubs.
• If a seller is self-employed, have them supply their most recent quarterly profit-n-loss statements. If they do not use an accountant or accounting program, then have them submit a detailed explanation of expenses with an itemized account of receivables for the last 3 months.

Short Sales:
A short sale is when a home owner wishes to sell, but owes more money on their mortgage than the home is actually worth in today’s market. Some characterize this seller as “distressed” but the bank has not started the foreclosure process or taken title from the owner. Therefore, in a short sale situation:

· The homeowner still owns the property (And is maintaining it as well)

· The owner usually occupies the home (or has tenants)

· The property will be sold “as is,” meaning the owner/lender will not pay for any surveys, repairs or credits for any inspection items.

· The buyer enters into a contract to purchase with the homeowner, but needs lender approval to forgive the difference between the sale price and the balance on the mortgage.

· The time frame from contract to close is generally between 3 -5 months.

Foreclosed Properties:
A property is owned by the lender, usually a bank. The lender usually hires a company to oversee the management and sale of the property.

· The bank owns the property.

· The home is usually vacant, and unfortunately, may be missing appliances, is damaged, or in need of repair.

· Utilities are generally disconnected which can make previewing the home in the evening or in cold weather difficult.

· Property usually sold “as is.” The bank does not provide any property disclosures or guarantees any information.

· Buyer enters into a contract with the bank/lender.

· Cash offers generally win out, even when other offers are more. The banks generally don’t want to risk selling to a buyer who may be unable to secure financing.

· Response time from a bank can be as quick as 3 days or as long as a month. It can vary drastically depending on which bank it is.

Short sales are a great opportunity for today’s buyer… as long as the expectations concerning the time frames associated with short sales are set correctly from the beginning. All the heart aches and horror stories you hear are most likely due to the buyer not being completely informed about the short sale process and time frames.

A new report from the National Consumer Law Center says Mortgage servicers have found it cheaper to foreclose on homeowners than offer loan modifications.  The report points out that servicers in charge of modifying distressed loans are separate from the lenders, who have packaged the loans and sold them in pieces or pools to other banks and investors.   “In the majority of cases, servicers have nothing to do with what’s in the best interest of those investors,” said Diane Thompson, the author of the report and attorney at the NCLC. “We figured this out by following the money, by following who plays what role in all of these business transactions and who gets paid what for doing what.”  Financial incentives encourage servicers to pursue a foreclosure in lieu of a modification, which costs the servicer upfront money in fixed overhead costs, and out-of-pocket expenses such as property valuations and credit reports, according to the report.  “A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed,” according to the report.