Top 10 Fresno Seller Short Sale Questions, Answered.

Number 10
Q. I can’t make my house payments but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score…is a short sale right for me?
A. Probably not. In cases where the seller can pay back all or part of the negative equity (usually to the 2^nd lien holder) it makes sense for them to work out a repayment plan. The lender will then release the lien and allow the home to close.

Number 9
Q. If I pay mortgage insurance and default on my loan, wouldn’t that cover the deficiency amount?
A. The mortgage insurance is not there for your protection, it protects the mortgage lender.

Number 8
Q. Do I have to have my home ‘Approved’ by my lender prior to offering it for sale as a short sale?
A. No. Technically speaking, there is no such thing as being ‘Short Sale Approved’. The actual approval only happens with an accepted offer.

Number 7
Q. I just missed a payment and I know I will miss more….how long does the foreclosure process take and is there time to do a short sale?
A. The foreclosure process takes differing times depending on your state.  In the Midwest a foreclosure can take over a year. In California it’s taking 6+ months.  Generally speaking a well-priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.

Number 6
Q. Will I still have to pay property taxes if I do a short sale?
A. Property taxes will always have to be paid as part of any accepted short sale. Whether it’s you or the lender depends on their policies and the specific agreement you reach while negotiating the short sale.

Number 5
Q. I owe more than my home is worth and I can’t make the payment, do I have to somehow qualify for a short sale?
A. The simple answer is NO. If someone can’t make their payment and they are otherwise insolvent they qualify for a short sale. Note: insolvent simply means their total debts are great than their assets.

Number 4
Q. Do I have to pay income taxes?  I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me..the seller..is this true?!
A. It WAS true, now it’s not. Consult your Tax Attorney or Qualified CPA.  Very recently the tax law was modified and now most people who do a short sale will have no taxes due.

Number 3
Q. How do you, my listing agent get paid?  Who pays your commission?
A.The bank will pay the commission along with all the other usual closing costs.

Number 2
Q. Do I have to miss a payment to do a Short Sale?
A. No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment.

Number 1
Q. I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
A. No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender. Most short sales do involve 1^st and 2^nd lien holder.

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?

Source:

Although some economic indicators hint that the U.S. economy is moving toward a recovery, home values are still suffering from a serious economic hangover. Many home owners are putting off a sale until prices recover. But some owners must sell immediately, even at a loss. Selling a home for less than the debt on the loan — called a “short sale” — is not desirable, but sometimes it is necessary for those who face major financial hardship.

While things may be improving — one August report indicated that 80 percent of real estate markets increased in median home value — a separate July report found that home values are down 21 percent from their peak in the second quarter of 2006. However, July was the sixth consecutive month that the decline in national home values lessened.

Lower home values mean that many home owners are “upside down” in their mortgages, meaning they owe more on a mortgage than the home is now worth. This is especially true in the current real estate market, because low down payments and cash-out refinance deals were the norm in the past decade.

If you are facing a possible short sale, consider these points:

1) Know what qualifies for a short sale

Several factors make a home a candidate for a short sale. Typically these are a general drop in home values (such as has happened in many markets recently), a mortgage that is near default status, or a home owner who is unable to pay due to hard times.

2) Find the right real estate agent

The short-sale process is specialized. Lenders have stringent requirements and might ask agents to take a lower-than-standard commission. Look for agents with experience.

3) Talk to the lender

If your home is worth less than the mortgage amount, you will need special permission from the lender to sell the home at a loss for its current value. If the sale stems from financial hardship, you will need to prepare a hardship letter explaining why you need to sell. Remember that some lenders will be open to the possibility of a short sale to avoid the alternative of foreclosure. If you are a good borrower hit by bad times, make sure to communicate this effectively to the lender.

4) Understand tax consequences

In some cases, a lender forgives the difference between what is owed and the selling price. Lenders can classify that forgiven debt as income to you, which means that you would be required to pay income tax on the amount. However, the Mortgage Forgiveness Debt Relief Act of 2007 allows some home owners to exclude that income. This exclusion primarily applies to those whose home was foreclosed on or who had debt forgiven as part of a loan restructuring. Individuals who are truly insolvent (total liabilities are greater than total assets) also can file IRS Form 982 declaring the insolvency to have the tax waived. To learn whether you qualify, consult a licensed tax advisor.

5) Know it will impact credit

A short sale is recorded on a credit report as a pre-foreclosure proceeding. As such, it will damage credit scores. Still, it may be the best alternative for some homeowners.

6) Consider alternatives

If paying the mortgage is the problem — rather than a desire to sell — you might have options. Some lenders will consider a loan modification, which seeks a permanent change to the loan, such as lowering the payment and extending the loan’s term, or rolling delinquencies into future pay­ments. Government programs such as Hope for Homeowners also fall into this category. Another option is a “deed in lieu” of foreclosure, which essentially allows the borrower to return the title or deed of the property — giving the home back — to the mortgage holder to avoid foreclosure. The borrower forfeits equity in the property, but avoids a foreclosure on his or her credit record.

Short sales are hard facts of life following a serious real estate downturn like the one our nation has undergone. Do your homework before agreeing to a short sale. Becoming a knowledgeable seller will help make the process as painless as possible.

The prospect of foreclosure can be financially and emotionally devastating, and often homeowners proceed without guidance of any kind. CDPEs believe that in almost all cases, the best course of action for a homeowner in distress is to speak with a well-informed, licensed real estate professional. They have the tools necessary to help homeowners find the best solution for their particular situation. While enduring financial difficulties are challenging for any family, the process of finding a qualified real estate professional should not be. Sean Reid has achieved the CDPE designation, ensuring you deal with a professional trained to address your specific needs. CDPEs don’t merely assist in selling properties, they serve and help save their clients in need.

For more information, visit www.CDPE.com.

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

VIDEO 1

VIDEO 2

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

Most recently I had been requested from GMAC…It’s clearly in violation of REPA laws.

FASLO Solutions is another violator…they go as far as having an agreement outside of escrow between buyer and FASLO…Thats no lie!

I got another short sale approved, this property has a first and second mortgage both with Wells Fargo. This short sale was a very interesting one. In my negotiations with Wells Fargo I felt like I was dealing with a bi-polar, split personality, schizophrenic crazy person. .. I’ll explain.

First a little history on the sellers… Before calling me they had attempted a loan modification (several times).  And in order to persuade Wells Fargo they were able to afford the proposed loan mod terms they submitted supporting income documentation (bank statements, pay check stubs tax returns). After several months of going back and forth with Wells they were turned down because their income was too high. Because they were so upside down in their property, and behind in payments, their only options were short sale or foreclosure.

That’s when they called me. At this point a negotiator “Jennifer” was already assigned to the file. After agreeing to take the listing and negotiate the short sale I told them to inform “Jennifer” that she can now contact me for all communications going forward. The next morning “Jennifer” calls me to let me know there is no way in hell Wells Fargo will approve a short sale. She went on to tell me that the sellers will have to pay the deficiency if they still want to sell. And somehow “Jennifer” was able to notate the account so that whenever I call in to any department, the call would be transferred directly to her.  And when I faxed the short sale pack over guess who called me? Yep, “Jennifer”. What the heck!

I’ve done quite a few short sales with Wells Fargo over the years. This was the first time I had ever experienced anything like this. I’ve never had a negotiator take such an interest in a file, and dedicate her life to stone walling every effort I made.  She was not from the short sale department; she deals with the loan mods only. So I knew if there was any chance of getting this approved, I needed to get it to the short sale department.  In a last ditch effort, I decided to fax-blast the short sale pack to every Wells fax number I have accumulated over the years and pray for a response (another reason I LOVE my efax service).

72 hours later I receive a call from Wells Fargo. And guess what…. It’s the short sale department!!!!! This time they are SUPER friendly and want to push the short sale forward as fast as possible. In fact they are really pushing me to move even faster. They needed up to date pay stubs and bank statements, and would call me every morning to remind me. After a couple days I received the requested docs from my clients, fax them over, and 48 hours later an acceptance letter appears in my efax!!

Why the change of heart? I don’t know. Why the need to close the file so fast? I don’t know, but appreciate it. Wells Fargo is a bi-polar, split personality, schizophrenic crazy bank! But I love ‘em.

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

With that said, he makes many excellent points…points I DO agree with.

Read this and share your comments.

Source: Market-ticker.denninger.net

I’m tired of the repeated bull-crap from the media and various carny barkers about “moral obligations” to meet your payments on underwater property.

Why is it that you have a moral or ethical obligation to BANKS to do this, when THOSE VERY SAME DAMN BANKS ARE WALKING AWAY IN THE SAME FASHION I ADVOCATE?

Dec. 17 (Bloomberg) — Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.

“This isn’t a default or foreclosure situation,” Barnes said. “We are going to give them the properties to get out of the loan obligation.”

Right.

Seriously, that is almost funny. Banks doing ‘orderly transfers’ of their upside down properties. So, is that going to be what the real estate industry started calling foreclosues….’orderly transfer’?

Exactly as you do when you strategically default on your mortgage, giving the property back to the bank to get out of your loan obligation.

Why is Morgan Stanley doing this?

The Morgan Stanley buildings may have lost as much as 50 percent since the purchase, he estimated.

As a consequence of being “upside down” they are walking away.

This isn’t the first one Morgan Stanley has walked off on either:

Morgan Stanley last month agreed to hand over Crescent to Barclays, ending the firm’s obligation on a $2 billion loan after taking almost $1 billion in losses.

WOW! and somehow normal Joe homeowners are ‘morally obligated’ to keep making payments on their upside down homes….

Let me be 100% clear about this. I DON’T advocate doing strategic defaults…

With that said, I understand why a borrower would want to do this. And..frankly…from a financial perspective…its hard to argue with not getting rid of your own toxic assets. Clearly, the government, Banks, Brokers, The Obama Administration, Brokers….agents…everyone is now pushing for short sales. Clearly, 2010 IS the year of the short sale.

When Morgan Stanley acquired it, Crescent owned 54 office buildings in cities including Dallas, Houston, Denver, Miami and Las Vegas. It also owned the Canyon Ranch spa and resort, residential developments in Scottsdale, Arizona; Vail Valley, Colorado; and Lake Tahoe, California.

Got it?

BANKS – the very same BANKS that people claim you have a MORAL AND ETHICAL OBLIGATION TO PAY EVEN IF YOU ARE UPSIDE DOWN – are walking away (by “negotiation” – as in “do it or we’ll default and you’ll get even less!”) from properties EVEN WHILE THE CARNIVAL BARKERS IN THE PRESS ARGUE IT IS IMMORAL FOR YOU TO DO SO.

In a word: BULLS**T.

This is exactly the same thing – a “strategic default“, which people define as:

“strategic default,” walking away from their mortgages not out of necessity but because they believe it is in their best financial interests.

Morgan Stanley CAN pay, they are simply choosing not to, because the property has fallen in value.

This is exactly identical to you choosing not to pay because YOUR HOUSE has fallen in value.

Excellent point!

George Brenkert, a professor of business ethics at Georgetown University, says borrowers who can pay — and weren’t deceived by the lender about the nature of the loan — have a moral responsibility to keep paying. It would be disastrous for the economy if Americans concluded they were free to walk away from such commitments, he says.

Really?

I called Mr. Brenkert and spoke with him for a while this afternoon, and pointed out the above – that the asymmetry of position here is untenable and is in fact a big part of why we’re in this mess.

Let’s be clear: Those arguing for this from the banking and regulatory industry know how you stop people from “Strategically Defaulting” – don’t give people loans that make such an option attractive!

Note: state laws…not mortgage terms dictate this.

If we had only 20% down 30 year fully-amortizing fixed-rate loans in the mortgage business nobody in their right mind would strategically default, because they would lose their 20% and even if prices declined they would likely (with amortization) be either ahead or darn close to it – that is they’d lose actual money.

But on the business side of things we allow companies to set up separate LLCs and then trade on the “parent” credit even though there is no recourse to the parent.  This allows firms like Morgan (or the builder down here near me that has a bunch of these shell LLCs) to build and buy huge amounts of real estate – yet when something goes wrong they have tremendous leverage on a short sale, put-back or simple walk-off: if the lender doesn’t like it they’ll bankrupt the “container” LLC and the lender will get nothing.

Consumers, of course, can’t do that.  Try to set up a LLC and then use it as a vehicle to buy a house without a personal guarantee associated with the loan.

Forget it.

Try to get a small business loan with only the business as the collateral – no personal guarantee.

Forget it.

It is therefore my contention – and on this point Mr. Brenkert agreed – that the rules must be consistent for everyone, and if big business can strategically default on their obligations for profit (rather than for hardship) then consumers should be able to do so as well.

Therefore, until the law is changed to prohibit the use of said “Strategic” legal containers and the resulting option of business interests – including the banks that are complaining now – to practice selective default when it suits them I stand by my original view:

Strategic Default, in today’s economic, legal and ethical environment, is perfectly within the rights of consumers and they should exercise that right when it makes economic sense, after consultation with both legal and accounting professionals.

Jeremy Smiley, Realtor
Short Sale Specialist
London Properties
Fresno, CA