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 topic of short sales and foreclosures seem to dominate the headlines everywhere. There has been a lot written about short sales and whether you should or shouldn’t short sale your home if you’re in this situation. This has led to many misconceptions about short selling your home.

This series is about the myths regarding short sales. Caveat: The rules regarding short sales are different for every lender and are changing all the time as the market changes. ALWAYS consult a real estate attorney and a CPA regarding the particulars of short selling.

Short sale Myth #1:

You need to be behind in your payments before the lender with consider a short sale.

Fact:

This may have been true in the past, but today the key phrase is hardship. Certainly being behind in payments is the most common type of hardship. But hardship could also be caused by job loss, death in the family, divorce, adjustable rate mortgage hike, loss of property value (especially in places like California).

If you are considering a short sale please feel free to contact me with any questions. I am focused on short sales and helping homeowners through the process in the Fresno Area. have also co-authored the book “Should I Short Sale My Home?”.

Watch for the next article in the Short Sale Myths series. Or, just subscribe to the blog and they will be sent automatically.

If you are interested in buying or selling a home in the Fresno area visit my website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my blog. There are many free reports as well as free access to MLS listed properties. You can also call 559-790-8760.

Jeremy Smiley is a licensed Realtor®, certified short sale specialist and Realtor for London Properties. Jeremy has co-authored the book “Should I Short Sale My Home?”. Get your FREE copy now.

VIA: Housing Predictor
By Mike Colpitts

Facing stiff political opposition, rising protests over government bail-outs and growing anger President Barack Obama delivered his first State of the Union Address without mentioning the foreclosure crisis. But he spent plenty of time addressing the financial crisis, reining in excessive risk taking on Wall Street and lots of other topics.

 
His Democratic predecessor in the Oval Office, President Bill Clinton says each and every foreclosure costs the U.S. economy an average of $250,000. Perhaps the controversy that brews over the topic is too hot for Obama to take on in light of growing emotions over the troubled nation.

“The steps we took last year to shore up the housing market have allowed millions of Americans to take out new loans and save an average of $1,500 (annually) on mortgage payments,” Obama said during the annual speech. “This year we will set-up refinancing so homeowners can move into more affordable mortgages.”

Obama’s Hope for Homeowners program to aid borrower’s with mortgages of less than $550,440 is showing clear signs of failure. The massive decline in home prices has left more than 18-million homeowners under water on their mortgages, and many are fleeing their homes in exchange for stronger personal economic stability.

The White House faces an uphill battle in terms of economic policy, trying to design a program to stabilize the housing market without changing fundamental reactions related to mortgages. Should Obama and the Treasury Department with the Fed force bankers to reduce the size of mortgage principal, the step could be taken as unfair by other mortgage holders, who fearing a further collapse in the housing market might stop making mortgage payments in greater numbers.

The move could trigger an economic calamity of major proportions and send the U.S. economy reeling to the brink of an economic depression. The president’s Home Affordable Modification Program (HAMP) has helped slightly less than 10,000 underwater borrowers slash the amount of principal on loans.

The White House is feeling heat from last week’s Democratic Senate election seat loss in Massachusetts, viewed as opposition to Obama’s move towards bigger government through financial engineering, and is striving to adopt policies that will get Congress to adopt Health Care Reform.

The financial crisis is rooted in the housing market, which is projected to see more than 3.5-million foreclosures this year. Nearly $1-trillion in Option ARM mortgages are resetting in 2010, unleashing a massive volume of mortgages that need to be refinanced. With housing values dropping in most places refinancing won’t be an option without additional assistance from bankers or the government.

The resulting volume of foreclosures and short sales will pressure housing prices except in the best of markets, where employment is growing and regional economies are starting to stabilize.

Silver-linings are difficult to find in the nation’s housing crisis. “There are devastated neighborhoods all across the country,” said Rep. Maxine Waters, (D, Calif.), who leads a task force providing aid to states, city, county governments and non-profits to purchase foreclosures and abandoned properties.

At the height of the Great Depression President Franklin Delano Roosevelt did plenty of unpopular things with the voting public, and was still elected to a record three terms. Obama still wins the popularity vote. Now he needs to force bankers “to do the right thing,” reducing mortgages to keep roofs over Americans heads.

Published January 28, 2010

Jeremy Smiley, Realtor
Short Sale Specialist
London Properties

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.