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?

VIDEO 1

VIDEO 2

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

Bottom line our foreclosure ‘crisis’ is getting worse…much worse.

Talking points from the video:
* How bad is the foreclosure problem? “Setting new records daily….120% increase over 2 years ago”. getting worse.

* Sand states, Nevada, Arizona, Florida, California and  Michigan and Ohio are the much worse.

* For example: Nevada..Vegas…10% of housing inventory in foreclosure. 1/10 of people you meet have a home in foreclosure.

* Nationally foreclosures are increasing….no signs of any notable improvement.

* How much longer will this crisis last?”There are 3 waves to the  foreclosure crisis..we are in wave 2.”
* Wave 1 was casued by overvalued housing..bad lending….2nd wave..unemployeement….3rd wave..option arms…upside down sellers.

*  Loan modifications don’t seem to be making any real impact on the problem….kicking the can down the road. So far, govenment programs not doing anything significant.

* 2010 forecast:  The next wave of the foreclosure crisis will only worsen the housing markets. The new wild card is what will happen to all the homeowners who are desperately upside down in their homes and make the financial decision to let the home go….in other words, ridding themselves of their own toxic assets.

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.

By Inman News, Tuesday, December 1, 2009.

The Obama administration has released long-awaited guidelines for a program that will provide incentives for loan servicers and homeowners to engage in short sales when borrowers who are eligible for the Home Affordable Modification Program (HAMP) don’t qualify for a loan mod.

The guidelines prohibit loan servicers from demanding that real estate brokerages reduce the commission stated in the listing agreement as a condition of approving a short sale — a practice that’s been a sore point with many real estate agents. 

Troubled borrowers interested in exploring a short sale will also be allowed to receive preapproved short-sale terms prior to the property listing, and servicers must agree to fully release them from future liability if the sale goes through.

The incentive program, which includes payments to second-lien holders who often stand in the way of short sales, was announced in May, but issuance of the guidelines was stalled over legal concerns.

Troubled borrowers who agree to a short sale or deed-in-lieu of foreclosure will receive up to $1,500 to assist with their relocation expenses. Loan servicers and investors who sign off on payments to subordinate lien holders will earn up to $1,000 for successfully completing a short sale or deed-in-lieu.

Subordinate lien holders are limited to recovering no more than $3,000 from sale proceeds, although those who object to the cap can engage in short sales outside the program.

Jeff Lischer, the National Association of Realtors’ managing director of regulatory policy, told the groups’ members last month at their annual conference in San Diego that the incentives should make a difference but won’t be a cure-all for foreclosures.

Jeremy Smiley
Realtor, Short Sale Specialist
London Properties