7 Tips for Short Sale Success

Have to sell your home for less than it's worth? Our seven tips will help you get the best price.

When you owe more on your home than it's worth, but you have to sell, you need to squeeze every dollar possible from the sale. Here are seven tips for navigating the short-sale process.

1. Know who you owe

A short sale has to be approved by any company that has a mortgage or lien against your home. That includes your first, second, or even third mortgage lender, your home equity line lender; your homeowners or condominium association; and any contractors who've placed a lien on your home. Make a list and start talking to everyone early in the process. Ask what documents they'll need from you.

2. Pick your short sale team

You'll need to work with a team of short sale experts, including a real estate agent, real estate attorney, and your accountant. Look for agents and attorneys who advertise themselves as short sale experts. Interview at least three, and listen carefully for signs that they understand the complexities of the short sale process.

Agents should explain how they'll arrive at a suggested price for your home. Ask them to show you a sample short-sale package or for an example of a prior short-sale success.

3. Get your documents ready

Gather the paperwork your creditors and mortgage lenders asked to see, like your listing agreement and a hardship letter explaining why you need to do a short sale. You'll also need proof of what you earn and what you owe as well as copies of your federal income tax returns for the past two years.

4. Expect delays

Despite a federal rule saying banks participating in the federal government's Making Home Affordable loan modification program (http://www.houselogic.com/articles/making-home-affordable-modification-option/) must respond to short-sale offers within 10 days, it may take weeks or months for your lender to decide whether to allow you to sell your home in a short sale--and even longer if you must negotiate with more than one lender or lienholder.

Your lender and lienholders don't have to agree to your proposed short sale. They can reject your terms or make a counteroffer, which can create further delays.

5. Anticipate demands

Discuss with your short-sale team how you should respond to common short-sale demands from lenders. For example, are you willing to sign a promissory note agreeing to pay outstanding amounts after the sale is complete?

6. Know the tax implications

Any unpaid amount of your mortgage "forgiven" by your lender through a short sale may be considered income to you under federal tax rules. Ask your attorney or accountant whether you qualify to exclude that amount as income on your tax returns under the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act. Also ask if you'll be required to report amounts "forgiven" by other lienholders, if applicable.

7. Consider how the short sale will affect your credit and what you must pay

Ask whether your lender will report the short sale to credit-reporting agencies. Having a portion of your debt forgiven may negatively affect your credit score, but a short sale typically damages your score less than a foreclosure or bankruptcy.

Ask you lawyer whether you'll be responsible for paying back the lenders' loss. If the lender says it will forgive any losses on the sale of your home, get that promise in writing.

Other web resources

More on short sales (http://www.nolo.com/legal-encyclopedia/article-30016.html)

IRS information on the Mortgage Forgiveness Debt Relief Act and Debt Cancellation (http://www.irs.gov/individuals/article/0,,id=179414,00.html)

This article includes general information about tax laws and consequences, but isn't intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

 G.M. Filisko is an attorney and award-winning writer. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Article From BuyAndSell.HouseLogic.com

By: G. M. Filisko
Published: March 19, 2010

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Foreclosure Alternative: The Short Sale

A short sale is far from hassle-free, but it's a better alternative than foreclosure. And now you've got a little help from your friends in D.C. Here are the facts about short sales and how to get started.

Facing foreclosure and tempted to stay in your home until the bank pulls it out from under you? Bad idea. Don't do it. A much more graceful exit is a short sale, an agreement between you and your lender to sell your home for less than you owe. Although there's no guarantee that your lender will let you avoid foreclosure with a short sale, new government regulations are aimed at encouraging lenders to do so.

Short sales get government incentives

Although short sales are not hassle-free, at least you've got the government backing you. The Home Affordable Foreclosure Alternatives (https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html) (HAFA) program provides financial incentives for lenders and borrowers to avoid foreclosure through short sales or deeds in lieu of foreclosures (http://www.houselogic.com/articles/foreclosure-alternative-deed-lieu/).

 Participation in the HAFA program requires adherence to guidelines--including a standard process and minimum timeframes--that speed the process, says Dallas-based REALTOR® Tom Branch, co-author of Avoiding Foreclosure: The Field Guide to Short Sales. The HAFA program is for homeowners who can't keep their homes with the help of a loan modification (http://www.houselogic.com/articles/making-home-affordable-modification-option/).

Advantages of a short sale

•You can be a homeowner again more quickly with a short sale in your past than with a foreclosure. New Fannie Mae guidelines help you qualify for a new mortgage in as little as two years after a short sale, as opposed to up to seven years after a foreclosure.

•You will have more time to make relocation plans and save money than with a deed in lieu. A short sale may take four to 12 months. A deed in lieu of foreclosure arrangement typically requires you vacate your home within 30 to 60 days of signing, according to real estate attorney Lance Churchill.

•You can receive up to $3,000 from your lender for moving expenses at the time of closing of a HAFA short sale or a HAFA deed in lieu of foreclosure. Relocation funds are part of the incentives of HAFA, but not necessarily for other short sale or deed in lieu programs of the lenders.

•You can help your community's home values. Because the lender often receives a higher amount of the remaining loan balance than it would from the sale of a home after a foreclosure, short sales help support home values in the surrounding community.

Disadvantages of a short sale

•Your credit score (http://www.houselogic.com/articles/how-foreclosure-affects-credit-score/) will take a severe hit. But that would happen anyway with a foreclosure. Fair Isaac, creator of the FICO score, says foreclosure and short sales have virtually identical impacts on your credit score. VantageScore--a company that has created a credit score model for consumers--says a short sale will lead to only a marginally lighter hit when compared with foreclosure.

•You may owe additional taxes. In the past, if your outstanding mortgage was $100,000 and your lender accepted a short-sale purchase offer of $90,000, you were liable for income tax on the forgiven $10,000, says Harlan D. Platt, economist and professor of finance at Northeastern University in Boston. However, the Mortgage Forgiveness Debt Relief Act of 2007, which runs through 2012, generally allows taxpayers to exclude income from the discharge of debt on their principal residence (http://www.irs.gov/individuals/article/0,,id=179414,00.html) in some circumstances. Full relief is available only if the amount of forgiven debt doesn't exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Consult a tax professional and an attorney to minimize or avoid this liability.

•In some states, your lender may still be able to come after you for the difference between the short sale price and the amount needed to pay off the mortgage. Your actual agreement with your lender and state and local laws and regulations spell out the details. Consult a tax professional and an attorney to minimize or avoid this liability.

How to proceed with a short sale

•Find a qualified REALTOR® experienced in short sales. Short sales are tough to navigate, and they're further complicated by your loan type--FHA vs. Veterans Administration vs. conventional loans. Real estate agents who specialize in short sales will know the proper steps and order of the steps involved. They'll also be able to navigate the many parties involved in the process and over-burdened loss mitigation departments. Look especially for agents who have Short Sales and Foreclosure Resource (SFR) Certification, which requires specialized training.

•Gather evidence to support your need for a short sale as opposed to a foreclosure. You'll need to prove that you have little or no equity in your home, you're behind on your payments, and you're no longer able to afford your home. You'll need to write a hardship letter to the lender describing your circumstances, such as a divorce, job loss, illness, death, or other event that has impacted your income.

A short sale can be a time-consuming process, but if you can avoid foreclosure, it's worth it in the long run.

Gwen Moran has been writing about business, finance, and real estate for more than a decade. Her work has been published by Entrepreneur, Newsweek.com, Financial Planning, Woman's Day, and The Residential Specialist. She bucks the cottage trend and lives in a Colonial near the Jersey Shore.

Article From HouseLogic.com

By: Gwen Moran
Published: July 08, 2010

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Short Sales - Steps to Avoid Foreclosure

Short selling your home is not a decision you should make lightly. It is often a difficult and long process. If you are successful, the difference between what you sell the house for and what you owe on the house is forgiven. You’ll also avoid a foreclosure on your record.

Get Educated

You need to know your options when it comes to your home. If you want to keep your house, but can’t make the payments and you owe more than your home is worth, you may look into filing bankruptcy. This will stay the foreclosure process (not forever) and may allow you to stay in your home and repay your lender under different terms.

Short Sale

If you owe more than your home is worth, and don’t want to declare bankruptcy or face foreclosure, then a short sale of your home may be the best option. A short sale does have potential tax implications.

Get Some Help

This is probably the biggest tip I would give to people who want to sell their home in a short sale. FIND AN EXPERIENCED REAL ESTATE AGENT WHO HAS DONE A SHORT SALE BEFORE. Your real estate agent will be able to deal and negotiate with the mortgage company(ies) on your behalf. An experienced short sale agent will give you a much better chance of successfully short selling your home.
Because there is often so many different entities involved in a mortgage (1st mortgage, 2nd mortgage, the investor on the loan, etc) you really don’t want to do this on your own, with no experience. Plus, you’ll never have any out of pocket expenses to pay an agent, as everything is essentially paid by the lender.
WARNING! Just because an agent says they specialize in “short sales” does not mean they have actually successfully done one! There are many classes agents attend regarding short sales, but nothing compares to real world experience.

Get Started Now

The longer you wait to get started with the short sale process the less chance you have of success. Every state is different with their foreclosure process. You need to decide quickly to start the short sale process if you’re getting behind on your payments, or have already received a notice of default.

Follow Instructions Exactly

An experienced short sale agent will tell you what you need to do to get the house ready to sell. Don’t get too hung up about the price. If the agent wants to set a low price on the house, there is a reason behind that.
In my own short sale, we priced the house pretty low and got an offer very quickly. You need a buyer that is willing to stick around for a super long closing or changes to the agreement. In my case, it took almost 4 months from when we got the offer to when the closing took place. Don’t get hung up about the price, all you should care about is getting the place sold.

Know The Tax Implications

Talk to a qualified tax attorney or CPA about this for your particular situation. Your real estate agent should know about this! A good agent will have a quality referral for you to handle the tax implications of your short sale.

Prepare to move quickly

Because your closing date may not be set in stone, you need to be prepared to leave your home quickly if needed. You do not want to end up like me and live in your office for 2 months! Trust me, it’s not fun!
A minimalist lifestyle is nothing to be ashamed of; in fact it should be venerated. Your possessions are just inanimate things; it’s the relationships in your life that really matter. OK, enough life advice! Sell anything you don’t need or haven’t used in the last 6 months on craigslist! The less you have to deal with on moving day the better.

Prepare yourself emotionally

If you are already in default, or have a foreclosure pending, this whole scenario and process of trying to short sell your home can be very emotionally draining. You will receive solicitations from everyone and their mother. You may have people stop by your home while you are still there. It can be a very difficult process.
Make sure you have people in your life to talk to about your situation. You will need a support network to help through this time in your life. It will pass. And you are being proactive in seeking a short sale of your home. You are taking the right steps, and in time, everything will work out. I can’t promise it will be easy, but you will make it!

What Is a Short Sale?

A short sale is when the loan balance or mortgage owed on a property is greater

than what the market is willing to pay for the property. A short sale is a way for

the homeowner to avoid foreclosure on their homes and still be able to settle with

the lender. Essentially, in a successful short sale the lender will approve the sale of the home to a new buyer at a lower price than what is owed the lender.

Knowing Foreclosure

You must understand that every state has their own specific state laws in regards

to foreclosure proceedings.

Things you want to pay attention to are:

Is Your State Judicial or Non-Judicial?

Understand the Redemption Period for Your Specific State!

Judicial Proceeding – When a state’s foreclosure law dictates that the lender

must have court approval to foreclose on a property.

Non-Judicial Proceeding – Is when a state’s foreclosure law dictates that the

lender doesn’t have to have court approval to foreclose on a property

Redemption Period – The right of redemption is the right of the property owner

to redeem their property from foreclosure by paying the lender the outstanding

principal and interest due plus the lender’s costs to foreclose. 

What should I write in a Hardship letter to get the Mortgage Company to give me another chance?

A Hardship letter is something most Mortgage Companies will require to consider you for a “Work Out”. This is your

opportunity to appeal to them to give you another chance. This should not be used to complain to what they have

done or not done to make your situation worse. This letter must be honest and represent the facts clearly. It must

prove to them that the situation that caused you to fall behind was temporary and you are now in a position to make

your payments on time. You must also have a legitimate excuse for falling behind… financial problems in itself

would not be an adequate excuse. Loss of a job, death in the family or illness would be an acceptable reason to

fall behind on your Mortgage temporarily. Here is one example of a letter that the Mortgage Company is looking for.

Please allow us to get you the foreclosure advice you are seeking. We can stop foreclosure on your home.

Name: (Your Name)

Address: (Your Address)

Mortgage Co: (Mort. Co.) Loan No: (your Loan Number)

I/We, (Your Name), are requesting that you review my financial situation to see if I/We qualify for any workout

option.

I/We are having problems making my monthly payments because of financial difficulties created by (circle what

applies):

Unemployment

Reduced Income

Divorce

Separation

Medical Bills

Too Much Debt

Death of my Spouse

Death of a family member

Payment Increase

Business Failure

Job Relocation

Illness

Damage to Property

Military Service

Incarceration

Other (Please Specify)

This difficulty or situation happened on or about this date ??????.

I/We believe that my/our situation is (circle one) Temporary / Permanent

This is a brief account of the situation is as follows: (explain your situation… tell them you feel you can now afford

your payments)

I/We, (your name), state the information provided above to be true and correct to the best of my/our knowledge.

Borrower’s Signature

Date

Co-Borrower’s Signature

Date

For more information talk with a Real Estate Agent Foreclosure Specialist 

COMMON MISCONCEPTIONS AMONG REALTORS AND THE PUBLIC REGARDING SHORT SALES, FORECLOSURE, AND BANKRUPTCY

1.        If a property is foreclosed upon, borrower is released of all debt.

Borrower is only released of the  debt if lender forecloses via advertisement.  If lender forecloses via litigation, then borrower is still responsible for the debt.  If there is a second or third mortgage, borrower is still responsible for those even after end of redemption period.

2.        After the sheriff sale, the second mortgage is gone.

The second mortgage still has a lien on the property after the sheriff sale.  The 2^nd mortgage lien only goes away at the end of the redemption period.  Therefore, if seller is redeeming from sheriff on foreclosing mortgage in a short sale, any other mortgage holder is entitled to the proceeds and must be negotiated for release of lien via short sale.

3.        If a borrower has filed bankruptcy, the second mortgage “goes away”.

Even if the debt on all mortgages on the property were included in the bankruptcy, it is only the borrower’s obligation under the note that is forgiven.  The lender(s) still hold their lien on the property and must be negotiated and/or settled to obtain a release of that lien in order for sale to go through.

4.        If a short sale is approved and closed, seller doesn’t owe anything to the lender(s).

It depends on the terms and verbiage in the approval letter.  The letter must state release of lien AND satisfaction of debt (or similar verbiage) or seller is still responsible for the deficiency balance.

5.        If a short sale approval includes seller signing a promissory note, the seller can just “bankrupt” it later.

Seller may not be eligible for bankruptcy.  And even if they are, they may not be able to bankrupt new note as they signed it with intention of never paying.  New note may prohibit bankruptcy or may not be able to be included in bankruptcy.  Seller should discuss with bankruptcy attorney before ever signing a new promissory note with that intent.

6.        A seller can buy a new house while credit is still good and then just short sale the old house.

In order to obtain a mortgage on the new house, seller had to prove they can afford both house payments.  They cannot now claim they can’t afford payment on the old house, therefore, in most cases, no hardship and short sale may likely be denied or approved with terms at high cost to seller.

7.        It’s good to submit any short sale offer to lender to “get the ball rolling.”

Short sale negotiations are buyer specific.  In most cases, when bad offer is rejected and new offer is submitted, the whole process starts over from the beginning. 

8.        A bad offer is better than no offer.

A bad offer still takes time to negotiate out.  When bad offer is being worked on, showings diminish.  When bad offer is rejected or countered at terms buyer won’t accept, your seller is now a couple of months closer to foreclosure and time has been wasted.

9.        All short sale offers must be submitted to lender.

All offers must be submitted to the seller.  Seller can reject any offer their agent feels will not be approved by lender, therefore, it is not submitted to the lender for the reasons above.

10.    Deposit of earnest money isn’t important.

Get earnest money deposited as it shows buyer’s sincere intent to follow through with purchase.  But most importantly, buyer and their agent will have to provide you with cancellation to get earnest money back, therefore, you and seller will know immediately if buyer has “walked.”

11.    A seller will have to pay income taxes if a 1099 is issued after short sale.

It is common through tax law and/or seller insolvency that seller will not have to pay taxes on the income stated on the 1099.  It is case by case and seller needs to consult tax professional.

12.    A seller won’t get a 1099 if property goes through foreclosure.

Seller may receive a 1099 on lender’s loss via foreclosure.  Same rules apply as in #11.

13.    Bank of America is the worst lender to deal with in short sales.

Love the new Bank of America in short sales!  They are easy to work with and time is down to about eight weeks plus investor.    US Bank is the most difficult!