Consider a Short Sale instead of foreclosure

If you owe more than your Orange County, California house is worth and can't afford your payments, you might be able to sell it for less than you owe -- without having to pay the lender the difference. If you can no longer make your mortgage payments and your home is upside down, a foreclosure may not be your only option. A Short Sale is a sale of a home in which the market price is less than what is still owed on the home. It is a procedure sometimes agreed to by banks and mortgage lenders who often prefer to take a small loss, rather then going through a lengthy and costly foreclosure process. If you have been considering a short sale, or if you have been looking for help with one, you have come to the right place!. To assist you, you will need an experienced real estate team of short sale experts, including a licensed Realtor and professional negotiator. To help with a short sale or if you are facing foreclosure, continue reading to see how I can be of assistance!

HAFA short sale update - 2016

A HAFA short sale is part of the Home Affordable Foreclosure Alternatives program, which was created in 2009 by US Government. If you qualify for a HAFA short sale, you can receive $10,000 in moving assistance funds (up from $3,000). Read more about this type of sale in my Short Sale Questions and Answers section below.

Be on the alert for foreclosure rescue scams and loan modification scams!

Doing a short sale of your home is a serious matter. Many of my clients have come to me only after trying to do a loan modification. In many cases, they have paid a large sum of money to a modification firm and have received no results! There are many scammers out there so beware! 

Warning! Do not pay an advance fee to a firm that claims that they will help you modify your mortgage!

When you are facing financial difficulties, it is very important to stay informed - Here are a couple of links on foreclosure rescue or loan modification scams:

• Mortgage Assistance Relief Scams (from the FTC)

• Beware of foreclosure rescue scams! (from FannieMae)

There are also several free resources for distressed homeowners: 

• Speak with a HUD-approved housing counselor at no charge - (800) 569-4287

• Homeowners Hope Hotline - (888) 995-HOPE

What are your options?

If you are losing your home due to income or job loss, divorce, or other cause  and you are either facing foreclosure or considering a short sale, what are your options?

• Refinance - If you qualify, one of your best options may be a Home Affordable Refinance. You can read more about it here: MakingHomeAffordable.gov

• Lender workout - Ask your lender to spread out the back payments and fees over a fixed number of upcoming payments, or ask for a loan modification, where they will forgive back payments or recast the loan into a new one with a fixed rate (Note: See waning on loan modification scams above. Do not pay a third party to do a loan mod for you - Work only with your existing lender). 

• Sell and bring cash to closing - This one is difficult for most people because it involves cashing out an IRA, 401K, or savings account to pay off back fees and the loan balance, but it may be a solution for some people. 

• Deed in Lieu (of foreclosure) - In this scenario, the homeowner trades the deed to the lender in exchange for a guarantee that the lender will cancel the note and forgive the debt.

• Short sale - You sell your home for less than the amount owed, in cooperation with the lender(s) who forgive the debt.

For all of the options above, I would always advise you to consult with an attorney, tax advisor, or financial advisor.  Real Estate agents (like myself) are not qualified to offer advice on tax, financial, or legal matters. 

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A Short sale may be a win-win

• The seller gets out of the mortgage liability without facing bankruptcy.
• The buyer gets the home at a reduced price.
• The lender agrees to a loss it considers minimal without going through a foreclosure and being saddled with an un-salable property.
• For the seller, there is less credit damage and you may be able to qualify for a home loan sooner than if you foreclosed on the property.

While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit by not having to go through the process of foreclosing on the borrower and then having to put the property on the market. A market saturated with foreclosures can cost lenders billions -- and as much as $50,000 or more, per foreclosure

Why do a short sale?

There are many reasons why home owners will consider doing one. If you purchased a home at the top of the market or with an ARM (Adjustable Rate Mortgage) or zero down loan, the mortgage payments, association dues, property taxes, and insurance payments may no longer be affordable for you. In some cases it may be better to cut your losses by selling the home and saving those payments instead. If you have been saying " I need to do a short sale of my Orange County home" or " I am considering a short sale" it may be for some of the reasons below:

• The home has an adjustable rate mortgage with payments that are no longer affordable

• Income loss due to job layoff, illness, etc

• Divorce 

• Loan modifications did not produce the desired results

• To avoid a full foreclosure which may be far more harmful to your credit

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The Short Sale process

There are several steps required to initiate the short sale process and to list your home. These include signing a standard listing agreement which  authorizes me to market and sell the home. There may be a few additional forms to sign, including an addendum that explains your rights as the seller and informs you about other details or possible consequences of the sale.  There are also several items you will need to provide to me or my negotiator to allow us to speak with the lender on your behalf and to justify the necessity for selling your home. Many of these items are listed below. I will perform all of the necessary steps to market your home including taking photos, putting your home on the MLS (Multiple Listing Service),  putting up a yard sign, and installing a lock box so agents can show your home.

Items that are typically needed from you to start the process:

This outline may not include all items that take place or be asked to be completed by the bank. It’s intended to be an average list of items that may be required to complete a transaction.

•             Authorization letter to bank;  this gives the bank permission to talk with me or my negotiator

•             Listing agreement signed and forwarded to bank with Comparative Market Analysis (a document that I prepare)

•             Hardship letter - Several paragraphs that explain your circumstances and reason that you need to sell.

•             Two months pay stubs

•             Two months bank statements

•             Two years of W-2’s

•             Two years of tax returns

•             Payment coupon for home payment

Items lender may consider while reviewing your request:

•               Do you have investment/rental properties

•               Do you have a savings account

•               Do you have a 401K

•               Are property taxes current

•               Are Homeowner Association dues current

•               Is your home loan a purchase money loan or refinance with cash taken out?

•               Other income including child support, alimony, dividends, etc.

Once we receive an offer:

•               I will submit the offer to my negotiator. This will then be forwarded to the lender along with the rest of the package.

•               Lender assigns an “opener”

•               “Opener” orders appraisal and/or Broker’s Price Opinion 

•               Once “opener” reviews comparables, appraisal and Broker Price Opinion, it is forwarded to bank negotiator

•               Negotiator may request new seller financials (updated from original submission)

•               Bank may request Buyer information to do a background check on buyer.

•               Offer(s) then turned over to senior management at bank. This process may take another month or two.

•               After senior management approves, the offer is returned to the negotiator with the bank’s terms for acceptance.

•               Buyer may or may not accept the bank’s terms and conditions;  if buyer elects to not go forward, deposit monies should be returned to the buyer.

•               If buyer accepts new terms, escrow is opened and contingency periods will commence on bank’s acceptance date.

Renting or leasing a home after a short sale

Our strategy is to start shopping for leases with you while your home is still on the market. For some of our clients, moving out while the home is for sale and getting the former home behind you, helps lift the emotional burden of the short sale. For others, we will be happy to help with your new lease after escrow begins, so that you can make a smooth transition when your short sale closes. Either way, helping you find a new home is a key part of what we do for you and for your family!

Short Sale Questions and Answers

Of course you will have many questions and I have addressed some of them below. Please fell free to contact me if you have additional questions. I will be happy to discuss your situation by phone or in person.

What is a short sale?

A “short sale” refers to a situation where your are selling your home but you not have enough equity to be able to sell the property, pay off liens and cover selling expenses. In other words, there is more owed on the home than what it can be sold for on the market. Lenders use the term to describe this as a loan that is “upside down.” While many sellers are potentially facing foreclosure, a short sale may also be necessary for a seller who bought high and took out a lot of equity and might be forced to sell due to a divorce, illness, or job transfer.

Do you handle the whole process?

I handle the sale of your home and all negotiations with your lender(s). This takes much of the worry out of the process for you. You are still advised to consult with various professionals such as your tax advisor, CPA, or financial advisor, as we cannot offer advice outside of our area of expertise. 

What costs are there to me as the seller?

You should not have any out of pocket expenses. Real estate commissions and the negotiator fees will be paid by the buyer and agents, not by you. I will also list your home as being sold "as is, where is, without warranty"'. Buyers understand that you are going through a distress sale and you will not be required to make home repairs or pay for closing costs, home warranty, termite repairs, etc. 

Will the short sale affect my credit?

Yes it will, but typically less so than with a foreclosure. There is no concrete rule since lenders act independently. In general, a short sale could reduce your FICO scores by 75 to 125 points while a foreclosure could reduce your FICO scores by over 200 points. Also, a foreclosure remains on your credit history for seven years. These are only estimates and actual impact to your credit could vary widely. The bottom line is that it is impossible to specify the exact number of points by which a short sale or foreclosure will lower your credit score. You are always advised to consult with your CPA, attorney, financial advisor, or lender for more specific information on how your credit could be affected by the transaction.  

What about escrow fees, title, and other costs?

The lender typically offers to pay a certain amount toward these costs. I always send an addendum to the buyers and their agent to inform them that you (the seller) will not be obligated to pay any closing costs in excess of the lender contribution. 

What if I have more than one loan?

We analyze your situation to see if you will be short on all loans or perhaps just the second or third. In some cases, the first lender may receive full payoff, in which case you will just be short on the second. In either case, my negotiator will contact all of the lenders and work with them to negotiate your sale. The second or third lenders understand that they will receive nothing if the first lender forecloses. As such, many of them are willing to negotiate a settlement and they are generally willing to cooperate with the first lender in selling your home.

What is an "approved" short sale?

In the context of the current sale, the lender(s) have provided an approval letter stating terms and conditions, along with an expiration date. It is imperative that the deal is closed on or before this date, or the approval expires. It is a different matter for short sale listings that claim to be "approved". Technically, they should be called a "previously approved short sale" because it refers to a situation in which the lender had agreed to all of the terms, including price, real estate commissions, closing costs, etc, with a previous buyer. Agents commonly use the term "approved short sale" to let subsequent buyers know what the lender(s) had previously agreed to. It does not mean that they will automatically agree to these same terms with a subsequent buyer. The lender(s) will usually start the process all over with a new buyer, but at least the listing agent has a benchmark of what might be expected from the lender(s). 

In order to approve the short sale, how will my lender determine fair market value of my home? 

The lender typically does an appraisal or BPO (Broker Price Opinion). A BPO is usually done by a real estate agent who has been hired to perform a valuation of the subject property based on comparable sales. 

How long will the short sale take?

Generally no less than 60 days but sometimes longer, depending on how may loans are on the property, the difficulty of negotiating with various lenders, etc. 

What if I am already in foreclosure or if my lender has assigned an auction date? 

We will do our best to obtain a postponement of the auction date by notifying the lender that you are in the process of a short sale. Generally speaking, they will be willing to work with you, as they prefer a short sale to taking back a property through foreclosure. The final decision is always up to the lenders however, and we cannot guarantee that we can stop foreclosure proceedings. 

Can you do a short sale while in foreclosure?

In many cases, yes; especially if it is early in the process. People often turn to a short sale while they are in the pre-foreclosure stage. Once you are close to an auction date it may be more difficult.

Can I do a short sale solely because my home has dropped in value?

No, you must have a legitimate hardship like a divorce, job loss, loss or reduction of income, illness, death of spouse, etc. A loss of equity or drop in value alone is not considered be a legitimate hardship. 

What is a HAFA short sale?

A HAFA short sale is part of the Home Affordable Foreclosure Alternatives program, which was created in 2009 by US Government agencies to help improve the short sale process. You can read more about a HAFA short sale here: HAFA short sales

Some of the highlights are:

• Allows borrowers to receive pre-approved short sale terms

• Requires borrowers to be fully released from future liability for the first mortgage debt, and if a subordinate lender received an incentive under HAFA, that debt is released as well

• Provides up to $10,000 in moving costs for borrowers and up to $10,000 to pay off subordinate liens (2nd loan holders)

What are the qualifications for a HAFA short sale?

• The home must be your principle residence

• Your loan must have originated before 2009

• Your mortgage is delinquent or you are close to a default

• Your unpaid principle balance is no more than $729,750 (higher limits for mult-unit properties)

• Your  total monthly mortgage payment exceeds31% of gross income

If you have additional questions on a HAFA short sale or any other questions on Short Sales, please feel free to call me.

Ron@rondrealestate.com DRE# 01728866 Short Sale & Foreclosure Resource Certified