Short Sales

What is a Short Sale?

 

A short sale is the sale of a home where the net proceeds are not enough to cover the seller’s obligations, including mortgage payoff, closing cost, property taxes, transfer tax, and commission. In some cases, these sellers maybe in default on their mortgage and are potentially facing foreclosure. Life changes such as job loss, pay cuts, divorce and etc. might force the sale of their property, but some sellers find themselves in an “upside down” situation, meaning that they owe more then they can potentially realize from the sale of their property.

 

How do you qualify for a short sale?

There are three determining factors to qualify the homeowner(s) for a short sale.

  1. The homeowner is in default or will be in default with their mortgage lender, and
  2. The homeowner has little to no equity in the property, and
  3. The homeowner has a legitimate hardships,
  4. Temporary/permanent loss of job
  5. A significant cut in pay or loss of income
  6. A divorce or separation
  7. An illness or death in the family
  8. A significant increase in expenses
  9. An increase in payment due to an ARM resetting

 

Most lenders are very willing to work with these homeowners to find a solution. A short sale can be considered for homeowners even if they have not fallen behind in their mortgage payments. Lenders want to be proactive and avoid the additional cost of the pre-foreclosure expenses.

 

What will Exit Preferred Realty, LLC. and JKV Real Estate Services, INC. do for me?

Exit Preferred Realty, LLC, will list your house at the right price in the current market. They will assist you with gathering all of the lenders required documents. They will treat your short sale with compassion and understanding. Exit will assist you step by step.

JKV Real Estate Services, Inc, upon receipt of the short sale package will submit the package to the lender and negotiate the best available financial solution for you.

 

The Short Sale Package

 

The Following Documents are required by lenders

  • Authorization to Release Information Form
  • Hardship Letter*
  • Financial Worksheet
  • Listing Agreement
  • Copies of Tax Returns (last 2 years)
  • Copies of All Bank Statements (last 2 months for all borrowers)
  • Copies of Pay Stubs (last 2 pay periods for all borrowers)
  • HUD Form 90035 Information/Disclosure (if FHA)
  • Purchase Offer
  • Estimated HUD 1 Settlement Statement
  • Buyer Pre-Approval Letter and/or Proof of Funds Letter
  • Comparable Market Analysis (CMA)

 

*A Hardship Letter is a letter written by the homeowner to the lender explaining their current situation which has caused them to want to do a short sale.

 

How Long Does Long Does The Short Sale Process Take To Complete?

 

Short sales typically range from 45-90 days to receive a response from the lender. It is crucial for the seller to have all the required documents for the bank. If the package is not complete due to the high volume of short sales, the incomplete packages are not even considered for review.

Please see the Step-By-Step Short Sale Diagram for more details


 

Options to Keeping Your Home

 

Strategy 1: Refinance

Refinancing requires income, credit and sometimes equity to support a new mortgage or deed of trust. If your current income cannot pay your present mortgage, it may be difficult to convince another lender to offer you a loan with a reasonable interest rate. Based upon the tightening of qualifying criteria for loan applications, refinancing in today’s market is becoming less and less of a viable option. It goes without saying that the one reason to refinance is to lower your monthly payments.

 

There are two general scenarios that will give you the best chance of refinancing:

  1. If you are not yet delinquent, but anticipate falling behind on your payments, it may be a good time to try to refinance; hopefully your credit scores are still high. The biggest challenge you will have is getting your home to appraise for the amount you are looking to refinance. This is a big challenge in today’s market because of falling property values nationwide. No lender will approve a refinance if the appraisal (value) is not equal to or greater to than the loan amount. Exit Preferred Realty is not an appraiser; however, Exit will provide you with a comparable market analysis (CMA).
  2. If you have a decent amount of equity in your home it may be a good time to try to refinance. Even if you have missed payments and your credit score has dropped, refinancing may be an option. Albeit not a very good one because whatever the loan product you will likely face higher interest rates. Loan terms usually range from 1% to 3% original points (each point equals 1% of the financed amount).

 

Strategy 2: Pay off your loan

You can pay your note off and a discounted pay off may be an option.

For example, your parents or another source of private funding can loan or gift you an amount that is reasonably close to the loan payoff amount; the lender may accept this as payment in full. If these types of funds are at your disposal, always offer the lender less than the full note balance (to start the negotiations)

 

Strategy 3: Reinstatement

Catching up with your past-due amount and bringing your account current will re-instate your loan. The amount of penalties, late charges and other fees will depend on how far behind you are on your payments. If your home is more then 90 days past due anticipate adding about 1% or more of your mortgage balance as the result of late fees, penalties, attorney fees, appraisal fees, and other expenses.

 

For example, if you are six months behind and your mortgage payments (principle and interest) are $1,000 you will be required to pay $6,000 plus miscellaneous fees. If your mortgage balance is $200,000, your late fees, legal fees and other fees will likely total 1% of your mortgage balance, or an additional $2,000 for a total repayment of $8,000.

 

Often your lender will allow you to roll the additional fees into the backend of your loan. Instead of a mortgage balance of $200,000, your new balance will be $202,000, using the above scenario. If they agree to such terms, and you can fulfill them, your loan will have been reinstated and your initial loan terms take effect.

 

Strategy 4: Forbearance

 

Forbearance agreements are designed to delay foreclosure, as long as the terms are followed. In general, they are good for a short-term fix and generally are not a long-term solution. They can be valuable tools for lenders at the first sign of trouble by providing the borrower additional time to attempt to solve their financial problems.

 

The typical forbearance agreement places the delinquent amount on top of your monthly mortgage payment. As soon as an agreement is reached (which should be in writing) payments will need to be commenced per the specified start date. A simple example would be if the total amount past due is $6,000, you will be allowed to pay an additional $500 (added to your normal payment) for 12 months. Forbearance plans can go as long as 36 months.

 

A less common form of forbearance is a temporary hold on foreclosure proceedings with an agreement that allows you to temporarily pay less than the full amount of your mortgage payment (or pay nothing at all). A common reason lenders consider such forbearances is when you can demonstrate a windfall of money is coming via a bonus, tax refund, insurance settlement, or other source; providing you have enough funds to bring the mortgage current at a specific time in the future. Your lender will require you to submit a written agreement under which your mortgage payments are reduced or suspended for the agreed upon period. At the end of that period, you resume regular payments and bring the loan current through a lump sum payment or additional partial payments over a number of months (unless the loan has also been modified to make this unnecessary).

 

Strategy 5: Loan Modification/ Loan Work Out

 

Loan modification is a written agreement between you and your mortgage company that permanently (sometimes temporarily) changes one or more of the original terms of your note to make the payments more affordable. IF you can negotiate a substantially reduced payment, or even a fixed interest rate, this could be the option that provides the remedy you seek. The most common loan modifications include:

 

  • Adding missed payments to the existing loan balance
  • Making an adjustable-rate mortgage into a fixed-rate mortgage
  • Extending the number of years you have to repay
  • Temporarily reducing your interest rate

 

The lender will take into consideration the following conditions:

  1. Nature of hardship causing your mortgage problems
  2. Ability to pay
  3. Amount owed
  4. Equity in the property
  5. Future financial situation
  6. What is in their best interest; to foreclose or pursue a loan workout and/or modify your loan.

 

During these negotiations YOU MUST SAVE YOUR HOUSE PAYMENTS. Within virtually all modification plans will be the requirement of “good faith” money. Translations: your approved modification plan will require you to bring some cash to the table. The amount is usually a percentage of your back payments (35% -75% of arrearages)

 

Strategy 6: Chapter 13 Bankruptcy

 

Chapter 13 permits the consumer(s), to:

  • Stop foreclosure
  • Stop calls from debt collectors
  • Pay unsecured debt down without accruing interest (student loans are an exception)
  • Protect your other assets
  • Reorganize your finances with the additional time
  • Refinance your debt and allows you to meet your living expenses before paying off creditors
  • Allows you to catch up on your missed house payments

 

Consequences of Foreclosure

 

Biggest Consequence of foreclosure:

  • Long term effect on credit and credit scores
  • Still accountable for any and all deficiencies
  • Internal Revenue 1099 tax liability
  • Loss of Equity

 

Foreclosure, Deed in Lieu or a Short Sale Solution all will require you to relocate. And there are options. The most common of which are:

  1. Lease
  2. Lease/Option
  3. Contract for Deed

 

Foreclosure and people with poor credit are so commonplace in the market; do not worry about prospective landlords rejecting you due to a low credit score.

 

Deficiencies and Tax Liabilities

 

When a lender ends up with less than what the original balance of the loan was, for any reason, this is a deficiency. Deficiencies are the result of a short sale or foreclosure. Although lenders in some states are precluded from pursuing a deficiency judgment, no state is precluded from reporting your deficiency to the IRS in the form of a 1099. IRS tax code is very clear when it comes to foreclosure and short sales; under this code, a sale is a sale. If the sale produces a gain, it is a taxable gain.

The aforementioned liabilities arise from two general scenarios:

  1. Short Sale
  2. Foreclosure

 

Allowing your home to be sold at auction puts you at high risk of incurring large liability. Whatever the purchase price is at auction, it will be less than if you had sold it through a Realtor as a short sale! That is, selling your home via a short sale will likely minimize your deficiency amount and thus your liability to the IRS. Why? Your home will likely attract a much higher price from buyers while you are still living in the home and maintaining it than it will from bidders at an auction.

 

 Short Sale Questionnaire

 

  1. Have you spoken to your mortgage lender? ____________________________
  2. What kind of loan do you have (FHA, VA, Conventional, Home Equity, Etc.)__________________________________________________________________
  3. What is your current mortgage payment? ____________ Are you currently behind on your payments? ____________________________________________
  4. Do you have a foreclosure date? _________ Yes (Sale Date: ___/___/___)
  5. Do you have a second lien? ______________ and balance ________________
  6. Who else is on your Deed of Trust or Note? _____________________________
  7. What are your major concerns in making a move? ___________________________________________________________
  8. What is most important to you? Credit preservation? Timing? Relocation?

 

Reference Page

 

http://www.hopenow.com/

HOPE NOW is an alliance between counselors, mortgage companies, investors, and other mortgage market participants. This alliance will maximize outreach efforts to homeowners in distress to help them stay in their homes and will create a unified, coordinated plan to reach and help as many homeowners as possible. The members of this alliance recognize that by working together, they will be more effective than by working independently.

 

 Important Disclaimer

 

The agents, authors, and distributors disclaim any warranties (express or implied) for any purpose. The agents, authors, and distributors shall in no event be held liable to any part for any direct, indirect, special, punitive, incidental or other consequential damages arising directly or indirectly from any use of this material, which was provided as educational information not advice and without warranties. Therefore, please read the entire brochure and take advantage of numerous suggested websites, etc and remember we are not providing legal or tax advice, please consult a professional.

 

Exit Preferred Realty, LLC.

Exit Preferred Realty, LLC. a full service licensed realty office located at 2105 Laurel Bush Road, Bel Air, MD 21015 (located corner of Rt 924 and Laurel Bush Road, behind the Festival Shopping Center) and with another office located at 8839 Belair Road, Baltimore, MD 21236 for your convenience. Exit Realty has over 1,000 offices and is located in all 50 states. Our nationwide Exit Office network helps us sell homes faster! Our agents specialize in Short Sale listings!  www.exitpreferred.net and www.exitrealty.com

 

JKV Real Estate Services, Inc.

JKV Real Estate Services is a full service title company covering all of Maryland and the District of Columbia. We have over 40 years of total experience and specialize in many different real estate transactions including resale, refinance, reverse mortgages, commercial transactions and short sales.

We have offices in  Baltimore, Bel Air, Laurel and Perry Hall.

We understand how difficult and stressful a foreclosure situation can be for a homeowner. With this in mind, we are dedicated to making the short sale process as easy as possible. Our clients rely on our expertise and network of relationships with lenders and other real estate professionals to ensure the best possible outcome for all parties involved.

Whether a short sale approval takes 30 days (or up to 120 days in more difficult cases) we will monitor the process and keep all parties updated until the transaction is complete. Our staff is rewarded when a transaction closes. Therefore, they each have a personal stake in moving the file as quickly and as efficiently as possible.

 

www.jkvshortsales.com

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Sue & Craig Strobel - Owners
410-670-9100