Even though we are now over 5 years into the biggest real estate bear market since the great depression, there is still widespread confusion surrounding the definition and execution of short sales. Hopefully this blog will give you new insight into how to use this tool to avoid foreclosure or to purchase real estate. In many cases, conducting a successful short sale will leave your future credit in a far better place than foreclosure. Yes, executing a short sale can be an arduous and frustrating event. However, with an outline and a base of experience, the odds of being successful are greatly enhanced even before leaving the gate!
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens' full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.
Over simplified video explanation of Short Sale.
Update: The new HARP 2.0 refinancing option, may help some distressed parties avoid foreclosure or pursuing a short sale altogether!
Contact me anytime to find out what your options are!
Don Mailey
RE/MAX Results
952-212-0968
In short, the short sale negotiator is the person or company who negotiates with the lender(s) to reach an agreement on terms for a short sale to take place. It is imperative that the short sale negotiator be highly experienced in this area as their responsibilities will include, refuting claims by the bank as to the current market value of the property. Often times the bank will attempt to claim the property market value to be more than what it will actually bring and this where an experienced negotiator/agent team prove their worth. Having an experienced negotiator may seriously improve the short sale negotiation process.
A real estate agent attempting to function as a short sale negotiator, is a poor substitute for the experience, contacts, organization, knowledge and assets that a full time professional can bring to bear on a negotiation. The company I work with never charges a fee unless there is a successful deal and their fee is paid by the buyer(s).
Additional information on short sale negotiators from Realty Times.
Don Mailey
RE/MAX Results
952-212-0968
Generally, the amount of debt forgiven by your lender(s) in a short sale transaction is currently not taxable. This will be the case until the end of 2012, due to The Mortgage Forgiveness Debt Relief Act of 2007. This exclusion will end--although it could be extended--with tax year 2012, so your short sale must be closed by December 31, 2012. Please review this IRS publication to determine if you would have a tax liability from conducting a short sale.
Caveat: You must retain this home as your principal residence to remain tax free. This is an easy part of the puzzle to forget.
Don Mailey
RE/MAX Results
952-212-0968
In Minnesota, a homeowner can postpone a sheriff sale if they meet several criteria. In some cases; but not all, this tactic can help a homeowner who is in financial distress. First, if thinking of attempting a short sale and there is any possibility at all of leaving the property before a resolution has been reached, you may want to postpone. This is due in part, because after a sheriff sale occurs; if the property is abandoned during the redemption period, some lenders will seek to have your redemption period shortened to 5 weeks instead of 6 months had you remained in the home. When your redemption period is over, the property reverts to the foreclosing party. Obviously this could have negative consequences on any incomplete short sale negotiations. Also, if you move out of the home, it may have a negative affect on the taxability of any forgiven debt.
Secondly, once the sheriff sale occurs, you lose the ability to reinstate your mortgage. After the sheriff sale, the only way to stop the foreclosure from running its course, is to payoff the mortgage in full or complete a successful short sale. If you believe you can get your mortgage reinstated, postponing the sheriff sale will give you extra time to work this out!
YES, a short sale can still be executed AFTER the the sheriff sale has occurred.
Caveat: If you do postpone the sheriff sale, your redemption period will be shortened to 5 weeks from the date the sale ultimately takes place.
Your options and the ultimate strategy you pursue can be confusing. This blog is not a substitute for professional legal advice.
Don Mailey
RE/MAX Results
952-212-0968
Don Mailey
RE/MAX Results
952-212-0968
A seller could be subject to a deficiency judgment for the difference between the loan amount
and the amount of the loan paid off as a result of the short sale. The lender has sole discretion
whether to pursue a deficiency judgment in those instances when a judgment is permitted.
Whether a lender files a deficiency judgment or not, depends in large part on who is negotiating
your sale. The truth is, there are options if you are informed. So many of the real estate agents
and investors claiming to do short sales, learned from some weekend training and have no clue
how to properly negotiate the deal.
Experience has shown that while the majority of lenders don’t pursue a deficiency
judgment, occasionally one will, or it may be issued by the PMI (mortgage insurance) carrier.
This can always be determined well before the final settlement and can often be negotiated.
Where the lender or PMI carrier will not agree to sign off from pursuing a deficiency judgment,
the homeowner will have the option of agreeing to the payment or backing away from a
short sale agreement.
It should also be noted that the few lenders and PMI Companies that do issue deficiency
judgments, are now doing so through Non-Secured Promissory Agreements, offering low or
zero percent long-term repayment plans.
HINT: Make sure your short sale agreement includes an assurance that no deficiency will be pursued after closing.
Don Mailey
RE/MAX Results
952-212-0968
Depending on the type of loan you have, you may still have the option of going directly to Fannie Mae or Freddie Mac to dispute your servicer's rejection. Of course, this would require having some solid price/market data to support your protest. Having a professional negotiator who is experienced in pursuing this type of appeal is also critical to achieving success. Never give up!
Contact me anytime to find out what your options are!
Don Mailey
RE/MAX Results
952-212-0968
The credit implications for a short sale, are very different for those voluntarily selling their property and those forced into foreclosure. If the property owner voluntarily selling the property can pay off the amount owed out of pocket by using assets already owned there should be no credit implications. If the property owner needs to take a new loan from a bank in order to make up the difference from the short sale, then the credit implications would be the same as the credit implications of taking out any loan. In fact, sometimes taking out a loan can improve a credit rating. Whether the new loan raises a credit score or lowers a credit score, most likely the new credit score will not be drastically different than the property owner's credit score before the short sale.
However, if the short sale is due to foreclosure, the property owner's credit could be negatively affected. Even when the bank chooses not to sue, the foreclosure can end up showing up in credit checks because it is a public record. Therefore, letting the home go into foreclosure without a short sale will eliminate any opportunity to negotiate how or even if the short payoff shows up on your credit report.
A short sale doesn't directly damage a credit score if the bank accepts the offer and doesn't report negative credit behavior. Typically, any payments missed leading up to a short sale remain on a credit report for several years. Lenders factor that into decisions to issue new loans. Foreclosures also remain on credit scores for seven years, making it more difficult to get standard financing. Borrowers may have to pay higher interest rates. The impact on credit scores diminishes over time.
Therefore, short sales cause less damage to credit scores, raise fewer legal issues and hold fewer stigmas than losing the house to the bank. Most of the time, a short sale shows simply that a debt is―satisfied. But theoretically, a short sale could reflect on the credit report as―settled for less than the full balance. Such a designation is a negative mark on your credit report, though it wouldn’t hurt your credit nearly as much as a foreclosure would.
HINT: Attempt to require the bank to use no or non-impacting credit report notations during short sale negotiations.
Don Mailey
RE/MAX Results
952-212-0968
Unfortunately, part of the equation depends on who your servicer is as all are not created equal when it comes to working things out; short sales included. By all means, contact me if you have a question in regard to working out a deal with your servicer! As mentioned in an earlier post, some servicers are adopting streamlined re-financing alternatives that are simpler to navigate. Again, they are discovering it is more cost effective to do this than take a beating via full foreclosure.
Don Mailey
RE/MAX Results
952-212-0968
Some lenders are sharing the cost savings of avoiding a costly foreclosure:
"The icing on the cake: His lender, Chase, cut him a $20,000 check after the deal was finalized, an incentive the bank offered if he sold via a short sale, as opposed to letting the home go into foreclosure."
Don Mailey
RE/MAX Results
952-212-0968
According to regulatory data provided by SNL Financial, the "big four" U.S. banks had huge amounts of one- to four-family residential loans on their balance sheets and serviced for others, for which the underlying homes were in the midst of the foreclosure process as of Sept. 30:
Bank of America had $23 billion in residential mortgage loans on its balance sheet with homes in foreclosure, while loans serviced for others in foreclosure totaled a whopping $90.6 billion.
For JPMorgan Chase, residential mortgage loans in foreclosure totaled $28.9 billion, while loans serviced for others in foreclosure totaled $54.7 billion.
For Wells Fargo, residential mortgage loans on the balance sheet with collateral homes in some phase of foreclosure totaled $18.1 billion, while loans serviced for others in foreclosure totaled $37.7 billion.
Citigroup reported $6.9 billion in residential mortgage loans in foreclosure on its balance sheet, and $10.3 billion serviced for others that were in foreclosure.
Don Mailey
RE/MAX Results
952-212-0968
Don Mailey
RE/MAX Results
952-212-0968
