Short Sales

Until about mid 2007, “Short Sales” was a phrase that hasn’t been heard much in the Southern California area or much nationally since about the early to mid 90’s.  There are now a whole slew of homeowners in the housing market that had nothing to do with real estate back then.
So, they may not even be aware of this option.
So the question “What is a Short Sale?” is a very good one and should be asked.

A short sale is a real estate transaction in which the lender agrees to take less money than is currently owed for the trust deed or note it holds on a property.

An example would be if you owe $300,000 for your home but you can’t or don’t want to keep it, but the value is only $225,000 you can still sell the home and have the lender agree to take the $225,000 price as a mutually agreed price and usually releasing you from the remainder of the loan obligation all together.

A number of factors may necessitate a short sale:
• Maybe you purchased the home at the height of the market and home prices in the area have fallen.
• Maybe you refinanced to 100% at a time when market value was much higher than it is today.
• Maybe  purchased/refinanced with a negative amortization product.

The hallmark of the short sale is that the lender ultimately controls the deal. Only the mortgage holder can agree to accept less than is owed on the property. The seller cannot make that decision nor can the listing agent.

Q: Does the lender have other options besides short selling the property?

A: The simple answer to that question is YES. The only way for a homeowner to discover what the lender can do is to contact them directly. Many lenders have forbearance and recast options for homeowners but as I mentioned in the Loan Modification video, without professional help, the lender usually works toward their own benefit and not necessarily your benefit which according to congress has about an 80% failure rate.
The availability of those options depends on your circumstances. Saving the home should be the first avenue to investigate. See my section on Loan Modification

Q: How much time do you have once a Notice of Default (NOD) has been filed?

A: Foreclosure time periods vary by state and method of foreclosure. California, for example, practices a non-judicial form of foreclosure. Many States have different redemption periods ranging anywhere from 90 days to a year. Certain states even allow the homeowner to redeem the property after foreclosure.
So the simple answer in Southern California is that you have 90 days from the date the Notice Of Default is filed at which time the lender can then file what’s called a Notice of Trustee Sale.  21 Days from that date is usually the date they have set with the Trustee to sell the property at auction.  The reason you need to know this is because you absolutely need to take action right away.  Every day closer it gets to actual foreclosure, the more difficult it is to get out of it.

Q: Will a 1099 be issued as a result of the foreclosure or short sale process?

A: In almost every case the answer is YES.  The lender is compelled by federal law to issue a 1099 for any realized loss they incur. If the owner does not have a judgment issued against them or has not arranged for a personal note they will receive a 1099 for a foreclosure, short sale, or deed in lieu.  The good news is that in December 2007 the “Mortgage Debt Relief Act” was passed into law allowing most people the ability to eliminate their tax liability as a result of a foreclosure, short sale or deed in lieu.  Attached to this page is a link to that document.

Q: What is the difference between a short sale, a foreclosure, and a deed in lieu?

A: The basic difference between the three is the method in which the information shows up on a credit report and the potential financial damage the borrower faces.

FORECLOSURE, an action in which the lender actually takes the property back from you the homeowner and will reflect on credit as a trade line, or in some cases multiple trade lines, with a Foreclosure notification.  This will linger on a credit report for up to 10 years, and in many cases will stay even longer, unless the person takes proactive steps to remove it.  What will this do?
It may keep a person from purchasing a new home in the future.  It could even keep them from renting the apartment they choose.  It may also affect their ability to finance automobiles, buy furniture, apply for credit cards, or curtail any other items or services that may require credit approval.

A DEED IN LIEU – and we’ll talk about this in another video will still show as a foreclosure on a credit report. It’s a method in which the property owner simply turns the keys over to the lender without going through the foreclosure proceedings.  The credit damage is still real and as long lasting as that suffered as the result of foreclosure and more.  Watch the video.

A SHORT SALE can have several advantages over the two previous options noted.
First, it gives the homeowner a sense of control over the situation at hand.  They are not simply sitting back and letting the bank take the property. Instead, they are playing a part in the liquidation of the asset.
Secondly, they are helping limit their own post-sale financial exposure.
Thirdly, while your credit will still be damaged as a result of the transaction, in many cases it will show as a settlement or profit/loss rather than a foreclosure.

Q: How much will a short sale cost a seller like you?

A: In most cases nearly nothing. The seller shouldn’t be paying for termite inspections, home warranties, or property repairs unless absolutely necessary to get the transaction completed. In most cases, the owner is insolvent to begin with, which is why the home is subject to short sale.  Homeowners and agents should be wary of offers which require payments to be made outside of escrow.  Depending on the state and the circumstances, these may not be in the homeowner’s best interests and may not even be legal.

Q: What are the tax and legal ramifications of doing a short sale or foreclosure?

A: As is often the case in real estate, the legal ramifications may be state dependant. In California, for example, which is non-judicial, there is no deficiency judgment recourse to the property owner in the case of a foreclosure (assuming the mortgage in question is a purchase money loan). Other states have few or no laws governing the matter. Lenders able to pursue deficiency judgments may attach one to the property owner and in some cases may be able to seize or force the sale of other assets as well as garnish wages.  It is wise for a homeowner to talk with a lawyer and a tax professional to discuss a foreclosure situation and the laws of the state governing the property.  Depending on how the lender disposes of the loss, they must issue a 1099 for any deficiency realized.  You should familiarize yourself with the Mortgage Debt Relief Act of 2007.

Q: If the homeowner will get a 1099 no matter what, why do they want to do a short sale?

A: This question has answers based both in morality and in finance.  Obviously, trying to do the right thing and helping with the sale of the property to minimize the lender’s loss is morally appealing to many, but the real reason is to minimize the damage to the homeowner.  By conducting the short sale of the property, the homeowner wields some control over the situation, and helps to limit the loss incurred by the lender, while also reducing the amount of taxable gain that they may be charged with in the form of a 1099.  As stated earlier, the homeowner should receive advice from a licensed tax professional to discuss their tax situation and how to best position themselves for this situation.  Again, a great law you should become familiar with is the “Mortgage Debt Relief Act of 2007”.

Q: Why would a lender agree to a short sale?

A: There are lots of answers to that question and, sadly, none of them have anything to do with compassion for the homeowner.  The reason lenders agree to a short sale is simple: It is far less costly to short sale the property than it is to take the property back through a foreclosure proceeding. To get a better understanding of why a short sale may benefit a lender, let’s examine the costs to a lender who forecloses and takes possession of a property:
•  Lost interest money that they would have gotten had the property still been generating payments.
• Attorney fees
• Posting/Publishing fees.
• Reconveyance company fees
•  Appraisal costs
• Inspection fees
• In some cases there are repair bills
• Maintenance  fees
• Home Owners Association dues
• Taxes
• Insurance.
• Fees for commissions
• Escrow charges
• Title Insurance fees
Remember, the lender is required to comply with any state and local mandates for the sale of properties just as a homeowner that would sell the property is required to do.  All of these fees could add up to $50,000 or more.  If the lender allows the short sale to take place, all of the associated holding fees can be alleviated.

Q: What’s the story with companies that advertise that if they’re put on title they can save the property?

A: Be very cautious of these types of scams.  When a homeowner transfers title of their property to a third party it DOES NOT stop the foreclosure process.  There have been multiple articles published in newspapers and on the Internet regarding schemes of this type.  Promises of assigning title are, in almost all cases, false and will lead to further damage to your credit, increased 1099s, and may cost you even more in a larger deficiency judgment if you live within a state that allows them.  These are also referred to as “Subject To” sales and we talk about these in another video.

Q: How long does a short sale take?

A: This obviously is a loaded question and depends on several things.

1. How is the house priced in comparison to others on the local market?  Of course, an over-priced home will take longer to sell.
2. What’s the condition of the house?  The homeowner needs to be part of the solution, not part of the problem. The home must be kept clean and available for showings, including open houses and broker caravans.
3. Once an offer is made, it may take several weeks to negotiate a settlement agreement with the lender, so be prepared to keep the lines of communications open and everyone up-to-date on the current status of the file.
4. Once a settlement agreement has been reached with the lender, a normal escrow will occur with the usual time periods outlined within the purchase offer.

Q: What does it take to complete a short sale?

A: You’ll need information and lots of paperwork. One of the big pluses in a short sale is that the homeowner tends to be forthcoming about their situation and cooperates with the process by providing all of the paperwork necessary to get the transaction under way. Information necessary to initiate the file will include the following:
* Current mortgage payment coupons,
* Copies of any correspondence with the lender,

* Copies of HOA and tax bills (especially past due notices)
* A hardship letter,
* A financial statement.
Many lenders also have their own proprietary forms.  Knowing what lenders are involved at the beginning of a listing allows us to contact them early in the game and determine what paperwork, if any, must be presented on lender forms. Once all of the initial paperwork is together you will be ready to hit the ground running when an offer to purchase is received from a potential buyer.

Q: Is it good to use a professional negotiating firm to conduct the lender discussions on my home sale?

A: You wouldn’t want a dentist to perform brain surgery, nor a plumber to preside at the birth of your first child, would you? Why would you trust the most difficult part of a short sale transaction to someone without training and expertise in loss mitigation negotiations?  You Want Short Sale Support and a staff of seasoned professionals who have actually been in the business and successfully negotiated short sale settlements with lenders in this market.  You can feel confident that we will connect you with the right people with the right experience who will work diligently on the file so they can close your short sale and move on with life.

Q: Is there anything else I should know?

A: While the loss of a home is devastating to a family, the most important thing is that you get through this difficult time and prepare yourself for the future. To this end, make sure that you use a licensed Realtor(r) to represent you on the real estate portion of your transaction and a Short Sale Support team to complete the lender negotiations once you get an offer from a prospective buyer.
I have spent my time looking into all the different Short Sale Options and I am confident that I can connect you with the right people to get this stress off your shoulders.

Q: How do I know if the Realtor I hire is truly qualified to help?

A: When markets change so does the focus of the service providers in that industry.  You might imagine that prior to the downturn in the market most agents never even thought of a short sale.  Of the very few who did, most of them had never conducted a short sale.  Experienced and properly trained Short Sale real estate agents are a rare breed indeed even now.

The other problem is that agents are inundated by emails, mailers and phone calls from companies promising that if they attend their three hour “Short Sale” or “Foreclosure” seminar, they will become an expert in those areas.  Many agents attend these three hour seminars only to learn just a few new tidbits and get sold hundreds and thousands of dollars of books and CD’s and other stuff.  Most agents don’t get the books and CD’s but believe because they know more than they did when they arrive, that they can now call themselves experts.  Even the agents who got all the books and CD’s mostly do what everyone else does when they buy this stuff:  1. Can’t believe they fell for the sales pitch and spent that much money.  2. Put the books and CD’s on the shelf as fancy and expensive dust collectors. 3. Begin calling themselves experts.  It’s not until they’ve lost a few of their clients homes to foreclosure have they learned enough to know what to do.

The point is…there are no established credentials by which a consumer like yourself can determine an agents credibility in the short sale process.  This is where comes in.  I have developed a system where we are able to determine an agents qualifications regarding their short sales success and credibility.  It has taken me a long time to develop the process.

The great news is that our service costs you absolutely nothing.  Zero, nada, zilch!  To prove it we never ask you to sign anything or send any payments.  All you have to do is ask us to introduce you to the top Short Sale real estate expert in your area.  When we do this for you, the lender pays for our services, you are assured that you have the best people working for you, the lender knows they will get a complete package they can work with and you’ll be able to get out of that house without pulling a penny out of your pocket.

Q: What Should I Do Now?

A: Fill out the form on this page or call us at 714-900-2710 and speak to one of our counselors.

These are a few of the general questions homeowners typically have going into the short sale process.
I’m here to answer these and more specific questions and to solve issues that arise.
Please feel free to contact me for straight talk and real world solutions to your current situation.

Just a couple more things on short sales.
If you know anyone who is in this situation, you have probably heard the complaining that the agent that was hired isn’t doing anything.  They’re never around and it seems like they just don’t care.  As I mentioned previously it may be simply because they truly don’t know what to do to get the home sold.  So they cross their fingers and wait and hope something POPS and they can make a commission.

The systems most of the agents use that we will connect you with allow you to know within a matter of weeks if you’re home will be sold.  So, in most cases this avoids the months of sitting around and waiting and not knowing if your home is going to be sold at auction.  Despite the fact that you’re having to sell your home when you really don’t want to, you’ll at least have the comfort of KNOWING.

To discuss the short sale process even further, please fill out the form on this page or call us and we’ll be happy to give you the answers you need right away.  Remember, every day you wait, you get closer and closer to that foreclosure date.  Don’t wait.

Some interesting Biblical Perspectives on Debt

What the Bible does NOT say about debt:
* It is a sin to borrow money   It does say The rich rule over the poor, and the borrower is servant to the lender   Proverbs 22:6-8
* It is wise to borrow   It does say …
The wicked borrow and do not repay Psalm 37:20-22
* Debt is an exercise in faith   It does say Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.  Romans 13:7-9
* It is a sin to loan money   It does say and you will lend to many nations but will borrow from none… Deuteronomy 15:5-7
* Money is the root of all evil.   It does however say that the LOVE of money is the root of all evil. 1 Timothy 6:9-11
* God will bail you out of debt or does it?  Check out John 3:16