Short Sale Guide

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					This is a guide that provides property owners with more information about short sales.
A short sale occurs when a property owner owes more on the loan than the property's
current value. Under a short sale agreement, the property owner makes an
arrangement with the mortgage lender to accept a price that is for less than what they
owe on the property. Usually, the lender will agree to forgive any unpaid balance. Short
sales are useful for homeowners that owe the lender more than the property is currently
worth and want to get rid of the debt. This guide is useful for property owners that want
to learn more information about the short sale process.
Contents
How to use this guide? .............................................................................................................................................4
Do I need a real estate agent? ..................................................................................................................................4
How do I find a reputable real estate company/agent? ............................................................................................4
Do I also need a lawyer for a short sale? .................................................................................................................5
How do I find a reputable law firm? ........................................................................................................................5
Frequent Asked Questions (FAQ): ..........................................................................................................................6
  What is a short sale? ............................................................................................................................................6
  Is a short sale right for me? ..................................................................................................................................6
  How do I get started on my own short sale? ........................................................................................................6
  Can I simply deed my property to someone else and avoid the hassle? ..............................................................6
  What sort of hardship would my lender consider legitimate? .............................................................................7
  I am current on my mortgage; will my lender consider a short sale? ..................................................................7
  Do lenders approve all short sales? ......................................................................................................................7
  If I have two loans can I still do a short sale? ......................................................................................................7
  My property is in bad shape and needs work; can I still do a short sale? ............................................................7
  What is a Forbearance Agreement? .....................................................................................................................8
  My income problem was temporary. Do I need to sell my home? .....................................................................8
  Does a short sale trigger capital gains taxes?.......................................................................................................8
  Can a home seller sell their home for less than the amount of the mortgage? ....................................................8
  How does a home go into foreclosure? ................................................................................................................9
  How does someone sell a slow mover? ...............................................................................................................9
  We are about to buy a short sale home and it has mold. Is the bank responsible for getting rid of the mold or
  are we? .................................................................................................................................................................9
  How long to short sales and bankruptcies stay on your credit report? ................................................................9
  When does a foreclosure begin? ........................................................................................................................10
  If I pay mortgage insurance and default on my loan, why wouldn’t that cover the deficiency amount? ..........10
  What are the implications of an unpaid judgment? ...........................................................................................10
  How long does the foreclosure process take? ....................................................................................................10
  Will I still have to pay taxes if I do a short sale? ...............................................................................................10
  Does a good credit score help the seller trying to do a short sale? ....................................................................11
  Where can I get information on investing in short sales and foreclosures? .......................................................11
  Is a short sale still an option if a foreclosure has taken place? ..........................................................................11
  How can I get referrals from lenders that have clients wanting to do short sales? ............................................11
  How does a realtor profit from a short sale? ......................................................................................................11
  Will I have a high interest rate on future mortgages or will they be harder to obtain? .....................................12
  I want to do a short sale and have a 2nd mortgage, does this make me ineligible? ............................................12
  Why would a bank or mortgage lender want to cooperate with a short sale? ...................................................12
  How does the bank determine the price is will accept on a short sale? .............................................................12
  Can I really get a deal on a short sale home? .....................................................................................................12
  How long does a short sale take to complete? ...................................................................................................13
  Are short sales guaranteed to work? ..................................................................................................................13
  What is the house I want needs repairs? ............................................................................................................13
  What if the house has liens on it? ......................................................................................................................13
  I am an investor, can I buy short sales? .............................................................................................................13
  Can I buy the short sale for the price stated in the listing? ................................................................................13
  How long will it take to get bank approval of my offer? ...................................................................................14
  Will the banks negotiate on price? .....................................................................................................................14
  Do I get title to the property when I negotiate a short sale? ..............................................................................14
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  Are my property taxes based on the about of debt that was on the short sale property? ...................................14
  Can I transfer my property tax base to the reduced short sale price? ................................................................14
Steps to a Short Sale ..............................................................................................................................................15
Advantages and Disadvantages of a Short Sale .....................................................................................................16




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How to use this guide?

        No homeowner ever plans on dealing with a short sale. Unfortunately with a drop
in real estate values, they have become common. This guide will help the reader navigate
the short sale process, and answer some of the frequently asked questions that can arise.
This guide is not a substitute for sound legal advice. If you have any questions you
should speak to a lawyer.



Do I need a real estate agent?

        While normally it would be possible to sell your home without a real estate agent,
because short sales are a complex process it is highly recommended that you consult with
one. A short sale involves lender approval, and it would be highly unlikely that a lender
would allow a buyer to represent themselves. A real estate agent will also help guide the
seller through the process.



How do I find a reputable real estate company/agent?

        If you do decide to retain an agent, hiring one with the most experience and
education is essential. One important criteria in finding an agent is determining whether
they have any formal training. In many states, becoming a licensed agent requires only
minimal time and training. However, there are numerous special certifications that set
some agents apart from others. A few to look out for would be CRS (certified residential
specialist), CRB (certified real estate broker), and GRI (graduate realtor institute), to
name a few. The GRI designation is particularly desirable, as it is the only technical and
competence based program which is administered under the direction of the National
Association of Realtors.


        Other qualities to look for in finding an agent apply to a real estate company as
well. Looking for commitment from the agent or company is vital. There are many part


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time agents, and companies that may be there one day, and gone the next. Looking into
the track record of the company or agent, how long they have been in business, and even
asking around the community can help.



Do I also need a lawyer for a short sale?

        It is possible that a real estate agent or broker that is experienced and
knowledgeable in short sales may be enough. However it depends on your unique
situation. If you have complex loans and are dealing with several lenders the likelihood
increases that you will need a lawyer to negotiate with the lenders.



How do I find a reputable law firm?

        If you have decided to retain a lawyer, you will want to find a firm and lawyer
with plenty of experience and a great track record. Make sure that you find a lawyer that
specializes in real estate law. The legal field is vast, and a lawyer needs to be specialized
in a particular field. Some lawyers may take any type of case just to keep the money
coming in, but they are not necessarily well versed in one particular subject.


        Check your phone book, the internet, your local bar association or word of mouth
to get the names of a few good lawyers. Most will meet for you the first time for free.
Use this time to interview them. What is their experience, how much do they charge, and
what can you expect to get out of your divorce by hiring them?




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Frequent Asked Questions (FAQ):

What is a short sale?


        The seller arranges with its mortgage lender to accept a price that is for less than
they owe on the property. The lender will usually forgive the unpaid balance of the loan.


Is a short sale right for me?


        If you owe more than your home is worth, and you want to get out from under the
debt, then a short sale is an option. There are a lot of other factors to consider however.
Will your home ever recover the value that is has lost? Has your financial situation
substantially changed so that you are now unable to make the monthly mortgage
payments? Bear in mind that if you do choose to do a short sale, your credit will be
damaged.


How do I get started on my own short sale?


        a) Verify the amount your property is now worth;
        b) Add up all additional costs of selling the property;
        c) Verify the amount of loans owed on the property;
        d) Find you negative number (estimated proceeds minus all costs and loans);
        e) Contact your lenders;
        f) Negotiate with the lenders;
        g) Put the property up for sale.


Can I simply deed my property to someone else and avoid the hassle?


        The lender will still hold you responsible for the loan. If the payments are not
made on the loan the lender will foreclose which will show on your credit. When you
deed the property over to someone else, you will lose control of the property. So you will




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still be liable for a property that you have no control over. If you are still thinking of
deeding your property you should consult with a lawyer first.


What sort of hardship would my lender consider legitimate?


        This will depend on the Loss Mitigation Department of your lender. The most
important thing to whether your lender will accept your case for hardship. The following
are a list of hardships commonly accepted by lenders:


        a) Illness or injury, particularly if relocation is necessary’
        b) Job relocation when the equity is deficient;
        c) Job loss or income loss;
        d) Divorce;
        e) Family illness or injury;
        f) Unforeseen increase in living expenses.


I am current on my mortgage; will my lender consider a short sale?


        Some lenders will approve a short sale on a loan that is not delinquent. Others
will only accept a short sale when the loan is delinquent.


Do lenders approve all short sales?


        No. There is no guarantee that your lender will accept a short sale. It depends on
your personal circumstances and the lender.


If I have two loans can I still do a short sale?


        Yes, people with two loans can still do short sales. Most lenders are cooperative
as they are reluctant to own a home in foreclosure.


My property is in bad shape and needs work; can I still do a short sale?


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        The fact that your property is in bad shape actually helps your chances of getting
a short sale. The lender’s risk of loss goes up if the property is in bad shape and goes into
foreclosure.


What is a Forbearance Agreement?


        This is an agreement that you would enter into with your mortgage lender where
arrange to keep your home. In the agreement the borrower agrees to remain current on
the loan from here on out, and there is a plan put into place for paying any delinquent
payments and interest.


My income problem was temporary. Do I need to sell my home?


        You may be able to keep your home. You would need to convince your mortgage
lender that the situation that created your income problem has been solved. You will also
need to show that the reason your had the problem in the first place was due to
circumstances beyond your control, such as illness or injury.


Does a short sale trigger capital gains taxes?


        Capital gains are due when there has been money made, within a certain time
frame. If you have sold your home through a short sale you have not made money, so
capital gains would not be triggered. When you sell your home via short sale, there is a
forgiveness of a portion of the debt. You may have to report the amount that was
forgiven with a 1099 form, but it will not be a capital gains issue.


Can a home seller sell their home for less than the amount of the mortgage?


        Yes, this is by definition what a short sale is. Some lenders will allow a short
sale, and some will not. The difference between the loan amount and the sale price is
often split between the lender and the seller.




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How does a home go into foreclosure?


        Usually foreclosure proceedings begin after a homeowner has missed three
consecutive loan payments. They will record a Notice of Default on the property and
begin foreclosure proceedings.


How does someone sell a slow mover?


        To boost the sale of a home the best strategy is to lower the sales price. It is a
good idea to make any repairs possible, though this is difficult if you are already in a
short sale position. Increasing the advertising for the home in MLS listings, newspapers
and open houses can help as well.


We are about to buy a short sale home and it has mold. Is the bank responsible for
getting rid of the mold or are we?


        Most short sale homes are purchased “as is.” However check your Purchase
Agreement which should outline who is responsible for repairs.              If the Purchase
Agreement does not specifically address this issue it is likely that you will be liable.


How long to short sales and bankruptcies stay on your credit report?


        With a short sale when the bank releases you from liability, they will report to the
credit agencies that the loan “was not paid in full.” This will impact your credit score
negatively. You may be able to negotiate with the bank on how they report it, for
instance “paid as agreed.” There is no set answer how long the short sale will stay on
your credit report, it depends on how the bank has reported the short sale, though two
years is a good approximation.


        Dealing with a bankruptcy is a bit different. You do not have any option of how a
bankruptcy will show up on your credit score, regardless of what chapter you file.
Bankruptcies stay on your credit report 7-10 years.



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When does a foreclosure begin?


        A foreclosure officially begins when the lender records the Notice of Default on
your loan. This is done after three loan payments have been missed.


If I pay mortgage insurance and default on my loan, why wouldn’t that cover the
deficiency amount?


        The mortgage insurance is there for the protection of the lender. If you are in
default, the lender will first try and collect from you. Also it depends on how much your
insurance covers as opposed to the amount of the deficiency.


What are the implications of an unpaid judgment?


        An unpaid judgment is a negative mark on your credit report. The creditor that
was awarded the judgment can take actions to collect this judgment in various ways, such
as wage garnishment, or attaching your property.


How long does the foreclosure process take?


        It depends on the state you live in, and how aggressive your lender pursues the
foreclosure. Generally the entire process from the first missed payment until the end is
six months.


Will I still have to pay taxes if I do a short sale?
        Yes. In a short sale, you sell your home for less than your loan amount. The
lender will 1099 you on the difference in price, and you will be taxes on that amount as if
it were income.




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Does a good credit score help the seller trying to do a short sale?


        Not necessarily. Regardless of how good your credit is, the short sale is estimated
to take your credit score down up to several hundred points. Having a good score at the
onset of the process will probably not make much of a difference.


Where can I get information on investing in short sales and foreclosures?


        The best way to find short sales and foreclosures would be to contact your local
realtor. They will be listed just as any other home.


        If you are looking to educate yourself on investing in these types of homes, there
is a lot of information out there because of the housing decline. The internet and library
are good places to start. There are a lot of publications out on this right now.


Is a short sale still an option if a foreclosure has taken place?


        If you are the owner of a home in foreclosure, and someone offered you a price
for the home, it is feasible that that a short sale could take place. This dollar amount
could satisfy the lender and stop the foreclosure.


How can I get referrals from lenders that have clients wanting to do short sales?


        A lender may give you this information but as a rule of thumb, a short sale is not a
good investment. A short sale is not considered a distressed enough situation for a buyer
to come in and get a really good deal.
How does a realtor profit from a short sale?


        The realtor’s commission is usually included in the settled upon amount.




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Will I have a high interest rate on future mortgages or will they be harder to obtain?


        It depends on how you have negotiated your short sale with your lender. If your
lender reports your loan as “settled for less than the amount due” then you will have a
harder time obtaining your next loan. If you can pay your lender a promissory note for
the amount due, this would not be as damaging to your credit. In this case you should be
able to get a reasonable loan in the future.


I want to do a short sale and have a 2nd mortgage, does this make me ineligible?


        No, but both loans will need to be taken care of. If you pay off most of your first
loan with a short sale, you will have to negotiate your second.


Why would a bank or mortgage lender want to cooperate with a short sale?


        The lender a accepts a short sale they will get more money back than if they did a
foreclosure. A short sale is quicker and cheaper to execute.


How does the bank determine the price is will accept on a short sale?


        The bank usually has a formula it uses to come up with a number. The actual
formula varies from bank to bank, but is usually the home will be priced from 8 to 20
percent under market value.


Can I really get a deal on a short sale home?


        Short sale homes are priced under market, so they are a good deal for the buyer.
They are often sold “as is” so in assessing if something is a good deal or not you should
consider the condition of the property. Also be sure to take into account closing and
other costs associated with the purchase.




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How long does a short sale take to complete?


          It depends on how quickly your bank responds. The negotiation process can take
anywhere from a few weeks to several months. Then, the house has to sell. It varies
greatly depending on what lender you are dealing with and how quickly the home sells.


Are short sales guaranteed to work?


The key here is that the lender has to be willing to work with you to do a short sale. So if
they are willing to negotiate with you, then you will be able to get out from under your
property.


What is the house I want needs repairs?


Often short sale homes are sold “as is.” The buyer would be wise to have the home
inspected prior to the sale to learn exactly what type of shape the home is in. If there are
items that need repair you can try and negotiate with the bank for the repairs or a possible
credit.


What if the house has liens on it?


          The owner will not have the financial ability to remove them. It will be up to
lender or the lien holder to be persuaded to remove the liens.


I am an investor, can I buy short sales?


          Yes but sometimes a short sale is not a good deal. It will depend on the market,
how the home is priced, and what condition it is in.


Can I buy the short sale for the price stated in the listing?




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        It will depend on whether the list price is realistic. If the property is priced
unusually low, the chances are less that your offer price will be accepted by the bank.


How long will it take to get bank approval of my offer?


        It depends on which bank is involved, how many loans are on the property and the
quality of your listing agent. Once the offer is accepted it will take as long as a regular
sale.


Will the banks negotiate on price?


        The banks usually are willing to negotiate the price. They ultimately want to
property sold so they will work with a potential buyer on price, etc.


Do I get title to the property when I negotiate a short sale?


        Yes titled is transferred just like a “regular” home purchase.


Are my property taxes based on the about of debt that was on the short sale
property?


        In most states property taxes are based on the purchase price of the home.


Can I transfer my property tax base to the reduced short sale price?


        There are times that the tax base can be changed. It depends largely on what state
you live in and if you meet the particular requirements.




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Steps to a Short Sale

        a) Determine the value of your property. Real estate agents are a good resource
            for this.


        b) Estimate your closing costs. Again, your real estate agent will be able to give
            you a fairly good estimate on the costs involved here.


        c) Figure out how much you own on the property.


        d) Figure out the amount of equity in your home. If the amount of the loans and
            closing costs is more than the value of the property you may be able to do a
            short sale.


        e) Contact your lender. Lenders are under no obligation to agree to a short sale,
            but it may be in their best interests to do so.


        f) Contact your accountant and look at the tax implications of a short sale.
            People are often unaware that there can be a substantial tax consequence to a
            short sale.


        g) List and sell your property. The lender will have to approve of any offer you
            receive.




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Advantages and Disadvantages of a Short Sale

Advantages


        a) As the seller, you will feel that you tried to do the right thing, as opposed to
            letting the home go into foreclosure.


        b) A short sale may be slightly easier on your credit than a foreclosure.


        c) You are out from under a home you cannot afford.


        d) You are usually eligible to buy another home in two years.


Disadvantages


        a) There is no guarantee that the bank will accept your short sale offer.


        b) Being at the mercy of the bank is frustrating and stressful


        c) It will hurt your credit and be a mark on your credit report for 7 years.


        d) You will have a lot of paperwork, and will need to produce a lot of personal
            information to the bank.




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DOCUMENT INFO
Description: This is a guide that provides property owners with more information about short sales. A short sale occurs when a property owner owes more on the loan than the property's current value. Under a short sale agreement, the property owner makes an arrangement with the mortgage lender to accept a price that is for less than what they owe on the property. Usually, the lender will agree to forgive any unpaid balance. Short sales are useful for homeowners that owe the lender more than the property is currently worth and want to get rid of the debt. This guide is useful for property owners that want to learn more information about the short sale process.
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