In a recent class I took I was given this information about the facts about shortsales. This should help many people with their questions.
Will I Owe Money After I Have Been Foreclosed On?
When the lender or bank forecloses on the property and they eventually sell the property for less than what was owed, then a deficiency exists with the loan. The deficiency is the difference between what the homeowner owed and the amount the property sold for.Will the bank come after me for the difference?During the short sale process, we can negotiate with the lender to not seek a deficiency judgment against the homeowner.Some lenders as a matter of policy, will not seek a judgment against the homeowner because they feel they have waived their right by accepting a short sale however, we have them acknowledge it in writing that they will not seek a judgment.There is a second issue as it relates to the deficiency and that is the 1099. The lender will issue a 1099 to the homeowner for the difference. In my dealing with lenders, I have found that they generally will not seek a deficiency judgment because of the hardship. In negotiate with your lender to report your loan as payment in full.Here is an important note. The lender, if they issue a 1099 cannot then sue for a deficiency judgment. The lender can only pursue one or the other. It is obviously in the best interest of the homeowner to be proactive and deal with the foreclosure NOW. At least there is a chance that I can negotiate on your behalf.
What About My Credit?
The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event a credit status can encounter - worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit. By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly. Your credit will recover much quicker from the credit dings of a few late mortgage payments, if you keep your other accounts current. Always stay on top of your consumer credit. So, consider allocating your funds to meet basic necessities (food, utilities, household needs, auto expenses and such) first. Beyond paying for necessities plan to pay other bill to keep as many accounts current as possible. Keep “necessary” Accounts Current when deciding which credit bills to pay. If you are using a credit card to temporarily pay for necessities, you want to be sure to not jeopardize the availability of that account.A short sale may be just one part of a larger effort to get through a tough period. I want to help make it possible for your credit to recover quickly. YOU need to avoid foreclosure – and that’s where I can assist you.
Is a short sale right for me?
Mortgage lenders are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship, and are unable to meet your obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through foreclosure. As you consider the option of pursuing a short sale, remember your lender is looking to limit any potential loss on your loan. By completing a short sale, your lender has arrived at a solution that is, for them, much better than a foreclosure. If I do a short sale, how much will I have to pay to sell my home? Nothing. It’s true, NO OUT OF POCKET EXPENSE. When your lender approves the short sale, all commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the short sale approval. Remember, lenders approve short sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
What sort of hardship would my lender consider legitimate?
To some extent, that will depend upon the mortgage company considering the short sale request. Generally, as long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the short sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.
I am current on my mortgage, will my lender consider a short sale?
The answer is, maybe. Some lenders will accept a short sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent. From my experience, you should wait. If your current on your mortgage, the likelihood of your lender believing you hardship is SLIM and will get denied.
Why would a mortgage company agree to accept a short sale?
There are actually several reasons why a mortgage company would approve a short sale payoff, including the following:
· Legal Concerns : Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution. · Wall Street is Watching Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. A successful short sale gets the loan payoff resolved quickly. · Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets - homes – spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful short sale eliminates most of these costs. · Reserve Requirement- Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful short sale lets the lender put more money to work.
I have two loans, can I still do a short sale?
Yes.
My property is in rough shape and needs work, can I still do a short sale?
Absolutely. In fact, lenders are more motivated to do a short sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work. Aside from expense of completing the work, lenders are simply not set up to get the work done. They are in the loan business, not the fix it business.
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