What Are Your Options?
You DO Have Options
If you have become delinquent on your mortgage(s) you will receive tons of information – some not so subtle suggestions – from many people who want to take advantage of your temporary misfortune. They will attempt to scare you by telling you that time is your enemy and that you must act immediately to save your credit. This will normally be followed by a proposal to solve your problem by suggesting that you sell or deed your property to them.
BEWARE! Don’t do anything until you understand ALL of your options.
Here are some of your options:
- You can refinance the property and pay off existing loans. However, you must have sufficient equity in the property. We do work with lenders that can assist you with refinancing your property
Sell Your Property
- You can sell the property if you have the equity in your property and can afford to wait out the time it may take to currently sell your home at a fair market value. As full service real estate professionals, we can assist you with the sale of your property.
- If you owe more than your home is worth, you can look at negotiating a discounted payoff with your mortgage company. We can negotiate with the lender(s) on your behalf to get an approval for a Short Sale. Keep in mind that the lender(s) almost always pays all the sales costs, including title and escrow fees, commissions and most repairs.
- Negotiate a Forbearance Agreement with your lender(s).
For borrowers who have experienced a temporary event that has caused them to fall behind on their mortgage(s), a Forbearance Agreement with the lender(s) is a viable option. In most cases, the lender(s) look(s) for two things when considering a forbearance agreement:
1. Why the loan became delinquent in the first place. It helps greatly if the problem was something beyond the control of the borrower – serious illness or injury, temporary disability or a one-time disruption in income.
2. That the borrower’s financial difficulties have been corrected. The mortgage company wants to know that the borrower is now on a solid footing and can be counted upon to make regular loan payments as agreed. The new payment will probably include a set amount that will count towards the delinquent amount.
- This is always an option but not recommended. Many borrowers can become overwhelmed and intimidated by their situation and although it is a daunting burden the ramifications of a foreclosure are very serious. That being said, at the very least you owe it to yourselves to consider the potential solutions that help you avoid foreclosure.
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What is a Short Sale?
A Short Sale is when a lender(s), through negotiations, accepts less than what is owed on the property to satisfy the note and release the lien.
How Does it Benefit the Seller?
A "Short Sale" offers significant benefits to the homeowner, such as:
1. A short sale will allow the homeowner to eliminate the mortgage debt(s) without the expense of needed repairs to get the property sold.
2. The sellers is able to stay on the property until the process is completed.
3. No upfront fees are required. DO NOT PAY UPFRONT FEES TO ANYONE!
4. Closing costs and commissions are paid for by the lender(s).
5. The seller avoids the negative effect of a foreclosure on his/her credit report.
6. May help avoid a bankruptcy.
7. Less stress, more Peace of Mind!
How Does it Benefit the Lender/Bank?
For the mortgage holder there are real advantages to getting the property sold, even at a discount, while the borrower is still in the home:
1. The costs to maintain the property are paid by the borrower and the borrower has an incentive to keep the property in good shape.
2. The foreclosure process can get very unpleasant, particularly towards the end of the process. Borrowers have been known to remove built-in appliances, cabinets and plumbing fixtures on their way out.
3. The lender(s) avoids paying the considerably high fees associated with a foreclosure such as; attorney, court, processing and handling fees. Not to mention the insurance, taxes and repair costs.
Bottom line, banks do NOT want to own your home!
How Does it Benefit the Buyer?
Buyers are able to purchase a property, in most cases, substantially below market prices resulting in immediate equity. These properties are typically much better maintained than a foreclosure property and in need of fewer repairs.
The Short Sale Process
1. Get prequalified. Find out if a Short Sale is a viable option. We can help you with this and there's NO COST to you.
2. The property is placed on the market.
3. The Hardship Package is prepared and submitted to the lender(s).
4. Once an offer(s) is received, it's submitted to the lender(s) for approval.
5. Upon approval, the file moves to closing.
You get to go on with your life!
How Does it Impact Your Credit?
A foreclosure has a devastating affect on credit score, which can plunge by as much as 200 to 300 points. However, short sales have a far less damaging affect on a homeowner's credit report. A homeowner who successfully avoids foreclosure through a Short Sale may only lose between 80 to 100 points off of their credit scores.
What happens to a homeowner's credit down the road?
With a foreclosure, it can take from 3 to 5 years if not more before a bank or mortgage company will offer the homeowner an affordable interest rate. There is also the ramifications of a looming "deficiency judgment".
A homeowner who successfully negotiates a Short Sale can usually qualify for a new mortgage, at more favorable interest rates, in as little as 18 months with the establishment of new credit.
Why Work With A REALTOR?
A. Lender(s) prefers to work with a REALTOR as opposed to working directly with the buyers. Getting a Short Sale approved by the existing lender(s) is a very complicated, multi-step process. This requires a high level of patience, persistence and, most importantly, experience. The lender(s) realizes that it is in their best interest, as well as that of the borrower, to the have the Short Sale file put together properly from the very beginning, by a real estate professional that does not have a conflict of interest.
B. PROTECT your personal information, that's why you do not want the buyers working directly with the lender(s). Why? In order to get a Short Sale approved you must provide the lender(s) with a great deal of personal financial information and documentation. Do you want the buyers to have access to all this information?
C. The buyers are concerned with closing the deal in accordance with their best interests, NOT yours!
D. Professional Representation, at NO COST to you - The lender(s) pays the real estate commission, so professional representation is free to you. In essence, the lender(s) pays the real estate fees, along with most other sales costs, so the Short Sale file can be handled by a professional.
If you decide that a Short Sale is the best option for you, make sure that a highly qualified Real Estate Professional, such as myself, is representing you.
Frequently Asked Questions - Short Sales
* What is a Short Sale?
* Is a Short Sale my best option?
* If I do a Short Sale, what will it cost me to sell my home?
* How do I get started with a Short Sale?
* What i f I just deed my property to another party and walk away?
* What type of hardship(s) is/ are considered legitimate by lenders?
* My mortgage payment(s) is/ are current, will my lender (s) consider a Short Sale?
* Why would any bank/mortgage company agree to a Short Sale?
* Are all Short Sales approved by Lenders?
* Can I do a Short Sale if I have two loans?
* My property is in need of repairs, can I still do a Short Sale?
* How will a Short Sale affect my credit?
* My income problem was only temporary. Do I still need to sell my home?
* What is a Forbearance Agreement?
What is a Short Sale?
A Short Sale is when a lender(s), through negotiations, accepts less than what is owed on the property to satisfy the note and release the lien.
Is a Short Sale my best option?
Possibly. Consider the fact that banks do NOT want to own your home! Lenders are increasingly more willing to work with homeowners faced with "legitimate" financial hardship and to accept a discounted payoff on a mortgage balance. If you are faced with a "legitimate" hardship that makes it likely you will be unable to meet your obligation on your mortgage payments, the 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, keep in mind that your lender is looking to limit any potential loss on the loan. By successfully 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, what will it cost me to sell my home?
Nothing. It’s true, in most cases you will NOT have to pay any sales costs, if 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. Our standard procedure is to include the *following clause in the sales contract.
"Agreement to sell is subject to approval by existing lender(s) of a Short Sale at no cost to Seller(s). Seller(s) are not required to deposit any funds to close the transaction."
Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
How do I get started with a Short Sale?
The first step is to get prequalified for a Short Sale. We can help you with this and there is no charge to you to get started. It is not a problem if your later decide that a Short Sale is not right for you.
What i f I just deed my property to another party and walk away?
There is no "walking away". If you Deed your property to someone else without paying off the loan(s), in just about every case, it is a BAD idea. Why? The lender(s) still considers you primarily responsible for payments on the loan. If loan payments are not paid, or if the lender ultimately forecloses, this will show on your credit report. Also, when you deed over your property to another party, you give up control of the property because along with the deed comes the ability to control the property.
DO NOT deed over your property to someone else, without paying off the loan, unless you have consulted with an attorney.
What type of hardship(s) are considered legitimate by lenders?
Ultimately, that will depend upon the lender(s) considering the Short Sale request. Generally, as long as the hardship is real and the lenders(s) believe(s) the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. A MAJOR factor to getting the Loss Mitigation Department to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.
Below you will find a list of the most common “hardships” that are frequently accepted by mortgage lenders:
* Loss of Employment or Significant Loss of Income
* Divorce or separation of domestic partners
* Family illness or injury
* Illness or injury within the extended family
* Employment relocation, but if there's no or not enough equity in the property
* Increase in mortgage payment(s), insurance or other unexpected increases in living expenses
My mortgage payment(s) are current, will my lender consider a Short Sale?
The answer is, maybe. There are lenders that will accept a Short Sale file for approval on loans that are not yet delinquent. Other lenders will not accept the file until the loan is in fact delinquent. We can put your Short Sale file together within 2-3 days and submit it for approval (Remember, there is no charge for this). This is best way to determine if your lender(s) will accept a file for approval on a loan that is not delinquent.
Why would any bank/mortgage company agree to a Short Sale?
There are Several reasons why a mortgage company would approve a Short Sale payoff, including the following :
Legal Issues – Lenders have come under increasing 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 compromised solution.
Wall Street – Mortgage lenders rely heavily on the ability to package and sell loans on the secondary mortgage market. They must sell these bundles of loans in order to raise funds, which they in turn put back to work in the form of new loans. 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 a huge 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.
Are all Short Sales approved by Lenders?
NO! There are no guarantees. That is why it is in your best interest to to work with professionals with extensive experience, such as myself, at getting Short Sales approved. It begins with the presentation of the Short Sale package to the lender(s) and then working with the lenders Loss Mitigations Department, we know how to keep these files moving towards final approval. The first step is to get pre-qualified for a Short Sale. There is no charge for this, and it’s easy.
Can I do a Short Sale if I have two loans?
Yes. We can work with both lenders (it's quite common for the same lender to hold the 1st and the 2nd loans) to put together a Short Sale transaction. Even if the home is worth less than the balance of the 1st mortgage, we can normally get the two lenders to cooperate. Just keep in mind that, banks do NOT want to own your home!
My property is in need of repairs, can I still do a Short Sale?
Yes! In fact, lenders are actually more motivated to do a Short Sale on a property that needs work than on a property that does not. Lenders know the risk of loss increases when they foreclose on a property in need of substantial repairs. Aside from the expense of completing the work, lenders are simply not set up to get the work done. Lenders are in the home loan business, NOT the home improvement business.
How will a Short Sale affect my credit?
A foreclosure has a devastating affect on your credit score, it can plunge by as much as 200 to 300 points. However, Short Sales have a far less damaging affect on a homeowner's credit report. A homeowner who successfully avoids foreclosure through a Short Sale may only lose between 80 to 100 points off of their credit scores.
What happens to a homeowner's credit down the road? It can take from 3 to 5 years, if not more, after a foreclosure before a bank or mortgage company will offer the homeowner an affordable interest rate. There are also the ramifications of a looming "deficiency judgment" to consider.
A homeowner who successfully negotiates a Short Sale can usually qualify for a new mortgage, at more favorable interest rates, in as little as 18 months with the establishment of new credit.
My income problem was only temporary. Do I still need to sell my home?
Maybe not. Keeping your home is a possibility. However, you will need to convince your lender(s) of two things:
1. The problem that caused the mortgage payment disruption was beyond your control – illness, injury, temporary disability or forced job change are a few examples.
2. You are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount.
What is a Forbearance Agreement?
An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrowers delinquency. Some plan for making up the delinquent interest and other charges. It may mean making additional payments to the mortgage company or the delinquent amount could be added to the loan to be paid later.