Guide to Short Sales

Your Options

If you have fallen behind on your mortgage, you will receive information – and lots of not so subtle suggestions – from many people who want to take advantage of your temporary misfortune. They will tell you that time is your enemy and that you must act immediately to save your credit. That will normally be followed by a proposal to solve your problem by selling or deeding your property to them. Don't do it! Don’t do anything until you understand your options. Below are some of your options:

Sell Your Property

Sell the property at fair market value and put your equity in your bank account – where it belongs. We can help here and we will be sure you get your equity.

A Short Sale

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 your mortgage company on your behalf to get approved for a Short Sale. We have done hundreds of these and here’s the best part:The lender nearly always pays all the sales costs including title and escrow fees, commissions and most repairs.

Refinance

Refinance the property and pay off existing loans. We have loan sources for this type of loan, but the loans are very expensive and they normally require that the borrower have significant equity in the property. Nevertheless, refinancing is an option for some.

Negotiate a Forbearance Agreement

Negotiate a Forbearance Agreement with your mortgage company. For those borrowers who experienced a very temporary event that caused them to fall behind on their mortgage, a Forbearance Agreement with the lender is a good option. In most cases, the mortgage company is going to look for two things when considering a forbearance agreement. First, 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. Second, 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 some amount to go to the delinquent amount.

Do Nothing

Of course, you could just do nothing. Many go this route because the situation seems overwhelming. It is a heavy burden, but the consequences of a foreclosure are serious. Let’s at least consider potential solutions that help you avoid foreclosure.

What We Do

Getting your short sale approved is our number one goal. Along the way we will take the time to help you understand the process. It is our job to prepare you for the Short Sale process, if you feel that is your best option. We will keep you informed along the way so you know what progress is being made. Sometimes we have to ask tough questions. In order to help you select the solution that is best for you, we will need information. We will not, however, lose sight of who we are serving. At all times, your interests come first – you have our word on it.

What We Do

• Listen to you, so we understand how to help.
• Provide guidance, so you can move in the right direction quickly.
• Put together a great Short Sale file, so your lender will want to work with us.
• At all times, put your interests first!

What We Don’t Do

• We don’t try and buy your property to take your equity.
• We don’t recommend that you deed your property to a third party and give up control of your home.
• We won’t lie to a lender to save a loan.
• We don’t ask for any up front fees – ever!

Things Not to Do

Number One

Absolutely Do Not ever deed your property to a third party without absolute confirmation your loan has been paid off.

Note: if you believe this option is best for you, please consult with an attorney – not the buyer’s attorney – before completing the transaction.

If you deed your property to a third party, that party then controls the property. The new owner can rent the property (and keep the rent), attempt to sell the property to make a profit, move into the property or use the property in other ways.

What the new owner might not do is make mortgage payments, and that could become a big problem for you.

Just because you no longer own the property does not mean you are no longer responsible for the mortgage loan obligations. The lender made the loan to you. And until it is paid off you will be primarily responsible for the mortgage obligation.

If you give up control of the property and the new owner does not pay on the loan, the damage to your credit could be catastrophic.

Number Two: Do Not sell your home at a huge discount.

Unless the actual foreclosure sale is less than 45 days away, you have time to explore options. Take a day or two and make a few phone calls. As a general rule, if someone is pushing you hard to get you to sell your property to them, it’s probably because the deal they are proposing is very favorable – to them.

If you have equity in your home, it belongs to you. Let’s see if we can get it to you.

Number Three: Do Not authorize a prospective buyer to deal directly with your lender.

The buyer has one goal and one goal only, and that is to negotiate a low, probably very low, price with your lender. The buyer will ask your lender to accept a discounted payoff. The negotiations could go on over an extended period of time, and if the transaction does not work out the buyer may elect not to buy your property. It could leave you with very little time to resolve the situation and avoid foreclosure. Further, you have no control over the information that goes to your lender or the accuracy thereof. It is entirely possible that the buyer could handle the negotiation and presentation of information in a way that makes it very difficult for you to resolve your loan situation later.

If, however, you believe that your best option is to allow the buyer to work directly with your lender, make certain you consult with a real estate professional and/or an attorney before signing a contract. If you are going to do a Short Sale get representation from a real professional. It costs you nothing – the lender pays the fees. Someone should be looking out for you. We can help, and it costs you nothing. We have fought for homeowners like you many times – and won. The lender wins also. They do not want to take your property through foreclosure. That’s why they will negotiate to get the deal done.

Number Four: Do Not do nothing.

A surprising number of people just accept what they see as the inevitable, and let foreclosure run its course. Don’t let it happen – the damage to your credit will follow you for years. Short Sales really do SAVE CREDIT! Here is a report on "How short sale vs foreclosure affects your credit".

Take a little time to explore potential options. You do not want a foreclosure on your credit record. It will hamper your ability to get a consumer loan or a car loan for at least a few years, and it will be very difficult to get another mortgage for a very long time.

Short Sale FAQ

Is a Short Sale 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 that makes it likely you will be 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. Bottom line, your lender wants to work with you.

How late in the pre-foreclosure process can you start a short sale?

Depending on individual state law and regulations, a foreclosure can proceed as quickly as 35 days from the date the notice to the borrower is filed. For that reason, time is of the essence and you should allow a window of no more than 60 days to effectuate a lender approved short sale.

If I do a Short Sale, how much will I have to pay to sell my home?

Nothing. It’s true, in most cases you will pay literally no sales costs if your lender approves the Short Sale. All Real Estate commissions, title and escrow fees are paid by the lender as part of the Short Sale approval. We will include the *following clause in the contract. "Seller’s agreement to sell is subject to approval by existing lender of a Short Sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow." Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.

How do I Get Started on a Short Sale?

It’s easy. You simply fill out the Contact form and we'll get started. There is no charge to you to get started. It is as simple as contacting us and we will get to work. If you later decide you don't want to do a short sale, that is okay too.

What documents are necessary to proceed with a short sale?

The individual documents necessary to proceed with the short sale will depend on the lender. Typically the lender will require hardship letter detailing the circumstances behind the short sale. A signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender. There may be additional requests for more detailed information on the financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement and monthly budget assessment, amongst other things.

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

Deeding your property to someone without paying off the loan is nearly always a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit. Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property.

Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.

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, so 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.

Below you will find a list of “hardships” that are common and frequently accepted by mortgage lenders.

• Family illness or injury
• Illness or injury in the extended family – particularly if it forces relocation
• Job relocation when the property is equity deficient
• Job loss or significant income loss
• Divorce or split of domestic partners
• Adjustment in mortgage payment or unforeseen increase in living expenses

I am current on my mortgage, will my lender allow 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. We can put your Short Sale file together within a couple days and submit it for approval. (Remember, there is no charge for this). That is the best way to determine if your lender will accept a file for approval on a loan that is current.

Why would a mortgage company allow 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.

Do lenders approve all Short Sales?

In a word, no. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved. From the presentation of the Short Sale package to the lender to working with the lenders Loss Mitigations Department, we know how to keep the file moving towards approval.

I have two loans, can I still do a Short Sale?

Yes. We can work with both lenders (many times the same lender hold the 1st and the 2nd loans) to put together a Short Sale transaction. Even if the value of your home is below the balance of the 1st mortgage, we can normally get the two lenders to cooperate. In the end, neither lender wants to own another home through foreclosure.

My property is in foreclosure 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.

I am concerned about my credit, how will a Short Sale affect my credit?

The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event your 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.

While it is up to the individual lender to decide what to report, what often happens is the loan will report as "paid" on their credit report. While that is good news, the bad news is that there will likely be a reference that says "settled for less than originally owed" or something similar. The credit scores will recover faster, with a loan “settled for less than was owed” than it will with a completed foreclosure. It is certainly more advantageous to have the short sale referenced than to have a foreclosure on their credit report.

By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.

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

You may be able to keep your home. You need to convince your mortgage company of two things:

The problem that caused the mortgage payment disruption was beyond your control – illness, injury, temporary disability or forced job change are a few examples.

You are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount.

Will a lender allow the seller to make a profit on a short sale?

By the nature of the transaction, the seller is not going to make a profit on the short sale. They may have extracted equity from a previous refinance of the home, but their current loan balance will be higher than the selling price of the home.

If a seller is in bankruptcy, will that affect the short sale of the property?

Absolutely, as most lender would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. Negotiating a short sale between the parties is considered a collection activity and such a negotiation is prohibited in bankruptcy.

Will the bank or lender require an appraisal on the home in a short sale?

Most lenders will require that a full appraisal be submitted in the short sale package. Some may only require a BPO or brokers price opinion. The lender will need some formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer.

Are there tax implications in the short of real estate?

Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost a debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount of debt forgiveness.

Why does it take so long to close a short sale?

A normal real estate transaction can close at will once the contract is “four cornered” or that all signatures are affixed and there has been a meeting of the minds. In the short sale, all agreements are “subject to lien holder approval”. Since the seller is requesting a discounted payoff from the lien holder all parties must allow the lien holder to complete an evaluation to determine the value of the home and determine if the loss is justifiable. The lender wants to mitigate his losses and so the process of evaluation must be completed before approval is granted. This process can delay closing for several months.

If the client files a bankruptcy should he still complete the short sale?

One of the main goals in the completion of the short sale is to minimize the damage to the credit of the individual. It is true that a Bankruptcy is disastrous to ones credit. Adding a foreclosure is financial suicide. Why afflict the client with both. There are methods available to have the home released from the assets included in the bankruptcy allowing the agent to complete the sale.

How long after the short sale can the client purchase another home?

The client’s ability to purchase a new home is dependent upon several factors. Credit is only one of the factors. We have seen cases where minimal credit damage was caused as a result of the short sale and the client repurchased within six months with little down and with an excellent rate. A lender is most interested in the borrower’s ability to repay the loan. If the problems that led to the Short sale are behind and there are at least twelve months of good credit with three or more credit accounts, he should be able to purchase with minimal down payment at a competitive interest rate.

What is a Forbearance Agreement?

A Forbearance Agreement is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:

1. The borrower’s promise to remain current on the mortgage going forward.
2. 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.

A borrower who is willing but unable to make payments, and who does not qualify for a deferment, may request forbearance from the lender. Forbearance allows payments to stop temporarily or decrease in amount for a specific length of time. The lender may grant forbearance of principal, interest or both. The borrower is always responsible for repayment of accrued interest charges. The borrower can make interest-only payments, or the interest will be capitalized (added on to the principal).

Unlike deferment, forbearance is not an entitlement. It is something the lender may choose to do for the borrower if the borrower is sincere in meeting his/her loan obligation and if the borrower's circumstances indicate forbearance would be helpful. Forbearances are processed for a maximum of twelve months. Forbearance will not eliminate any prior derogatory credit history.

Foreclosure FAQ

How fast can they take my home?

In Ohio, a foreclosure can be completed in less than six months from the time the loan becomes delinquent. The mortgage company can record a Notice of Default, the first step in the foreclosure process as soon as the loan is two months delinquent. Typically, the first indication a homeowner gets that a foreclosure has commenced is notification of the Notice of Default.

Once the Notice of Default has been recorded, the foreclosure can be completed in less than four months.

How Can I Stop The Foreclosure?

The best way to stop the foreclosure is to bring the loan current. To do that you would need to pay all delinquent amounts as well as the costs and fees incurred by the mortgage company to file and process the foreclosure.

Many borrowers are not able to bring the loan current and are forced to look at other alternatives to avoid foreclosure. Even if you are well into the foreclosure process, most lenders are willing to grant you additional time to remedy the situation if they believe it is reasonably likely they can avoid acquiring your property through foreclosure. Among the alternatives the lender might be receptive to:

Get the property sold so you can save your equity.

If you don’t have equity, cooperate in a Short Sale and accept a discounted payoff as “full payment” on the loan.

A forbearance agreement in which you agree to both stay current on the loan going forward and to a schedule of repayment on delinquent amounts.

What Options Do I Have To Avoid Foreclosure?

There are several things you can do to avoid foreclosure. It is usually best to let your lender know, right away, that you intend to solve the problem so they won’t have to get the property in foreclosure. Here are some of your options:

• Sell Your Property
• Refinance
• Negotiate a Forbearance Agreement
• Do Nothing

If My Lender Forecloses, Can They Come After Me For The Loss?

In order for your lender to recover losses incurred on your mortgage as a result of foreclosure, the lender would need to do a Judicial foreclosure. While, theoretically a lender could pursue a deficiency judgment through a Judicial Foreclosure on some mortgages, it almost never happens in Ohio.

The lender is normally left with the proceeds generated at the Courthouse Steps Sale or from a sale after acquiring the property at the Courthouse Sale. This is another reason why lenders would prefer to work with the homeowner to solve the problem and avoid getting the property through foreclosure.

Can I Just Deed My Property To Someone And Avoid Foreclosure?

Deeding your property to a third party does not eliminate your obligations related to the loan. Unless the mortgage is paid off when you deed the property, you will almost certainly remain as the party primarily responsible for the repayment of the loan. If the lender eventually forecloses, it will be on your credit record.

If you deed your property to a third party you also give up control of the property. It is nearly always a bad idea to simply deed your property to a third party. Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.

What will a Foreclosure do to my credit?

By almost any measure a completed foreclosure is the most damaging event your credit status can encounter – worse than bankruptcy. A foreclosure on your credit record will negatively impact your ability to borrow money for years. For most people, it is well worth the time and effort to solve the problem before the foreclosure is done.

What does a Notice of Default mean?

If a Notice of Default has been recorded against your property it means your lender has started the formal foreclosure process. In Ohio, a borrower must be two months delinquent before a lender can commence a foreclosure action by recording a Notice of Default.

A borrower has over three months from the recording of the Notice of Default to work something out with their lender and avoid the completion of the foreclosure. Once the Notice of Default has been recorded, it is important to act to avoid losing the property and having a foreclosure on your record.

Can I try a Forbearance Agreement to avoid Foreclosure?

Yes, you can and you should look at a Forbearance Agreement as an option to avoid foreclosure.

FORBEARANCE AGREEMENT – An agreement between a mortgage company and a borrower in which the borrower promises to stay current on the mortgage going forward and agrees to a repayment plan for delinquent payments and costs and fees associated with the foreclosure action. A Forbearance Agreement is a tool that allows the borrower to keep the property. The lender will expect you to show that the delinquency was due to circumstances out of your control (injury, illness, job loss) and that the financial difficulties have been corrected.

I Have Heard Of Foreclosure Scams, What Should I Look For?

Unfortunately there are quite a few people that might try and take advantage of your temporary misfortune. These people will try and convince you that they can provide a quick and easy solution to your mortgage problem. As a general rule, if it seems too good to be true, it usually is. Here are a few examples of the scams you could encounter: You need to sell your property fast or you will be ruined.

If you have equity, these guys want it by providing fast cash, they solve your problem and they get your equity. On occasion they offer a small amount of money to you – which is normally a signal they are getting lots of your equity.

Sign the deed to the property to us and we will take care of everything.

Sometimes called the “Bailout” scam, the investor tells the homeowner that he will be allowed to stay in the home and pay “rent” to the investor until a long term solution can be worked out. Once the owner signs the deed to the property over to the investor, big trouble usually follows. If the investor has the deed, the investor has control.

Here is the big kicker – the homeowner who signed over the deed is still responsible for the loan. The investor nearly never makes the mortgage payments and the homeowner gets hit with the foreclosure.

For a consulting fee, I will work with your lender to find a solution.

Your lender will work with you directly if you want to make arrangements to make up past payments and keep your property. This would normally involve a Forbearance Agreement.

Will A Short Sale Stop A Foreclosure?

While the Short Sale itself does not stop the foreclosure, lenders normally work with a homeowner and delay the foreclosure if necessary, if they receive a legitimate Short Sale proposal. The key here is to submit a complete, well organized, Short Sale proposal. The lender does not want your property, and would rather resolve the situation before the foreclosure is complete.

If My Lender Has Started A Foreclosure, Can I Still Sell My Property?

Absolutely, In fact, your lender would rather you sell the property than allow the foreclosure to continue. Your lender does not want to take your property through foreclosure. Even if you have no equity in the property, the lender wants to find a solution.

This is precisely why lenders agree to a Short Sale and accept a discounted payoff to fully satisfy the loan. In a Short Sale, the lender in nearly all cases pays all the closing costs – including title fees, escrow fees and the real estate commission.

Should I speak with my lender when they call?

It is best that you not avoid calls or letters from your mortgage company, particularly if a foreclosure is pending. Your mortgage company does not want to take your property through foreclosure. The mortgage company would rather look for options to avoid foreclosure.

When speaking with your mortgage company, be honest about your circumstances and listen for them to possibly suggest options. The mortgage company knows the best way for them to limit losses on a delinquent mortgage is to work with the homeowner.

Be sure to keep notes of all conversations you have with the mortgage company including dates and times of calls, the name of the representative with whom you spoke and the details of the conversation.