|
Taylor
McKenzie, 4-20-09
Short Sale
Guidance
If
you need to sell your home in today’s
market, you may be in for a big shock if
you discover that the current market
value of your home is in the toilet, and
you now owe more than your home is
worth. If there is any
possible way you can postpone selling
right now until the market begins to turn
around, that would be your best
bet. However, if you find
yourself facing a certain financial
hardship that you know you can’t recover
from or you’re facing a divorce or you’re
relocating to a new job and have no
choice but to sell, here is some
information to help guide you through the
process.
Will Your Lender Object To A Short
Sale?
Most
lenders are only interested in 2
things:
1.
How much do you
owe?
2.
How much
can you sell your home
for?
The
reason you are considering a short sale
is not of primary concern to your
lender.
If you’re
currently making your payments on time
and your loan is current, more than
likely your lender isn’t going to be all
that cooperative.
They want
your money and they’re getting it….what’s
the
problem?
Now
if you’ve lost your job, your mortgage
payment has adjusted upward to an amount
you can no longer afford and you can’t
qualify for a loan modification, you’re
facing a divorce or your tenant is no
longer paying you rent for an investment
property resulting in late mortgage
payments or complete non-payment of your
loan, then you just might entice their
cooperation in a short
sale.
Your lender
would much rather get “something” of what
you owe versus becoming the new owner of
your home.
Complete a Short Sale
Package
All
lenders will require you to submit to
them a Short Sale
Package.
Usually
included in this package
is:
·
3
rd Party Authorization (to
deal with
your
realtor
directly)
·
Listing
Agreement
·
Purchase
Contract
·
Hardship
Letter
·
Estimated HUD Settlement
Statement
·
Current Financial
Statement
·
3
Months Bank
Statements
·
Previous Year’s W-2’s & 3
Consecutive
Paystubs (if
employed)
·
Previous Year Tax Returns,
Year
End
P&L
& Current P&L (if Self
Employed)
If
you are considering a short sale, contact
your lender’s Loss Mitigation Department
immediately to see if you can send in all
items required, with the exception of the
Purchase Contract and Est. HUD Settlement
Statement, in order to be “pre-approved”
for the short sale.
For some
lenders, approval of a short sale can
take up to 3 months or more and if you
can get the process going before you even
receive an offer on your home, can cut
back this timeframe
considerably.
You
may want to submit this information by
fax, mail and email just to make sure the
lender has received it.
Immediately
follow up with the lender to be sure they
have it in their hands and get an
approximate date on when you can expect a
response.
Make sure
you document every conversation and get
contact names and phone
numbers.
Find an Experienced Short-Sale
Realtor
Agreeing
to accept a “Short-Sale Listing” is no
picnic for a Realtor.
You need to
find one that is experienced in
short-sales.
Often this
process can be long and drawn out and
requires constant follow-up with the
lender….this is one instance where
“stalking” is considered
okay.
When
interviewing realtors, make sure they
have short-sale
experience.
You should
ask them what is their short sale closing
ratio and if they charge for their
service.
Find
another agent if they want to charge you
anything.
A seller
should never incur any costs associated
with a short
sale.
How Much Should I Sell My Home
For?
This
is not a question you as the seller
should be answering.
Current
market value is determined by the most
recent sales in your neighborhood that
are similar to your
home.
Yes, this
data will include short-sales and
foreclosure sales unfortunately, but
these sales must be used if they are the
most recent, relevant
sales.
Your
realtor will complete a market analysis
of your home and discuss with you what
these homes are selling
for.
Whatever
you do, do not try to list your home with
a sales price higher than what it can
actually sell for in your current
market.
You want to
attract an offer immediately, so get
input from your realtor as to what the
asking price should
be.
Keep
in mind that the selling price of your
home is not the end price to the
lender.
There will
be closing costs, property taxes, liens
and realtor commissions that will also
have to be paid.
These costs
must come from the sales proceeds, so the
lender will end up with even less than
the selling
price.
Okay, I’ve Got an Offer….Now What Do I
Do?
If
haven’t already sent in your short sale
package, now is the time to do
so.
Make sure
you include EVERY single item the lender
is requesting or your file will be marked
incomplete, and you’ll probably end up on
the bottom of a very high stack of
files.
If
you have already sent in the package,
you’ll now need to send them the signed
purchase contract with an addendum that
clearly states that the “Sale is entirely
conditioned upon current mortgage
holder(s) acceptance of the contract and
agreement to pay all agreed costs of sale
including commissions, closing costs and
costs of Notice of Default.” (If
applicable)
You’ll
also need to have an Est. HUD Settlement
Statement prepared by the title
company.
This is a
breakdown of all costs that will be
incurred and how much the lender can
expect to “net” from the sale after
everything has been
deducted.
After
you’ve submitted all the paperwork
required, start stalking them
baby!
Some
lenders can take 30 days or more to
respond or even acknowledge that they’ve
received your package.
Follow up
constantly and make sure you document
every phone call and every person that
you’ve talked to.
Once
your short sale offer is approved, you
will receive a Release of
Lien.
This is the
document that states what the lender will
accept as the net
payoff.
Will
the Lender Come After Me For The
Difference?
Most banks will not come
after you unless you have excellent credit,
significant assets or are not delinquent on
their loan.
At the end of a short sale
transaction, a lender will send you a
release.
There are two
types of
releases:
1.
Release without Prejudice
:
The lender releases all liability of the
seller.
2.
Release with Prejudice
:
The lender will reserve the right to attempt
collection of the deficiency
balance.
If your approval is subject
to prejudice, try to negotiate a promissory
note with the lender for a lesser
balance.
If you owe
$50,000, offer them a promissory note for
$10,000 instead as “payment in
full”.
Whatever terms
you end up with, make sure you get it in
writing before you ever pay a
dime.
This way you’ll
have a record of your arrangement in case any
disputes arise down the road.
Make sure to keep
copies of all paperwork and payments
made.
You’ll want to negotiate
terms that you can financially live up
to.
Some lenders will
agree to zero interest and up to a ten year
term.
You’ll also want
to be sure that this agreement eliminates any
negative hit on your credit for the deficiency
balance.
Because you are
willing to give the lender a promissory note,
this will placate most lenders enough to accept
your short sale offer.
Just remember to
get every term you negotiated on with the
lender IN WRITING first.
Once you receive the release,
you can forward this to the title company
handling the short sale transaction and this
should be all they need to close the
sale.
Will the IRS 1099 me for the Amount of Debt
Forgiven?
If the short sale is on your primary residence,
you could be protected by the 2008 Mortgage
Relief Debt Act.
Under this new law, there is no federal income
tax due on debt forgiven on a loan that is
secured by the seller’s principal residence,
provided that the loan was made to acquire,
construct, or substantially improve the
principal residence
.
However, if you just pulled money out of your
house to pay for a vacation and got debt relief
on that loan, you would be subject to income
tax
.
The exemption applies to any portion of loan
debt forgiven beginning January 1, 2007 through
December 31, 2009. Therefore,
it doesn’t matter when the loan was made; what
matters is when a portion of the debt is
forgiven.
IRS Income Taxes on debt relief due to
foreclosure is NOT automatic
though…
You have to file IRS Form
982 “Reduction of Tax Attributes
Due to Discharge of
Indebtedness,”
and the form has to be attached to the federal
tax return.
Do I
Get Any Money From The
Sale?
Come on….what do you
think?
You’re asking the
lender to eat some of the balance that’s owed
to them, along with paying the closing costs,
taxes, liens and realtor
commission.
Do you really
think you’re going to get any money after
that?
I don’t think
so!
Is My
Credit In The Toilet Now
Too?
Well, maybe yes, maybe no…it
depends.
If you had late
payments on your mortgage or stopped paying it
entirely prior to the short sale, then you’ve
already done damage to your credit and
depending upon how late you were will determine
how damaged it is.
If the lender has filed a
Notice of Default which tells that “foreclosure
proceedings were started”, this will further
damage your credit.
Unfortunately, there is
nothing you can do about this issue but wait it
out.
After two years,
it will no longer have much of an impact on
your credit scores, although the late payments
and other derogatory remarks will remain on
your credit for 7
years.
Most mortgage trade lines
will report your credit as “mortgage paid”
after a short sale. An actual “foreclosure”
will not report.
If you’ve
received a Release with Prejudice from the
lender, hopefully you negotiated with the
lender from reporting the mortgage as a loss,
therefore preventing further damage to your
credit.
|
