Helping relieve the stress of an upside down mortgage…

Most banks are very explicit about the fact that their short sale (aka loss mitigation or “workout”) departments function separately from their foreclosure departments. They will never guarantee the foreclosure process will stop because of a pending short sale application. In spite of this however, the most common practice is for the short sale department to request a postponement of a foreclosure sale date while a file is under review. These are typically granted with ease and the auction date is extended 30 days at a time. It is not uncommon for the sale date to be extended further out once the short sale reaches the negotiation stage of the process. Keep in mind that it is most common for these postponement requests to be filed only when the sale date is a week or less away. It’s also extremely important to note that many lenders will try to refuse a new short sale submission if the sale date is less than 7-10 days away. It doesn’t mean they can’t/won’t submit the new file, but your odds decrease and the process is significantly more complicated. If you have a sale date already set for your property, now is the best time to find out about your short sale options.

There isn’t just one answer to this question. As the process evolves and lenders become more adept at handling the files, their goal has become to process the short sale faster for a quicker resolution. This is an art, not a science though. As tasks are assigned to your short sale agent, a proper balance of responsiveness and delay can extend the time it takes to move the deal through the necessary steps for approval. When a lender does finally approve the sale, they assign a closing date. With proper strategy this can also be extended to accommodate a seller’s preferred timeline. To put a number on it, it’s safe to say the fastest short sale rarely takes less than 90 days to close and can easily take 5-6 months. Beginning the process before a foreclosure sale date is assigned can greatly increase a seller’s control of the timeline.

YES, it is possible for you to receive “relocation assistance” funds upon closing your short sale. To be clear, not everyone or every property will be eligible for these funds, but many are. The most common form of payment to date has come through the Home Affordable Foreclosure Alternatives (HAFA) program. This federal program was established to incentivize lenders and borrowers to work together to sell the property in favor of letting it go to the banks where it can become a larger burden on the market at large. The banks are usually eager to offer these incentives if they are available and it is typically a part of the discussion early on in the process. Those who would short sell their primary residence financed by a Fannie Mae or Freddi Mac loan will almost always be eligible. Non Fannie/Freddie loans are still often eligible through proprietary programs that vary from lender to lender. The most common amount awarded to sellers through HAFA or one of these programs is $3000.00.

In addition to the above, more recently many of the larger banks have begun to qualify sellers for additional funds, which can be more substantial. These programs can offer up to $45,000 in additional assistance for short selling the home! This new action is the result of two primary causes. (1) In 2012 many of the major banks settled legal action and have been forced by federal and state governments to repay consumers for past inappropriate lending practices. (2) When authorized to do so, more banks are looking at the projected cost to foreclose on a property and the projected sale price after foreclosure. If they can make substantially more through a short sale, they will offer the seller incentive to cooperate. The more the bank stands to lose by going through the foreclosure process, the more they will offer the seller. Please note, this isn’t offered on every loan and we don’t know how long these programs will continue. If you’re on the fence about whether to short sale, contact us and we can take a closer look if there is a possibility for additional financial incentive.

There are a number of advantages to pursuing a short sale over a foreclosure.

• Keeping more control over the timeline of your transition – If your home goes to foreclosure you will be given a date on which your property will be sold at auction. Unless a bankruptcy is involved, the sale will typically happen as scheduled. In a short sale, your agent has the ability to work with your bank to postpone scheduled auctions while the deal is under review. Even when the sale is approved, it is possible to receive closing extension from a lender if there is good cause. In a foreclosure situation, there is much less incentive for the bank to prolong the sale and they would generally prefer to get it done so they can move onto the next steps of the property disposal process.
• Minimize damage to your credit – A short sale will report on your credit as an account settled for less than the total amount. This will have significantly less impact to your score than a foreclosure. Depending on how may payments you miss (if any) leading up to the short sale, the negative hit to your credit can be quite small. It should be noted that at this time lenders will still require you to wait a minimum of two years after a short sale to qualify for a new mortgage. Many believe however that due to the large population of homeowners who have either short sold a home or lost a home to foreclosure, the guidelines will soon change. If and when they do, it stands to reason that those who worked with their banks to sell the property will be considered a better credit risk versus those who sat by and waited for the bank to take back the property. Even now, FHA lending guidelines say you can qualify to purchase immediately after a short sale if your credit score meets the standard and you didn’t miss any mortgage payments.
• Relocation assistance – Through the programs described in the previous question many people opting to short sale their home will have the opporutnity to gain financial benefit from a short sale. In a foreclsoure no such funds exist.
• Avoid harassment from collection companies – Throughout the process of foreclosure, your lenders will continue to pursue debt collection efforts through phone calls, letter, etc. Many can be quite unpleasant and nerve-wracking! This harassment is easily ended once a short sale is under review. As you agent, we are able to request that the lender sends all collection related items directly to us in written form, ending the hassle and stress for you.
• Reduce tax liability – In a short sale your agent will market your property to obtain the highest possible sale price. If you have taken cash out of the equity over the years and it was NOT used as re-investment into the property, these funds can be taxed. The amount taxed is determined by deducting the lenders sale proceeds from the amount owed. In a foreclosure the bank incurs significantly higher costs including legal fees, administrative fees, property taxes paid over time, costs to upkeep and fix the property after foreclosure and costs to bring it back to market as a bank owned sale. When the bank finally sells the property it can be for a significantly lower price. Once the home is sold, the lender totals up all of their expenses in addition to the debt originally owed and then deducts the sale proceeds to determine your taxable gain. Needless to say this amount is always substantially higher than it would be if the same property was sold via short sale.

You should always consult your tax professional (or one of ours) regarding your specific tax issues. Generally speaking, in a short sale or a foreclosure the seller’s “gain” is considered income. The lender will send the borrower a 10-99 for any deficiency (amount owed vs. amount the property sells for). This term “gain” can be defined in a few ways:

• Amount borrowed that was not paid back. When the sale is complete, the lender deducts their net proceeds from the amount originally lent out. This is considered the seller’s gain. Even though you receive a 10-99 for this amount, it doesn’t necessarily mean you will owe tax. Currently, any amounts borrowed that were used to purchase a property or directly to improve that property are exempt from taxation. So, if you purchased a home for $400,000 and financed the entire amount, then later refinanced for $450,000 using the cash out to remodel the kitchen and add a bathroom, your total amount borrowed would be exempt from tax. If you later short sold your home in a weaker market for $350,000, the “gain” of $100,000 would not be taxed. In contrast to this, if you purchased your home for $400,000 as above, but later refinanced for $450,000 using the cash out to pay college tuition and buy a car, the $50,000 cash out would be considered taxable “gain” if the property was sold for $350,000 in a short sale.
• Relocation assistance funds and lender paid financial incentives. If a seller receives funds from the bank and/or HAFA as a part of their short sale agreement, this is considered regular taxable income.Again, it must be reiterated that you should always consult a tax professional for current rules and how they will impact your specific situation. The examples here are meant to be a general guide, not to be misconstrued with tax advice.

The short answer is NO. In the short sale process the lender will request income and asset documentation from a homeowner as part of the approval process. This does not mean that a seller must always prove on paper that the mortgage is unaffordable. While it helps our case to show a clear income deficiency, the central focus in a short sale case is on ‘hardship’. Hardship can take many forms which are not always financial in nature. For example, a growing family living in a small condo may need more space as a matter of practicality. In a normal market they would sell their condo and look for another home. In this market, its not uncommon that the condo is now worth less than the amount owed. The only way to move to a fitting space is to short sale or let the condo go to foreclosure. This can easily be used as a documented hardship and a short sale is possible. Or consider a professional who needs to relocate for work or family reasons. If we can document the impracticality of keeping the property it will serve as a valid hardship. We have succeeded in completing short sales for high earning homeowners with 7 figure bank accounts and have found in time that the bank just needs any reasonable hardship to approve the sale.

Our team has the highest concern for your privacy during a short sale transaction. Our commitment to protect this includes:

• No For Sale signs on your property at any time (unless requested by the client).
• No open houses. Showings are scheduled in advance during specific blocks of time to fit your schedule. Prospective buyers are pre-screened prior to appointment to insure only well qualified, highly motivated candidates are brought in.
• No details of your hardship or financial position are EVER shared with anyone outside our team and the lender(s) approving the sale. Buyer agents often try to learn about the context of a short seller’s situation, but our policy is to only state that we are in control of negotiations and confident in the success of our transaction.
• We realize different clients have individual needs. Whatever we need to do to accommodate your specific situation, we’ll work with you to insure your comfortable throughout the process and are able to go about your normal life.

As mentioned above, the term “hardship” is broad in nature. Fairly obvious examples include unemployment, death of a co-borrower, decrease in income, or increase in payment due to an interest rate adjustment. But there are also many other ways to establish a legitimate hardship for short sale approval. We’ve found that difficult situations are as unique as the individuals in them. We meet face to face with all our clients and take the time to learn your story. Whether its your primary residence, a second home or an investment property, if you’re upside down on the mortgage and want to get out from under it, be assured we can definitely identify a legitimate hardship suitable for short sale approval.

• Attention to detail – Our experience with virtually every lender out there enables us to plan ahead and gather all of the correct documentation in advance. By submitting requested packages perfectly right from the start, we keep the pressure on your lender to keep the ball moving. This not only leads to smoother transactions, but also helps us leverage the lender to agreeing to your terms.
• Personal connection – When we take on a new client, we want to know you and establish a long term relationship. Our goal isn’t just to take you through the short sale transaction and wish you well on your way. For us, the investment in the relationship is just beginning. We’re there to help with relocation after the sale, monitor your credit standing after the sale, and inform you of changes in regulations that affect your future homeownership potential. We are your partner every step of the way, from selling to renting to the eventual purchasing of your dream home!
• We speak their language – Our negotiators attend conferences and dive deep into the systems major banks are using to process short sales. We’ve learned their specific vocabularies, protocols and loopholes, all of which help us insure the process is effective and hassle-free. Our success has earned us preferred status with a number of large banks, which grants us access to specialized teams who have much greater latitude to help us solve problems and move files through the system with ease. We can find out more information, faster, and we use this power to make your life easier!

Take a moment to fill out the connect form on this page or simply give us a call. Adam Roark, our team’s broker, is happy to talk to you personally about your situation, your options, and important questions you should be asking.

“I would rather help someone strategize a way to stay in their home and build a long term relationship than help someone short sale who doesn’t need to. It’s not the only solution out there, but for those whom it benefits, I’m honored to be in the position to help successfully navigate the transaction and sensitively address each individual’s needs.” – Adam Roark, Broker. Direct Phone: 760-405-0712.