Frequently Asked Questions; The one reality about today’s housing market is that many people have more questions than answers. The following information is intended to help you or someone you know better understand your situation . Do I Qualify For A Short Sale? The qualifications for a short sale include any or all of the following:
What Is A Short Sale?
A short sale occurs when the proceeds from a sale are BELOW the outstanding loan obligations on a home. A short sale must be approved by your lender(s) and potentially other lien holders.
How Do I Qualify For A Short Sale?
In order to qualify for a short sale, the homeowner must have the following:
What Is An Acceptable Hardship?
Amongst others: loss of job; business failure; death in the family; severe illness; divorce; job relocation; medical bills; military service; payment increase or mortgage adjustment; insurance or property tax increase; reduced income; separation; and incarceration.
How Do I Write A Hardship Letter?
A hardship letter is an important part of the short sale package and is required by most lenders before considering your short sale request. The hardship letter must relay your current situation in a factual and concise manner and can be typed or hand-written. You must state what your hardship is and how you have dealt with it. All borrowers on the loan must sign and date the letter.
Why Do Lenders Accept Short Sales?
It is more beneficial for lenders to do a short sale rather than go through foreclosure. In most cases, the loss the bank takes is significantly lower in a short sale. Foreclosure proceedings are expensive for lenders and take much longer than the short sale approval process. Banks are not in the real estate business. They are in the lending business. Their goal is to recover as much money as possible and as quickly as possible. Contrary to popular belief, the banks do not want your home.
Can I Do A Short Sale On My Own?
Although there is no law preventing homeowner from doing a short sale on their own, it is a common practice to seek the assistance and guidance of a qualified realtor when embarking on such a complex transaction. There is simply too much at stake for an average person to handle it on his own.
Who Pays Real Estate Commissions In A Short Sale?
Real estate commissions are a part of settlement expenses paid by lenders.
What Are Common Mistakes In Handling A Short Sale?
Contrary to popular belief, the deficiencies associated with both short sales and foreclosures are treated as debt forgiveness by the lenders and, more importantly, by the IRS. Debt forgiveness is essentially a form of income that may result in additional tax liability unless the borrowers are exempt under Mortgage Forgiveness Debt Relief Act of 2007. Click here for more information about debt forgiveness
If you’re a homeowner in distress, you should consult a trusted tax advisor in regards to potential debt forgiveness and short sale tax implications. Please do keep in mind that a short sale, in most cases, yields a significantly lower deficiency than a foreclosure.
What Is A “Deficiency”?
A deficiency is the difference between the net proceeds from a sale and the outstanding loan obligations. It is the “short” in short sale. For example, if the seller owes $200,000 to the bank and the approved short sale yields only $125,000 as net proceeds, then the deficiency is $75,000. There may be tax implications stemming from this shortage and potentially subsequent deficiency judgments.
What is a Deficiency Judgment associated with a Short Sale?
After both, foreclosure or a short sale, the shorted lender(s) may proceed through the court system to recover the amount lost during the transaction from the borrowers. When someone goes through a foreclosure, there is no opportunity to discuss with the lenders what will happen to the deficiency amount and it is very likely that the lenders will pursue the deficiencies especially against those individuals who pursue strategic default rather than a short sale.
The lender can attain a judgment and go after a borrower by placing liens on property and garnishing bank accounts and wages. Needless to say that it is not something that anyone wants.
By electing to go through short sale process rather than simply walking away from the home, the borrower has an opportunity to control and negotiate the actual deficiency. Furthermore, the actual shortage is always lower in a short sale due to the fact that the property is sold with the assistance of a short sale realtor and for market value rather than significantly below as in the case of foreclosed home.
When evaluating your options, you need to have guidance from an experienced short sale professional.
What is a BPO?
BPO stands for Broker’s Price Opinion and is synonymous with appraisal of the property in question. Lenders that are being shorted rely on BPOs to determine market value of their collateral asset to make sure that it is being sold for a fair price rather than given away to a buyer.
Usually, the lender will request a BPO from a third party provider who then will assign a local realtor to provide a current market analysis for the home along with pictures and commentary. Increasingly, lenders started requiring full appraisals to be completed by licensed appraisals in order to make sure that they have the most precise valuation of a distressed property.
Appraisal, as compared to a BPO, goes into more detail on the features and condition of the property and requires more time to complete. BPO serves as one of the more important points of a short sale process. Unfortunately, many real estate agents who list short sales do not view it as such. Contrary to popular belief, a BPO is fairly subjective and can make or break a short sale transaction.
What Is A Mortgage Modification? A mortgage modification is a process through which your mortgage lender changes any or all of the following:
What Do I Need To Qualify For A Mortgage Modification?
According to the Making Home Affordable Web site (www.MakingHomeAffordable.gov), you will need the following information for your lender to consider a modification:
How Do I Qualify For A Mortgage Modification?
The first call you make should be to your lender, have the information above ready to discuss with them and call your customer service line to ask them what options you have available. If the person you speak with does not understand what you are asking, you can ask to be referred to one of the following departments (different lenders have different names for these departments):
What Is A Home Affordable Refinance? If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a Home Affordable Refinance. This will allow you to refinance your home and often lower your payments.
What If I Don’t Qualify, Can’t Afford My Home, And Owe More Than It’s Worth?
You are not alone and foreclosure is not the only option. If your mortgage lender or servicer will not work with you to reduce your payment, you may want to consider a short sale. Agents with the Certified Distressed Property Expert® Designation have undergone extensive training in how to process and negotiate short sales. A short sale allows you to sell your home for less than what you owe and avoid foreclosure. Contact us to see if you may qualify.
What Are The Qualifications For A Home Affordable Refinance?According to the resources released by the government, following are a list of qualifications:
What Is A Short Sale?
A short sale occurs when the proceeds from a sale are BELOW the outstanding loan obligations on a home. A short sale must be approved by your lender(s) and potentially other lien holders.
How Do I Qualify For A Short Sale?
In order to qualify for a short sale, the homeowner must have the following:
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall – “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
What Is An Acceptable Hardship?
Amongst others: loss of job; business failure; death in the family; severe illness; divorce; job relocation; medical bills; military service; payment increase or mortgage adjustment; insurance or property tax increase; reduced income; separation; and incarceration.
How Do I Write A Hardship Letter?
A hardship letter is an important part of the short sale package and is required by most lenders before considering your short sale request. The hardship letter must relay your current situation in a factual and concise manner and can be typed or hand-written. You must state what your hardship is and how you have dealt with it. All borrowers on the loan must sign and date the letter.
Why Do Lenders Accept Short Sales?
It is more beneficial for lenders to do a short sale rather than go through foreclosure. In most cases, the loss the bank takes is significantly lower in a short sale. Foreclosure proceedings are expensive for lenders and take much longer than the short sale approval process. Banks are not in the real estate business. They are in the lending business. Their goal is to recover as much money as possible and as quickly as possible. Contrary to popular belief, the banks do not want your home.
Can I Do A Short Sale On My Own?
Although there is no law preventing homeowner from doing a short sale on their own, it is a common practice to seek the assistance and guidance of a qualified realtor when embarking on such a complex transaction. There is simply too much at stake for an average person to handle it on his own.
Who Pays Real Estate Commissions In A Short Sale?
Real estate commissions are a part of settlement expenses paid by lenders.
What Are Common Mistakes In Handling A Short Sale?
- Selecting the wrong short sale realtor to handle your transaction
- Overpricing or under pricing the property
- Submitting an incomplete short sale package to lender(s)
- Accepting an offer from an unqualified buyer
- Submitting multiple offers to the lender(s)
- Having unrealistic expectations
Contrary to popular belief, the deficiencies associated with both short sales and foreclosures are treated as debt forgiveness by the lenders and, more importantly, by the IRS. Debt forgiveness is essentially a form of income that may result in additional tax liability unless the borrowers are exempt under Mortgage Forgiveness Debt Relief Act of 2007. Click here for more information about debt forgiveness
If you’re a homeowner in distress, you should consult a trusted tax advisor in regards to potential debt forgiveness and short sale tax implications. Please do keep in mind that a short sale, in most cases, yields a significantly lower deficiency than a foreclosure.
What Is A “Deficiency”?
A deficiency is the difference between the net proceeds from a sale and the outstanding loan obligations. It is the “short” in short sale. For example, if the seller owes $200,000 to the bank and the approved short sale yields only $125,000 as net proceeds, then the deficiency is $75,000. There may be tax implications stemming from this shortage and potentially subsequent deficiency judgments.
What is a Deficiency Judgment associated with a Short Sale?
After both, foreclosure or a short sale, the shorted lender(s) may proceed through the court system to recover the amount lost during the transaction from the borrowers. When someone goes through a foreclosure, there is no opportunity to discuss with the lenders what will happen to the deficiency amount and it is very likely that the lenders will pursue the deficiencies especially against those individuals who pursue strategic default rather than a short sale.
The lender can attain a judgment and go after a borrower by placing liens on property and garnishing bank accounts and wages. Needless to say that it is not something that anyone wants.
By electing to go through short sale process rather than simply walking away from the home, the borrower has an opportunity to control and negotiate the actual deficiency. Furthermore, the actual shortage is always lower in a short sale due to the fact that the property is sold with the assistance of a short sale realtor and for market value rather than significantly below as in the case of foreclosed home.
When evaluating your options, you need to have guidance from an experienced short sale professional.
What is a BPO?
BPO stands for Broker’s Price Opinion and is synonymous with appraisal of the property in question. Lenders that are being shorted rely on BPOs to determine market value of their collateral asset to make sure that it is being sold for a fair price rather than given away to a buyer.
Usually, the lender will request a BPO from a third party provider who then will assign a local realtor to provide a current market analysis for the home along with pictures and commentary. Increasingly, lenders started requiring full appraisals to be completed by licensed appraisals in order to make sure that they have the most precise valuation of a distressed property.
Appraisal, as compared to a BPO, goes into more detail on the features and condition of the property and requires more time to complete. BPO serves as one of the more important points of a short sale process. Unfortunately, many real estate agents who list short sales do not view it as such. Contrary to popular belief, a BPO is fairly subjective and can make or break a short sale transaction.
What Is A Mortgage Modification? A mortgage modification is a process through which your mortgage lender changes any or all of the following:
- Your interest rate
- Your principal balance (through a reduction)
- Your loan terms (example: from an adjustable to a fixed rate)
What Do I Need To Qualify For A Mortgage Modification?
According to the Making Home Affordable Web site (www.MakingHomeAffordable.gov), you will need the following information for your lender to consider a modification:
- Information about your first mortgage, such as your monthly mortgage statement
- Information about any second mortgage or home equity line of credit on the house
- Account balances and minimum monthly payments due on all of your credit cards
- Account balances and monthly payments on all your other debts such as student loans and car loans
- Your most recent income tax return
- Information about your savings and other assets
- Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources
How Do I Qualify For A Mortgage Modification?
The first call you make should be to your lender, have the information above ready to discuss with them and call your customer service line to ask them what options you have available. If the person you speak with does not understand what you are asking, you can ask to be referred to one of the following departments (different lenders have different names for these departments):
- Loss Mitigation
- Mortgage Modification
- H.O.P.E.
What Is A Home Affordable Refinance? If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a Home Affordable Refinance. This will allow you to refinance your home and often lower your payments.
What If I Don’t Qualify, Can’t Afford My Home, And Owe More Than It’s Worth?
You are not alone and foreclosure is not the only option. If your mortgage lender or servicer will not work with you to reduce your payment, you may want to consider a short sale. Agents with the Certified Distressed Property Expert® Designation have undergone extensive training in how to process and negotiate short sales. A short sale allows you to sell your home for less than what you owe and avoid foreclosure. Contact us to see if you may qualify.
What Are The Qualifications For A Home Affordable Refinance?According to the resources released by the government, following are a list of qualifications:
- You are the owner occupant of a one- to four-unit home
- The loan on your property is owned or securitized by Fannie Mae or Freddie Mac
- At the time you apply, you are current on your mortgage payments (you haven’t been more than 30 days late on your mortgage payment in the last 12 months, or if you have had the loan for less than 12 months, you have never missed a payment)
- You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house
- You have income sufficient to support the new mortgage payments, and the refinance improves the long-term affordability or stability of your loan.
What Qualities Do I Look For In My Short Sale Realtor?
In addition to honesty, integrity, and professionalism, qualities that every real estate agent must possess, your short sale realtor should have the knowledge and proven experience to handle the transaction. Although everyone can read a book or take a class, most of the knowledge in handling short sales comes with real life experience in handling actual short sales.
All homeowners who are considering asking a realtor for short sale help, must ask for performance results and for references from previous short sale clients. There is simply too much on the line to entrust your financial well-being to someone without concrete short sale experience.
How Do I Get Started?
Contact Chris DiNapoli today for a no obligation consultation 571-237-2347 or send him an email at cjdinapoli@cs.com
In addition to honesty, integrity, and professionalism, qualities that every real estate agent must possess, your short sale realtor should have the knowledge and proven experience to handle the transaction. Although everyone can read a book or take a class, most of the knowledge in handling short sales comes with real life experience in handling actual short sales.
All homeowners who are considering asking a realtor for short sale help, must ask for performance results and for references from previous short sale clients. There is simply too much on the line to entrust your financial well-being to someone without concrete short sale experience.
How Do I Get Started?
Contact Chris DiNapoli today for a no obligation consultation 571-237-2347 or send him an email at cjdinapoli@cs.com
