There are many different ways your client can end up in a short sale situation. No short sale is the same and sometimes it is hard to identify if your client is in a short sale or not. Here are some key things to look for that can help determine if a listing is a short sale or not:
On December 18, 2015 president Obama signed the Mortgage Forgiveness Tax Relief Act of 2015. This bill extended the benefits of a 2007 bill which allowed homeowners who had gone through any kind of mortgage forgiveness to exclude that debt from their income tax filings. In plain English if your mortgage company forgave any amount of your debt, you do not have to pay income taxes on the amount.
Why is this important? For every homeowner falling behind on their mortgage looking for a loss mitigation option this is a big deal. Let’s say you just went through a short sale and and your lender is offering to forgive $50,000 of your debt. Amazing, right? Now what if you were expected to pay income taxes on that $50,000? What would be your incentive to go through the grueling short sale process if you would have to pay taxes on that amount anyways?
This is great news for sellers who are having to do a short sale in 2016. A lot of our potential clients hesitate in doing a short sale because they don’t know that they can walk away free and clear from their debt and not have to worry about re paying the lender or paying taxes on the difference.
This bill means that short sales and loan modifications will continue to be attractive options for homeowners facing foreclosure. Many of our clients ask about the tax implication after a short sale. The bill has continued to be extended since 2007 and with 2015’s bill it will be extended for another two years.
Email us if you have any questions: TheShortSaleExperts@yahoo.com
Why would someone want to do a loan modification? Maybe they need to reduce their monthly payment, or reduce their monthly interest rate? This can all be done through a loan modification. Does that sound to good to be true? Sometimes it is.
Loan modification programs were created to help people keep their homes after they became financially distressed and unable to make their mortgage payments. They were never meant to be a means for people who could afford their mortgage to reduce their monthly payments. For that reason, qualifying for a true mortgage modification program can be difficult.
So how does this work?
You’re behind on your mortgage and the lender sends you a letter explaining your options. You can choose to do a loan modification, short sale, or deed in lieu when you have defaulted on your mortgage. Remember that you are not making your mortgage payments during these programs which pushes you towards foreclosure. The most important thing to know is that the lender does not “pre-qualify” you to see if you qualify for a loan modification, they just give you the option to pick what you would like to do to see if you qualify. It is very important you pre-qualify yourself so you don’t end up with a foreclosure date and now you are facing foreclosure. For example, if you are not working and cannot provide income, you will not qualify for a loan modification. Evaluating your current financial situation is very important in deciding which route to go.
How do you qualify for a loan modification?
I get asked this question all the time, “why would my bank want to do a short sale when they can just foreclose?” The answer is simple when you think about it. Foreclosure is expensive. At the end of the day allowing us to do a short sale is less expensive than hiring a team of attorneys to foreclose on you. The foreclosure can be dragged out for months. Can you imagine paying for attorneys month after month? It sounds expensive, right? Well the lender does not want to pay for it either. You also have to take into account that when they do sell the house on the auction block, they will only get market value for the house. It’s a myth that properties sell extremely cheap on the auction block. Most houses sell for market value with a small few selling at a discount. This is the point in the conversation where I see the light bulbs go off.
The next question is “but how do you get paid?” This is obviously an important question; nobody wants to work for free. Whenever I am talking to a potential client about short selling their house I like to disclose why every party in the transaction is willing to participate in an especially frustrating process.
So let’s break it down:
If you’re behind on your mortgage payments or you know that your income will not be sufficient to make the payments going forward, it may be time to consider a short sale on your home. A short sale can help you avoid foreclosure and salvage your credit rating while still letting you liberate yourself from your home loan.
Homeowners often wait until they receive a notice of foreclosure from the lender before starting the short sale process. In some cases, it’s already too late.
If you face financial hardship and know you will default on your loan, start thinking about a short sale right away. You can always stop the process if your financial situation turns around, but if you wait too long to start, you will miss the window of opportunity.
In Texas, foreclosure auctions happen the first Tuesday of every month. After sending several demand letters, the bank will send a foreclosure notice to a homeowner just two or three weeks before the auction date. The fact is a short sale takes time—often several months. There is a possibility we can still save the house within two weeks of foreclosure, but the shorter amount of time we have the less likely of success.
In general, a lender will start the foreclosure process after you are 60 to 90 days late on payments. Some lenders take longer, but just because you don’t hear from the bank doesn’t mean they have forgotten you. If you don’t pay your mortgage, the lender will send you a foreclosure notice in due time.
You will usually receive at least one demand letter from the bank telling you the amount that you owe and the date by which you must catch up on missed payments. The best course of action is to call us as soon as you receive the first demand letter, so we can explore the option of a short sale. If you fail to pay by the date specified in the letter, the bank will send another demand letter for the full amount of the note, due immediately. Finally, the lender will send a public notice of default with the foreclosure auction date via certified mail.
Too many families have lost their homes because they didn’t know they had other options. Don’t let that happen to you. If you are behind on your payments—and especially if you have received a demand letter or notice of foreclosure—take action immediately. If we can answer any questions or otherwise be of help, please give us a call.
Generally, when a buyer thinks about a “short sale”, they think about distressed sellers and good deals. The name can be misleading as a short sale can be a “long and drawn out sale”. Here are a couple reasons why a short sale can take so long to complete in some cases:
In a short sale, you need the seller’s lender to approve the short sale in order to complete the sale. What a lot of people don’t realize is that the lender not only approve the price, the offer, and the buyer but they are also approving the seller. This means they have to approve all of the seller’s financials, which go through a “financial review” stage. This may be called different things amongst different lenders but every lender will review the financials to ensure the seller truly cannot afford the mortgage. This can cause many delays if they need additional documents, explanations, or just need time to review. Throughout the short sale process, several people get assigned to a file. In that process, it takes weeks to get the “processor” or “negotiator” to review. So that, coupled with having to approve the buyer and the buyers offer, it can take months if it is not followed-up on and the agent does not stay on top of it.
Regardless of who the lender is, there is always a TON of paperwork. With a short sale, you have all the listing paperwork, lender required forms and a lot of disclosures. With that said, there is a possibility that a lot of paperwork can get lost in the fax, not in the file, ect. This is a very common delay with short sales. If the real estate agent is not following up to make sure the lender has what they need and/or have received what was sent to them, it could take weeks for the lender to get back with the agent just to say that it needs to be resent.
Multiple lenders/Multiple Liens = more time
If a seller has more than 1 lender or has more than 1 lien on the property, this will add more time to the process. Although a short sale can be done with multiple liens, it just involves more people to negotiate with. Each bank has its own system that doesn’t in any way communicate with the other bank systems. Remember in a short sale, every lien holder HAS to approve the short sale or you cannot sell it.
When doing a short sale, it is so important to choose an experienced real estate agent or these delays could cause a home owner a foreclosure if it is not handled correctly.
Unfortunately, when you are in foreclosure you are constantly being solicited. You will get mail, phone calls, and knocks on your door once your address goes on the foreclosure list.
This can be very overwhelming, there is a lot of information out there. But who can you trust? Let’s talk about who is targeting you so you can understand their motives and the options you have in this situation.
I am going to start off by saying, not all investors are bad. In fact, we work with MANY reputable investors who genuinely do want to purchase a property and do it in an ethical way. BUT, like in every industry, there are a lot of shady people. There are many investors who are strictly looking to ‘get their foot in the door’ when they solicit you. I say this to ALL of our clients; if the investor is legitimate they will be willing to go through the proper channels to purchase the property and not try to bypass your agent. These shady investors target homeowners directly and tell them exactly what they want to hear. They will say anything to get you to sign a deed, or contract with them. ALWAYS read everything you sign, ask questions and have someone else review what you are signing! If you do not have a realtor, find a reputable real estate attorney.
This is a big one! You will get mail from ALL kinds of attorneys. Attorneys who want to sue your lender, help you file bankruptcy, process your short sale, etc. There are attorneys that specialize in foreclosure defense who can help you pursue legal action which is a temporary fix. They may be able to get the foreclosure stopped but not be able to help you sell, settle the debt, modify your loan, so you end up back in foreclosure.
Sometimes bankruptcy is a great option for your situation, but it is NOT the only way to stop a foreclosure. Remember, always consult an attorney, but know that they want your business so do your homework.
You might get calls from “experts” or letters from agents saying they can help you sell your house. Hiring a real estate agent to help sell your house when you’re in foreclosure is an option that will allow you to have someone to advocate for you at no cost. Homeowners should never pay anyone or any company an up-front fee to conduct a loan modification, arrange a short sale, or stop a foreclosure. Lenders must be involved in any of these transactions, so there are no guarantees, and homeowners shouldn’t pay any money until the company delivers the agreed-upon results. Something VERY important to know is although any real estate agent can do a short sale, it does not mean they are qualified. When you speak to that agent, ASK questions! If they don’t know the answers to your questions, you might want to reconsider using them. Ask them how many SHORT SALES they have completed successfully. This is SO important. Experience is everything in short sales and every lender has different requirements. Hiring a knowledgeable realtor who understands the lenders processes is so important for you as a client. It is the difference between getting a short sale approved and getting foreclosed on.
Questions? 972-832-2755, TheShortSaleExperts@yahoo.com
In this article I really want to clear up a lot of confusion and misconceptions as a borrower and as a Real Estate Agents on the foreclosure process. Often people see the word FORECLOSURE and freak out. Most homeowners think they have reached the point of no return. Incorrectly, they believe there are no options but to abandon the property and move on. A lot of Real Estate Agents are equally uninformed. I have spoken with several agents who believe that once their client is on the foreclosure list, it is time to terminate the listing and move on. This is NOT always the case.
Let’s start from the beginning on this:
There two common ways that homeowners end up on the foreclosure list. You are either in the process of a loan modification and have not made your payment in several months or you have a hardship that has made it impossible to pay your mortgage.
In either scenario when this happens the bank will start to “accelerate” your loan. The lender will hire a foreclosure attorney whose firm will send you an acceleration notice as required by law. This notice is giving you an opportunity to pay the balance owed which will include attorney fees. The notice warns you that if you do not settle the balance owed, your home will be sold at auction. In Texas the first Tuesday of every month is the foreclosure date. This is the day when the houses scheduled to foreclose go to the auction block. When you receive the acceleration notice there is no set date. This notice simply means that the foreclosure attorney’s office has started the foreclosure proceedings. You will continue to receive notices from the attorney and eventually a date will be set. Guess what? You are officially on the foreclosure list!
This is where both agents and homeowners start to panic. Even though you should be incredibly motivated to act, you should not panic. Just because you are on the “Foreclosure list” does not mean you will be foreclosed on. It can be stopped. Let me preface this next part with no bank has to post pone a foreclosure or take you off the foreclosure list. Most of our files eventually get on the foreclosure list but as long as we have an active short sale with the bank we can get the bank to push it out. It is definitely a challenge to get the foreclosure postponed, but it is possible and worth the effort!
As a homeowner it is important to hire an agent that understands this process and knows what they are doing! If you hire an unexperienced agent, the outcome could be devastating. If you are an agent with a client on the foreclosure list, do not terminate and run. There are plenty of solutions for your client. I cannot cover every single scenario in this blog so if you have a specific question please feel free to call our office directly we would love to help!
When I tell people I do short sales, this is the first question I get: “How are you still in business when the market is so good? Prices are going up, how are their still short sales?” The market has begun to recover in Dallas/Fort Worth these last of couple years and home values have gone up. In 2010 the market was flooded with foreclosures and buyers were having a hard time getting a loan. Houses were staying on the market for months and it was hard to find a traditional buyer. Fast forward to 2015 and we are experiencing multiple offer situations with homes selling within days of listing.
So, if the market is that good, how can short sales still be around?
Here is a very real example of how a borrower can end up in a short sale situation:
You purchased a house when the market was “hot” and you payed full price, maybe even over asking. You owned the house for 2 years and then you lost your job. When you purchased the house you could not have foreseen losing your job. So you miss a house payment and you try to find supplemental income. You get letters from your lender suggesting you try a loan modification. So you apply, and continue to miss payments because the lender does not accept payments during the process.
8 months later, you get denied for the loan modification because you do not make sufficient income but now you are behind $25K+ and you are facing foreclosure. You order payoff statement and find all of these “late fees”, “attorney fees”, “filing fees” and your payoff has increased significantly. The little equity you had is now gone. You have to do a SHORT SALE.
While this example is very specific, this is how it happens. There are MANY other ways a borrower can end up in a short sale situation. All they have to do is experience some type of hardship: divorce, death of a borrower, excessive debt and obligations, and the list goes on. Homeowners will not stop experiencing financial setbacks just because market prices are increasing.
While the prices increasing have helped homeowners who weren’t able to sell before now sell because of the increased equity, short sales will always be around.
Here is the key: If you have a client who is behind or if you are behind on your mortgage find a real estate agent that has EXPERIENCE in dealing with short sales and foreclosures. You might be able to sell your home without doing a short sale even if you are behind. There are always options to avoid foreclosure, if you have any questions please feel free to reach out to me! I would love to help!