Try Wednesday’s webinar through Pensco Trust to learn how to protect your beneficiaries if you have taken advantage of one of the fabulous self directed IRA programs I’ve tried to introduce here.
With the stock market remaining unpredictable consider jinvesting some of your reitrements funds in real estate. I converted a SEP IRA, small Roth IRAs, and regular IRAs, rolled them all into a self directed Roth IRA, paid the tax due and began developing with the money. Now I’ve grown my net worth within a Roth IRA and all the growth is tax free. It’s well worth the rollover and paying back any Taxes you saved initially with the IRA if you know how to make your money grow.
If you want to know this great tax benefit, see the Pensco site, start taking the Pensco classes or give me a holler.
I Think foreclosures are a great opportunity here. Banks are trying to sell their homes as quick as possible to make profit on unpaid mortgages. You often find that they are willing to offer attractive rates or terms as concessions in order to sell the homes. For more information on bank foreclosures please visit: http://www.mostlyforeclosures.com/
Jillayne, your post is excellent and very timely. I’m afraid we will be seeing more short sales taking place over the next 2-3 years and this solid information for consumers to digest. I will be sure to include this in future post.
Waking up this morning to Bart Simpson’s back side…I KARUMBA! 🙂
Some of the things escrow watches for in short sales:
False repair work invoices to straw contractors or family members, last minute increases in commission disbursements, last minute filed liens etc…
All are ways to fraudulently increase proceeds and/or reduce the loss to the homeowner. People get creative when under financial distress. In many cases, lenders will not allow the homeowner to make a dime if they are taking a large hit.
Excellent post, Jillayne. In terms of consulting an attorney, you are absolutely right that many people believe they cannot afford to do so. However, if the homeowner has ANY equity in the home at all, the amount of equity will probably exceed the cost of an attorney, and the attorney can help you to protect (or realize) that equity.
The Seattle P-I had a good piece recently on foreclosure rescue scams. A couple of local attorneys are quoted in that story. If you’ve been the victim of such a scam — an “angel” offered to help but ended up with your house and your equity — contact one of those attorneys. They are making a career out of suing such “angels” for fraud and helping homeowners to recover some of their lost equity.
Hi Lynlee,
I read your post while stuck in traffic this morning. Yes, I am admitting to reading email on my pocket PC on I-5. Shame on me.
When I did, I screamed “NOOOOO” and I think I frightened another driver next to me. I had not heard about straw contractor invoices happening in escrow on a short sale. Thank you for pointing this out.
I have heard that some lenders WILL allow for a homeowner to receive a small amount of cash back at closing only for the purpose of putting first and last month’s rent down on an apartment that would have kept the homeowner from being homeless.
Sometimes the bank insists that the home seller signs something at escrow that says he or she is not receiving any cash back at closing. Usually this is because the lender believes the seller in fact might be trying to do just that.
I’m getting ready to teach a RE 2.0 class this morning for the Sea Assoc of Realtors so I need to run. Will check back later!
Jillyane says: “Real estate agents, check your local Multiple Listing Service (MLS) policies and procedures about disclosing the “short sale
“if the homeowner has ANY equity in the home at all, the amount of equity will probably exceed the cost of an attorney”
Craig, you lost me there. If there is equity, it isn’t a short sale is it? When there is not enough money to pay the lienholders in full including interest and penalties, do those lienholders who are shorted allow for attorney fees for the seller?
Hi Ardell,
I am not a licensed real estate agent so I will need the help of a licensed agent to read my position and find the weak areas in it:
Disclosing the short sale terms to the buyer seems to be in everyone’s best interest.
There are many home buyer investors who actually WANT to find homes preforeclosure or in short sale scenarios.
Besides, if the buyer is unaware of the short sale terms, makes an offer and it’s accepted, and only THEN finds out it’s a short sale, the buyer could decide to walk, right? What if that buyer must be moved in by, say, Easter, for the annual family Easter Egg Hunt. If this particular home is going to take many, many weeks to close, this might not be the right home for that buyer. Now we’ve wasted everyone’s time.
It’s like someone asking me out on a date and then later telling me he’s married.
I think disclosing the short sale terms HELPS the seller and the buyer find each other.
I think buyers want to know before they make their offer, if the seller can perform. In a short sale scenario, the seller can’t perform without the lender’s permission.
Hi Ardell,
As far as attorneys fees go, in a true financial distress situation, a homeowner can contact the local bar association and receive legal aid.
In other cases, the home sellers absolutely needed legal counsel and had money to pay the attorney fees.
With short sales, sellers might have questions about:
Bankruptcy
Taxes
Assets
Liabilites
Divorce
Failure of a business that lead to the resulting personal financial crisis
Mortgage fraud
Death/probate problems that lead to the resulting short sale
Great Post and one that’s after my own heart! I have been having some conversations with Southeast Michigan appraisers and real estate agents and am being told that short sales are making up about 90% of the volume right now. I do not know just how true that statement is but I do know that there are a lot of these sales going on. I am just now starting to see articles of the Northwest part of the Country seeing a higher foreclosure rate and more short sales. I don’t think that you will see as high as a rate as other parts. But is a great time to see topics like this.
Hi Shane,
I have been teaching the short sale class for about six years now and here in the northwest we have not seen a drop in the demand for this class. It’s been steady for six years. On the other side there’s been no recent drastic increase in demand for the class.
Great article, Jillayne. That is a terrifying scenario with the quit claim deed. Hopefully I will never need to be in a situation where I need to make use of that information.
I’ve seen some incredible trustee sales in the past year- but none of them went for less than the primary mortgage value (usually 80% of the previous sale price). Still I have to wonder why the sellers were willing to settle for so little in this market rather than simply listing in the MLS and walking away with a little bit of equity.
Hi Alan,
Thanks for stopping by RCG. In every single short sale class, an investor wanna-be wanders in hoping to pick up some tips. They tell me these tactics and more are what’s taught in the “get rich quick” seminars. Someone is definitely getting rich quick in those seminars and it’s not the attendees.
Hi Bill,
Sometimes the sellers have WAY over-mortgaged as they try to work their way out of a deficit. There’s a first, and a second mortgage. Then there’s a third mortgage. Next there’s a payday lender lien, or two.
When it has gone all the way to a trustees sale and the payoff is near market rate, there’s usually something else on title as a lien that might not be known like a huge tax lien against the home seller. Sometimes it’s not that but something even more sad. It happens when the seller goes into denial and just gives up.
Yet another reason to connect folks with social services. There’s aLOT of emotion going on for a homeowner in financial distress. The homeowner might be presenting a concerned face but underneath that they’re sad, angry and afraid. A trained counselor can help a homeowner get to a place where good decisions can be made.
Wow, reading your comments and then the post it is no wonder sellers buyers and real estate agents are confused.
Our local (NW)MLS is caught between the rock and hard place (DOJ and Washington License Law) which makes it impossible to say outloud to selling agents if you write up on offer on this home you may or may not get paid if and when the sale closes because seller is behind in payments. But the fact is that the notice of defualt (NOD) is public record. What is not always clear is how much is owed and to whom.
You will find that most lenders will work to help get the home sold because it is in their best interest to do so. It cost a lot to foreclose on a home and resell it. Time is money so if a lender can get it sold today for what they would net in six months it makes sense. But if a lender is not going to get the full amount owed then they want everyone to get less money including the agents. Good news is that some lenders are now agreeing to allow the sellers to get some funds at closing to pay the moving costs. But this is only a few lenders at this time.
Hi Jim,
Thanks for stopping by RCG. NWMLS Bulletin number 169 dated July 13, 2004 says on page 2
“2. Rule 10f
A member must make sure that the listing is complete and accurate when it is input into Locator. A listing is not complete and accurate if it fails to disclose that the listing is a short sale or the third party whose consent is required…”
Agents tell me they put an *asterik in the commission section and then inside the notes, tell selling agents that this listing has short sale terms.
Yes, if the home is in preforeclosure a notice of trustees sale might be of public record.
In WA state, a notice of default letter is NOT a recorded document.
Also, it is entirely possible that a seller would need to sell short and NOT BE IN foreclosure.
A good example of this is a forced relocation where the homeowner has been paying as agreed.
It’s so nice to know that I’m not the only one doing short-sales out there. I’m in the middle of my second short sale this year and anticipating a lot more in the future. And just a word of advice to anyone out there about to get involved in one is PATIENCE! The banks are forever slow to respond, so you really do have to keep contacting them almost daily. But it is a win-win-win situation, the bank doesn’t have to foreclose, therefore the seller doesn’t have to be foreclosed upon, the buyer can get a great deal, and the Realtors get paid! Thanks for sharing this article, I will definitely link it to my blog too!
Hi Karisma,
Glad you found some helpful tips from the article and thanks for the link from your blog. How’s the market in KC?
I visited Kansas City several years ago on business and promised my dad that I’d visit the Harry Truman museum in Independence. What a great town. I had the best barbeque beef sandwich in my life in a little diner right there in Independence.
I have been specializing in short sales for a while now. As a real estate agent, the first thing I do is identify through the local courthouse, homeowners who have foreclosure actions filed against them. I than use various methods to make contact with them, including phone calls letters, and knocking on doors (leaving behind a pamphlet if there is no answer).
Most of these homeowners are being heavily preyed upon by unscrupulous real estate agents and investors. Many investors offer to buy their home only if they are not using a Realtor®. I let them know in my first letter to them, that any legitimate buyers will still be interested in their home, even if they are represented. My goal is to get in front of and counsel these homeowners on their options. Refinancing, sale-leaseback and Chapter 13 bankruptcy are all options that may be available to them depending on the circumstances. I try to determine the underlying problem that caused the foreclosure situation in the first place, and determine whether or not that problem has been resolved. I mentioned sale-leaseback as an option, but this is a high-risk option for the homeowner, and requires an agent to be extremely mindful of the terms of the contract. I believe that it is important to negotiate a win-win situation for both the borrower in foreclosure and the investor taking on the risk. In most cases this is not a viable option, but always recommend an attorney review the final documents for your seller.
In most cases the homeowners are simply in over their heads. Most mortgage professionals get people approved for much more than what they should really be paying with little or no cash reserves. The mortgage industry as a whole demands this. If you dont get them approved someone else will, and you will not get the next deal. In addition, with the current market not having any equity is problematic. When representing a seller in a short sale situation, the first thing to remember is that you are best helping him/her by getting the debt eliminated. Be sure to do a search and hold right away with a title company to make sure there are no hidden liens that will create a problem. Get written permission to disclose your sellers motivation to sell, so that you can market the property as a pre-foreclosure and immediately draw interest. You are not betraying your duties to your seller in doing so, because in any case their net proceeds will be the same ZERO. I also have a special addendum that I require prospective buyers to submit with any offers. This addendum outlines that any acceptance by the seller is subject to lender approval, and sets a time line for that approval. It is important to secure a buyer who is comfortable with waiting a month or so for bank approval, and that the process is explained to any buyers and their agents upfront. You will find most agents are ignorant of the process and can become impatient if their expectations are not properly set up front. Lastly is the short-sale process. It is a long and laborious task, and customer service in most lenders loss mitigation departments is worse than any other industry I have ever come across.
These are just a few of the steps and problems encountered in this process. For more information on how to list and sell pre-foreclosures feel free to email me.
Hi Ralph,
Thanks for visiting us here in Seattle. How’s the short sale weather over there in Wisconsin? Everyone in my family was born in Milwaukee except for me!
Are you seeing a rise in short sales, or are the short sale transactions about the same in 07 v. 06?
In CA.. if the buyer of a foreclosure or short sale property is an investor he can not legally be represented by a real estate agent.. The seller can have representation but not the investor/buyer..
Can anyone answer this?
I am living w/my brother whom bought my home a year ago. We both live in the home. He bought it believing my mother would be moving in with him as she is elderly and lonely etc…I was going to relocate, buy again yadda yadda etc……right after my brother bought my home, my mother was diagnosed with termil cancer. It was decided amongst family she should stay in the low income/disabled apartment unit she was in…for financial reasons. I decided I best stay with my brother to help him pay the mortgage.
I have since found I can no longer afford it. And my brother cannot do it alone. We/He is already on a payment plan..that far exceeds the actual payment due to being late etc…the house has been on the market steadily for almost a year…dropping the price now to just 20k over what is owed. There is a prepay penalty of 2 years, now I believe the payment plan interest as well. My brother bought the house from me for 270k, prepay penalty I believe to be about 9,300..and then the payment plan interest??? I don’t know. How can I get my brother out of this situation w/out it costing him more than just letting the house go? Can he be sued for monies left oweing? Can they put a lien on assets or properties? Can they cause him years of financial ruin? I believe the house will sell in a short sell immediately, in this area. it has a main house and a little mil unit in aback within the city limits of Everett WA. He just wants out at this point w/out it costing further stress or financial liability.
Hi Tony,
I sent you an email aside from this blog. Thanks for stopping by raincityguide. You’re asking some good questions, but I need to ask some questions first before I can help you.
1) When you sold the home to your brother, did you do so with a full title transfer, using a warranty deed, deeding the title to the property from you to him?
2) Is his name the only name on the delinquent mortgage?
3) Is the new mortgage loan with an institutional lender using a deed of trust form? This is my guess but I need to know for sure.
4) Is your home listed with a licensed real estate agent or are you trying to sell “by owner?”
Yes, I believe it was a full transfer. And his name is the only one on the mortgage. Yes, it is a deed of trust, and the home is listed with a licensed real estate agent.
Hi Tony,
When you sell short, the lender will ask your brother to pay back the difference between the sales price and what is owed.
So do some rough math with your real estate agent: In TODAY’S market, what will the home realistically sell for v. what does your brother owe, including late payments, interest, and penalties such as the prepayment penalty?
Consider other costs of selling such as your brother’s real estate agent commission (check the listing agreement; this is usually a percentage of the sales price), escrow fee, title insurance fee, and excise tax.
After you add up all the costs (lender payoff + other costs of selling) do one more thing: Have your agent show you the preliminary title report. Make sure there are NO OTHER liens showing on title besides the mortgage loan. For example, if your brother has a judgement against him, this will need to be paid off at closing. If he obtained a second mortgage, this will need to also be considered in the total payoff.
Sales price – costs = a number.
That dollar number will be the amount of money the lender will ask your brother to pay off in a brand new unsecured loan. He will be asked to make monthly payments until it is paid in full. Terms are negotiable with the lender.
Your brother may not want to pay back the shortfall (who would if a person is in financial distress!) this is very different than his INABILITY to pay back the shortfall.
So, for example, if he is un-able to pay back the difference, perhaps the bank will be nice and just write it off as a loss. I’m going to be real direct here: Don’t count it. I have heard of this happening but it is rare. Some people hope that maybe the bank will waive part of it. Don’t count on it.
IF they DO “forgive” the debt, the IRS sees this as a taxable event, which means your brother will be taxed on that amount next April.
There are two important steps for your brother to take RIGHT NOW.
1) Have your brother see an attorney. If he does not have any money to pay for an attorney, contact the local bar association in your county
http://www.snobar.org/
and seek a referal for free legal aid.
An attorney can do things and give advice that a real estate agent cannot. Consider one of the attorneys who blogs for raincityguide. Their names and pictures are up there near mine.
2) Have your brother see a CPA or tax attorney so he fully understands the tax consequences of his decisions.
Have your brother gather up all the documents he received when he applied for the loan and when the final loan papers were signed. Your attorney will most likely want to see everything.
Tony,
Another very important consideration: what are your plans for housing when this is all said and done?
Do you and your brother have enough money for first/last month’s rent on an new place?
If not, the Snohomish County Assoc of Realtors funds an endowment every year with a huge auction. The proceeds go into a fund for people who need grant money for first and last month’s rent. It is administered by the Volunteers of America in Everett.
Jillayne,
I often hear the owners say the sale is “short” because the bank led us to believe that the house was worth more than it really was when they lent us the money in the first place.
If the market hasn’t gone down since the loan was taken. And the house can’t sell at the price the bank used for the basis of the loan. And the borrower relied on the bank and the appraiser to know the value. Shouldn’t the bank bear some responsibility for the house not being able to sell at a point that exceeds the loan amount?
If the owner had no idea what the house was worth, and the bank is the one that set the value at time of loan, maybe they should participate in the fact that they were wrong to loan that amount in the first place.
Just a thought.
Hi Ardell,
Often what happens is that a homeowner ended up with a 100% LTV loan and then got behind on his or her payments for whatever reason, and there are many reasons why homeowners fall into financial distress.
Late payments, interest, penalties and a prepayment penalty can all add up very fast.
The bank has more than likely sold the loan to investors. The loan in question is subprime (Tony and I determined that via email) and more than likely the investors are going to want their return on investment. A bank can’t arbitrarily “forgive” debt. They also have a duty to their shareholders to maximize profits.
It is a balancing act for the bank, too: How can a bank help the homeowner in financial distress and also remain profitable?
The consumer wanted to sue the bank for giving them a loan way in excess of the home’s value, in the case I am thinking about. But the reality is he took the money and spent it, so he owed it. Still I could see his point that the bank was at least partially negligent and complicit in his fate.
Given the change in bankruptcy laws…this could become an issue into the future. In the past the debt was more esily forgiven after the sale if it was part of a bankruptcy.
I put an offer in on a “short sale”. I do not think it will close in time as I have already sold my home. I want to approach the “short sale” seller about renting the vacant home which is in pre-foreclosure.
Can the owner legally rent a home in pre-foreclosure and is it unwise. I am wondering what the pitfalls are?
If your offer is accepted and you know you are going to be the eventual owner and it is vacant, sounds like you may be able to work something out there. Contact the person who is representing the seller.
Your risk of course is that it won’t close at all, in which case you will have to move again.
Jillayne, do you recommend that borrowers utilize a third party negotiator like
http://shortsalecenter.com/index.html
or
http://www.foreclosureassistance.com/
Or if you have others to suggest, let me know – I have a client requesting information but wasn’t sure where to send them. thanks,
Hi John,
Absolutely not.
Third party intermediaries charge a fee. The profit margin for a firm like this is excruciatingly low. This means the companies are often run on a shoe-string budget which means the service will likely be questionable.
A well-educated Realtor who is experienced in representing clients who are in a short sale position, is a far better selection for a homeowner.
If the Realtor is recommending a third-party intermediary, then ask the Realtor to deduct the intermediary fee from his or her commission. If the Realtor does not want to do that, find a Realtor experienced in negotiating short sales.
All the advice that a third party intermediary would give, a homeowner can receive for FREE by meeting with a HUD approved hosuing counseling agency that specializes in DEFAULT COUNSELING. Here’s a link to the HUD website. Remember to look for agencies that specialize in default counseling.
http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm
Thanks, he was looking for more info like…
Phone numbers / names / addresses for where to start with his lender (CW) – they have his 1st and 2nd. And he’s had one 30 day late, should he have more (as some advice was given to him) or just keep paying 20 days late or so but stay current. Had a couple of thousand in an account that showed on the application = should that be liquidated and something done with it? As far as assets, are they going to let him keep his IRA and retirement accounts.
This property is his 2nd home, is that ok with them? And is a potential loss of $50-70k worth their time to even look at? How does the consumber run numbers to see if their scenario is even a plausible one? Thanks1
I will have to respectively disagree with Jillayne in this case. I am a real estate agent in Wisconsin who does almost exclusively short sales, and bank owned business. When you are selling a home and getting the bank to “go short” you are typically not receiving ANY proceeds from the sale. This means that the amount of commission you are being charged is irrelevant, what is relevant is how successful your real estate agent is at getting you out of debt. I started a short sale negotiating company in order to start getting compensated for the extra work it takes to negotiate a short sale, and that company charges a processing fee depending on what the lender is willing to pay (typically $595).
This amount comes out of the banks proceeds and does not affect the home owner. Because so many agents are good at prospecting and selling homes, but not good at the short sale end of the business, I have been consulting with and negotiating short sales for other agents as well recently. We always make sure we are working to best help the distressed home owner. There is no reason for the homeowner to ask the agent to reduce his commission to make up for my $595.00 fee because that fee is not really being paid by the homeowner, but rather by the lender who is taking a further reduced net proceeds. Additionally I have an addendum to MY listing contracts that says if my commission is cut by the lender, I will take that the lender offers me as payment in full and not charge the distressed homeowner any money out of his or her pocket to complete the deal.
Ralph says:
“This means that the amount of commission you are being charged is irrelevant”
Commissions are negotiable. A homeowner in financial distress ought to be able to pay a competent real estate agent a fee for performing his or her duties. Commissions are HIGHLY relevant for a short sale homeowner for one reason only: If a homeowner owes more than the house is worth, the homeowner will be paying the agent’s commission in another way other than the proceeds of the sale. Typically, the lender asks the homeowner to sign an unsecured note for the difference, which would include the closing costs and agent commission. A homeowner in this case ought to hire an agent who is EXTREMELY COMPETENT in negotiating short sales. I this case, no other third party processing fee would need to be paid.
Ralph says:
“I started a short sale negotiating company in order to start getting compensated for the extra work it takes to negotiate a short sale, and that company charges a processing fee depending on what the lender is willing to pay (typically $595). This amount comes out of the banks proceeds and does not affect the home owner.”
The $595 is paid for by the homeowner, not the lender. Lenders don’t take on additional charges by third parties. I repeat: THE HOMEOWNER is paying this fee.
I thought about deleting Ralph’s comment simply because it appears to be a commercial for his company, but I decided to leave Ralph’s comment in place only to show readers how third party intermediaries operate.
A competent real estate agent can do what any third party intermediary claims to do, with no additional $595 fee.
Hi John,
Whoa, slow down there, cowboy. Let’s take your questions one at at time:
1) Phone numbers / names / addresses for where to start with his lender (CW) – they have his 1st and 2nd.
A: Phone numbers of lenders are located on the homeowner’s monthly statement.
2) he’s had one 30 day late, should he have more (as some advice was given to him) or just keep paying 20 days late or so but stay current.
A: I never advise a homeowner to stop paying their mortgage. The only person competent to give legal advice to a homeowner is an attorney. Homeowners do not need to be in foreclosure for a lender to accept a short sale.
3) Had a couple of thousand in an account that showed on the application = should that be liquidated and something done with it?
A: In order for a short sale to be approved, a homeowner must PROVE that they have no money. If the homeowner has money, he or she will be asked to bring that money in at closing to make up the shortfall.
4) As far as assets, are they going to let him keep his IRA and retirement accounts.
A: If I were the banker, and assets were available, I would ask for the homeowner to obtain a loan against these items, and bring the cash in to closing. If a homeowner has assets, you don’t have a short sale transaction. You have a “seller brings cash to closing” transaction.
5) This property is his 2nd home, is that ok with them?
LOL. The lender will likely ask the homeowner how much equity is in their primary residence. Perhaps a new secured note and deed of trust could be placed on their primary residence.
This transaction is sounding less and less like a short sale. Short sale approvals are reserved for people in true financial distress. In this particular case, the homeowner appears to have assets to cover the short fall.
6) And is a potential loss of $50-70k worth their time to even look at? How does the consumber run numbers to see if their scenario is even a plausible one? Thanks
A: Consumer adds up his or her liquid and other real property assets. If the number is zero, then a new unsecured note is signed at closing for the consumer to pay back the $50-70K. If the consumer has money in the bank, the bank will ask that the money be brought in at closing and applied to the unpaid balance.
Please don’t ask me how a homeowner hides their assets. Typically, we would call this “lender fraud” and no one reading this blog will want to be a party to that.
#1 – My company actually only does short sales for my personal production, other agents in my office, and other agents in my local area, so if this appeared to be a commercial I apologize. – – –
#2 – I NEVER have sellers sign a note to pay me a commission. Last year I closed over $10 Million in sales, and MOST of it was short sale work. None of my sellers had to come out of pocket at all. I was able to get 1st mortgages, 2nd mortgages, Federal (IRS) tax leins, child support leins and judgments removed. Most of the time, the lender would insist on cutting my commission to 5%, there were some instances if 3-4% (Especially if I had the buyer and the seller) and rarely did they agree to 6% or higher.
I NEVER charge the sellers the difference when my commission is cut. Nor do I charge them the $595.00 fee if the lender doesn’t let it stay on the HUD-1. If the lender cuts the fee, I deduct it from my commission, and I would expect other agents to do the same.
These people are in a tough financial situation, and it’s my firm desire to make it better. I started the independant contractor firm to negotiate these and collect enough of a fee to pay my full time short sale processor. This fee is often left by the lender EVEN WHEN they are insisting on cutting my commission simply because it’s a 3rd party fee, and they don’t think it’s negotiable. With 4-6 seller sides per month (plus an extra 2-3 deals a month from other agents its an extra source of income for a service I can provide MUCH better than any other local agent, and not EVER at the expense of the homeowner.
That being said, I have never worked with an outside third party provider, perhaps my ethics are the exception and not the rule, as this is largely an unregulated field.
Thanks for the answers, and I should have clarified a few of those points, I have lots of notes and questions in my file for this client.
I didn’t mean to allude to them wishing to hide any assets whatsoever. They asked me if they should cash in what little assets they had and go ahead and pay down on some other credit accounts, that’s what I meant by ‘do something else with them’. Sorry about that – it does sound rather mysterious in my previous post.
thanks.
Hi Ralph,
Thanks for stopping by again.
Are you saying that you are ALWAYS able to reduce the amount owed to the lender and other parties claiming a lien on title, down so low, that the homeowner owes the lender ZERO, including negotiating the lender payoff(s) so low as to negotiate enough money to pay all closing costs and agent commission?
When a homeowner owes more than the house is worth, and pays an agent commission, the bank is going to ask the homeowner to pay back the difference. The agent commission is added in to the entire amount owed and includes other costs such as escrow and title fees, and excise tax. The homeowner usually ends up paying all this back.
I understand that if you’re asked to cut your commission, you’re not asking the homeowner to pay the difference.
I believe short sales are a specialty transaction and should be treated as such by homeowners. Much like an agent with a multi-family or commercial property would choose an agent who specializes in MF or commercial. Agents who are NOT competent in short sales are wise to refer the homeowner to a highly competent short sale agent in their market. The homeowner is often far better served in this regard. It sounds like you are doing very well in your market area.
My dad happens to be in Wisconsin at this very moment attending an Elks Band 50 year reunion in Milwaukee!
Hi John,
Whew! Sometimes homeowners ask questions that are beyond what we can answer. I am a firm believer in always strongly recommending that any short sale homeowner seek legal counsel.
So, for example, why would they want to pay down some other credit account when they have a creditor right in front of them that they’re shorting? Sometimes it is challenging to try and figure out all the possible consequences of our actions. In this case, an attorney such as a real estate attorney or consumer protection attorney is able to do this for a fee.
If a homeowner is in true financial distress, free legal aid is available through your county or state’s bar association.
I have only had 1 borrower have to agree to pay anything to anyone. It was a private 2nd mortgage lender who was only willing to release the lien this way. The seller ended up filing bankruptcy a few months after the closing under advice from an attorney. Other than that, the answer is YES, I am always able to get everyone to agree to ZERO in the end.
You are right, a homeowner should look for an agent that specializes, but there are times when the homeowner has a relationship with a real estate agent. These are the few cases where I have been able to be of service to other agents in my market area who have recognized my ability to help them, but mostly my “SHORT SALE PROCESSING” company is just an additional profit center for me to make up for lenders trying to get into my pocket with commissions.
Ralph – I am a Realtor in West Central Florida who has never done a short sale or foreclosure in all these years. Now it seems my rose colored glasses must come off and I must learn in order to best help prospective sellers and prospective investors. When I click on your name I can’t seem to go to your email or your website to contact you directly. I’d like to get properly educated and be mentored as I learn this market. Any advice on what, where the best resources to do that are would be appreciated.
Hi Deborah,
Thanks for stopping by raincityguide.com I emailed Ralph the other day to alert him that his website link leads to nothing.
To start, I recommend finding an agent in your market area that currently specializes in short sales and co-list with him or her for a few of your short sale transactions.
I recommend finding a HUD-approved housing counseling agency that offers default counseling in your city (some counseling agencies only do first-time homebuyer seminars). Go to one of the classes on preventing foreclosures and learn ALL the options for homeowners in this situation, which will cover foreclosure, a short sale, and many other options as well.
I recommend finding a couple of great real estate attorneys in your city, so you can interview them in advance to make sure they can handle your referrals for legal counsel.
I recommend going over the rules of your local MLS with your broker to determine if short sales are treated differently within your MLS, such as disclosing to other MLS members the short sale status of a listing.
I recommend reading the foreclosure laws that govern your state so you can become familiar with the timeline of a foreclosure. Many (not all) people in financial distress/short sale scenarios are also headed toward foreclosure.
I recommend contacting your local association of Realtors (county or state assoc) to determine if there are any state-approved continuing ed classes for real estate agents on this topic. This will be a far better way to gain some quick education. I recommend avoiding the get-rich-quick-on-short-sales seminars. Somebody is definitely getting rich quick off those and they’re the seminar folks, not the attendees. 🙂
I recommend taking your favorite escrow closer out to lunch and asking him or her the following question: “what can I do as a real estate agent or Realtor, to make the short sales that I bring you, close on time, so that I receive my commission, with as little drama as possible?”
I hope that helps! Good luck, and keep in touch.
Hi Jill,
I’m in this situation and hoping that you could help.
#1. I helped my mom to buy a house in 2000 & she’s been making payments on the house. My name is solely on the mortgage and title of this house.
#2. I then bought another house in 2004. Refinanced once for this new house. My name is on title and mortgage. I took some equity out of this one and now the value went down and I want to Short Sale it.
If I let the #2 go to foreclosure, will the lender of # go after the equity of #1? If I decide to transfer the title and mortgage to my mom before letting the #2 go, will they?
Please help! Thank you!
Hi Kelly, here are my answers:
“If I let the #2 go to foreclosure, will the lender of # go after the equity of #1?” If I decide to transfer the title and mortgage to my mom before letting the #2 go, will they?
No to your first question. But there are some risks inherent with foreclosure. Lenders do have options, depending on the circumstances. I’m not an attorney. Craig and Russ, up there on the sidebar, are attorneys. Contact them for a legal opinion.
I would advise anyone facing foreclosure to discuss their situation with an experienced Realtor. Short Sales are not a part of real estate basic training but there are a number of educational seminars a Realtor can take to get up to speed. Lenders will pay a reasonable selling commission so Realtors have an incentive to get involved in Short Sale situations.
The basic requirements for a Short Sale are a Listing Agreement with a Realtor and a Sales Contract from a Buyer which are submitted to the Lender along with a Hardship Letter from the Seller explaining why they cannot continue to pay the mortgage and supporting documents such as tax returns, bank statements, information and photos of the home and the Comps, or comparative home prices supporting the offer. The way mortgages are sold, the mortgage holder can be anywhere and certainly not aware of local real estate conditions.
If the package is complete, the Lender will order a BPO, or Broker’s Price Opinion, from an independent Realtor. Ths BPO is the key to the whole process. If it is too high, the Lender will not accept a low offer. Your Realtor can meet with the Agent doing the BPO and offer information supporting the offer, such as the average time on market of comparable homes, recent selling prices and point out any defects in the home. Most Lenders will accept an offer lower than the BPO, but usually not much more than 10% lower, though that will vary depending on the company.
The sales contract should specifically state that the offer is contingent on the Lender accepting the purchase price in full and forgiving the Seller the deficiency on the mortgage. Yes, there can be tax consequences. The Seller does receive a 1099 on the forgiven part of the mortgage, but there are provisions in the tax code for the offset of the phantom income due to insolvency. Most Short Sellers will satisfy the insolvency requirements or the Lender would not be allowing the Short Sale in the first place. Be aware too that if the home goes to foreclosure, a 1099 is received for the FULL amount of the mortgage, plus late fees, legal fees etc. Obviously every individual situation is different so a CPA or tax attorney should be consulted.
The process does all take time and Lenders are swamped, expect at least 2-3 months before a sale can be finalized, even if the Lender accepts the first offer. If they do not, the price can be negotiated.
I am a Realtor, a Broker Associate and I am involved in Short Sales. It is a detailed but fairly straightforward process that can work to benefit Buyer, Seller and even the Lender. The Buyer gets a good price on a home, the Seller gets to avoid the disruption and credit hit of a foreclosure and the Lender avoids the delay and expense of foreclosing on a property they don’t want to own and that would negatively impact their ability to make more loans.
All this information is available on the web site
http://www.free-foreclosure-information.com
Hi Brian,
Thanks for stopping by.
“Be aware too that if the home goes to foreclosure, a 1099 is received for the FULL amount of the mortgage, plus late fees, legal fees etc.”
Homeowners do not receive a 1099 when their home goes into foreclosure.
I have said repeatedly throughout this post, readers will do best if they contact a real estate attorney in their state, as state deed of trust and foreclosure laws vary.
Hi RCG – I (like many people) am facing the inability to meet my obligations and with my home having been on the market for avout a year now, I’m facing a short sale. When I started the process and first listed the home, it was “in the black” and would have had enough equity to pay the 1st and 2nd (and even the broker commission). I’m finally at a number where I’m getting steady showings and my realtor is confident I will get a reasonable offer, but the problem is that I will be short.
Knowing the position I was in, I contacted my 2nd lender and informed them that I would need to sell short. After much back and forth and transfers to other depts (because I haven’t been late yet), I finally was able to work with someone in their Loss Mitigation group who sent me a short sell packet and briefed me on their policies. The short sell packet (these things are getting so popular, they have it packaged to send out) states the credit reporting, IRS reporting, and broker commission policies – 3% on a broker who gets both ends and 5% for a split in case anyone is wondering. I’ve requested a BPO, contacted a RE attorney, and talked to a Banruptcy attorney to discuss my options. The Bankruptcy attorney to mostly get me some leverage with the lender if they fail to accept the short sell. From what I am finding it is simply a matter of putting the lender in the position to know that the choices are a short sell or a bankruptcy/foreclosure. This is something that can be easily seen in the financial summary I will provide and pointed out very clearly in the hardship letter.
So my questions… In this day and age of the internet and vast communication options, what exactly can these “3rd party specialists” or even “experienced Realtors” offer that I can’t do myself for a short sell? I know that a Realtor has a much better handle on the market than I do, but I’m told flat out that nobody can influence the BPO. I’d just like to understand what someone else could bring to this that I can’t work out with my attorney and lender directly?
In addition, why would I need to disclose this as a short sell in MLS or even to my broker? I’m not sure how it works in other states, but in NY it is typical to have a closing 60+ days from an accepted offer. That is typical even in perfect scenarios… So if it takes that long anyway and the lender’s policy is to pay the commission to the broker (I signed for 4.25% BTW), why disclose? If it’s “MLS rules/policy”, I’m sorry I don’t really understand that – what ever could possibly happen if the seller breaks a MLS policy without any knowledge of the realtor? Is there a MLS police to come get me? Sorry for being facetious… But, honestly, the sharks and vultures circle when they see blood. If I disclose to too many people I am in a financial hardship, logic dictates that I am just opening myself up to so many who would seek to take advantage of me. There’s just not enough completely honest people in the world.
Many Thanks
Hi Michael, Third party intermediaries proport to be able to negotiate down the amount of money you owe…..for a fee. The profit margin on these businesses is extremely thin, usually run by a one-person shop and sometimes they even make you pay the fee up front ! before any work has been done. Steer clear.
Each local MLS has its own rules. In the Seattle area, there is a NWMLS rule that requires the listing agent to disclose to the other members of the MLS (the other Realtors) that a home has short sale conditions.
If a home owner is not able to perform on the sales contract, without the permission of the lender being shorted, then this is considered a material fact and must be disclosed to all parties. Your real estate agents may not have a choice. Yes, your financial hardship is now known. However, this might have the advantage of attracting the right kind of buyer. There are plenty of people out there who are fine with waiting out the short sale approval process because they’re not in a hurry.
Homebuyers who are in a hurry to close by a certain date might need to purchase another home. When the facts are made known to these folks (if withheld) they would have the ability to walk away and now everyone’s time has been wasted.
Caveat Vendor: Seller must disclose known facts about the home, including if another party (lender) must approve the sale.
Yes, your lender that’s being shorted, the second mortgage holder, will give final approval on the sale.
Thanks for stopping by RCG and I’m glad you are taking steps to move down a new path. Please come back and tell us how it all turned out!
Michael,
Having an agent who is experienced in short sales in your area can be a godsend. The number one reason you need to disclose there is a short sale in the contract for sale is so that you can spell out that the offer is contingent upon you successfully negotiating a short sale with the lender. If you do not have language to that effect, you may face an angry buyer who sees the need to sue for actual damages or specific performance and expose you to even greater liability than you are already facing. I don’t know about NY, but in Wisconsin I used an attorney to draft an addendum to the offer to purchase that addresses this on all of my short sale deals. You are right that the lender will typically allow only for a 3-5% commission. That is what I get. Sometimes an agent can get more, but it’s inconsequential to you either way, as long as they are successful, they don’t charge you an upfront fee, AND the don’t require you to pay the difference when the lender cuts the fee.
3rd, although the bank tells you that NOBODY can influence the BPO in most market area’s its the same agents doing BPO’s over and over again, and an agent experienced in this area may have relationships with these other BPO agents. I know I do in my market area’s and I always meet the BPO agent or appraiser at the property and furnish them with all of the relevant information such as comps that I know will support the value, and a copy of the contract.
You also addressed IRS reporting. Remember you are subject to IRS reporting even in a foreclosure, if there is a shortfall or defeciency that the lender does not collect, or if you file bankruptcy. You will get a 1099 in almost any solution that does not result in FULL repayment, but you do not necessarilly have a tax liability there. You need to speak with a tax preparer about the property being your homestead 3 of the last 5 years, and other circumstances regarding bad debt.
Whoa, slow down there, Ralph. You’re making some broad leaps and generalizations about the IRS, foreclosures, and 1099s.
It sounds like you work very hard for folks in Wisconsin. I have no idea where Michael lives, so Wisconsin laws may or may not be relevant to him or our readers. It is always most prudent to refer a short sale homeowner to an attorney in 100% of the cases.
From my knowledge base, a homeowner whose home is foreclosed does not receive a 1099. This is not considered a taxable event. If you have other knowledge please post the direct citation to the IRS statute. Homesteads are a completely SEPARATE issue.
Readers, this is a good time to pause and reflect why real estate agents sell real estate and why attorneys handle legal matters.
When a real estate agent jumps in with sweeping broad legal generalizations about tax laws, deed of trust laws, foreclosure laws, and bankruptcy laws, readers ought to be concerned.
Get your legal advice from an attorney, period.
Thanks Jillayne… and thanks Ralph because I truly believe you are trying to help.
The 1099 can be “written off” if you prove yourself insolvent at the time of the event. Something I would have to work on with my accountant. I do stick with professionals.
Maybe I should clarify… I live on Long Island in New York. From my experience speaking with friends in other states, realtors perform much more of a “service” in other areas. Here – in NY – they typically get the listing – get all the standard lead disclosure type paperwork signed and then market your home. You typically get a call from their “office” that such and such wants to show your home, so short of open houses (which seem to be replaced by online tours from realtor.com and such sites), your realtor isn’t showing your home. The only other thing they really do is get the offer paperwork completed. This all gets handed off to the attorney and then everything from there on out is done via your attorney… It’s common that you’ll get an accepted offer and never see or talk to your realtor again until they show up at closing. In fact, the offer documentation where the buyer details terms of the buy (how much down / financed / etc) to realtor isn’t even legally binding. Until the contracts are signed, it’s basically fluff. At the closing, the realtor sits in the back while you do all the paperwork with your attorney and then collects their check at the end.
Honestly, the marketing that the realtors do here is the only big thing they provide. It’s frankly the only justification they have for “earning the commission”. It’s very frustrating to watch realtor after realtor come in to show your home when they know nothing about your property… I will always offer help to tag along and answer questions, explain, etc. But typically they decline saying “they’ll let me know if they have questions”. I sit there frustrated as I hear them say, “Let’s see – this door… is a closet! – very nice…. and let’s see, this door leads to the… basement!” All they do is walk around stating the obvious… and I’m not talking about one or two realtors here.
Anyway – sorry to get off track.
Michael,
It sounds as though you loathe Realtors. I can understany why. Half of all Realtors are at the bottom half of their profession. (Talk about re-stating the obvious!)
I was a lender for 8 years before becoming a Realtor. I decided that the level of service provided by most agents was sub-par and though I could do a better job. While most agents are lousy… the few very good ones make up for it.
Here are a few facts: 74% of all homebuyers start their search in some sort of online function
74% of all people who visit an Open House are going to buy a (not the house they visited) home within 90 days.
An overwhelming majority ultimately turn to a real estate professional when purchasing a home.
Yes, you will have to put up with some lousy agents showing your home and telling the buyer that “This is a Toilet!” and that’s unfortunate, but you home will get more exposure to more buyers and will sell faster. The statistics still back that up, and your lender will allow for a commission in the short sale, so you aren’t saving any money by taking the burden (and all of the liability) on yourself.
Last, do everyone a favor and disappear when your home is being shown. People like to feel free enough to comment, good or bad, on a home they are visiting, and it is easier for an agent to overcome an objection with you not present. For example a buyer may HATE the color of a wall or something else cosmetic, and an agent may have a suggestion how to fix it, or know someone who can redecorate to the buyers tastes within their budget.
Nobody is going to even bother telling their agent they hate something if you are there.
Excellent advice. We are working with many home owners in pre foreclosure. Most of which are falling ‘short’. Hence, we have to negotiate a ‘short sale’. There are many ‘investors’ in our area trying to ‘help’ these homeowners too & I’ve heard a lot of sad stories from signing over their home to paying $ upfront, etc. I hope everyone reads advice like yours & thinks twice before they sign anything.
Hi Susan,
Thanks for stopping by RCG. I have been meaning to do a follow up post on avoiding foreclosure rescue scams. There have been some good stories in the mainstream media on this topic, but it bears repeating now. Best of luck to you in the challenging Florida market.
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My neighbors are in default and the bank listed their house in a short sale 1 month ago with real estate agent.How long does the bank wait to sell this house before they give up and foreclose? and how are they allowed to live there rent free whilst the house is listed for sell on the market??
Hi bill,
State deed of trust laws vary. Speaking in general terms, a homeowner has a specific period of time from the time the homeowners defaulted on the loan, to the time when a lender can sell the home on the courthouse steps in the form of a public auction.
If the home sells prior to the foreclosure auction, your neighbors wouldn’t necessarily be living there “rent free” as a short sale requires that the homeowner pay back the shortfall, to the bank.
Where do you live (which state)?
One of the better articles I’ve seen written about anything mortgage-related. I never comment, but I thought your article was really informative and well written. Rare in this industry.
I learned a lot tonight! Thank you.
Hi Colin,
Thanks for stopping by. What do you think about Pres. Bush’s idea to give a tax break to homeowners who have had their debt forgiven by their lender? (Currently, the homeowner receives a 1099 for the amount forgiven.)
Hello,
My husband and I are relocating for work to IL. We are purchasing our first home and made an offer on a house that turned out to be a short sale/preforeclosure. (we didn’t find out until we’d submitted the offer/contract). We waited patiently for the seller to sign, then found out the sale was contingent upon his lender approving the sale. (the listing stated only “Allow time for bank approval”….perhaps our real estate agent should have understood what that meant? We did not know.
Because I’ve read many horror stories of lenders taking forever to make a decision on these types of things, I asked our attorney if it was possible to put some kind of deadline on the contract. we sent this amendment to the seller’s attorney stating that the lender had until Sept 13 to decide. Does anybody know if this sort of “amendment” can even be upheld since it doesn’t really apply to the seller, but to his lender? We are moving at the end of the month (luckily our employer offers temp housing for up to 60 days), but still don’t know yet if the house will be ours or not.
Can anybody advise if there is anything from the buyer’s side to help speed this process along? The lender has already had the “application” for 3 weeks today. Also, my concern is that since this is a short sale, the house is still technically on the market. Is it possible the bank could drag their feet long enough to get another offer higher than ours and take advantage of that??? That doesn’t sound very ethical to me, but I’m not sure if there is anything illegal about such actions.
Any advise anybody has would be greatly appreciated as this is our first home, and we were “lucky” enough to stumble into this situation. Thanks in advance! 🙂
Hi Michele,
Q: Regarding the amendment to the purchase and sales agreement that gives the lender until Sept 13th to make up their mind, has this been signed by both you and the seller?
Yes, the home is still technically on the market. The lender will want to see if any other offers come in that are higher than your offer. There’s nothing unethical about that. If you were the lender being shorted, you’d want to try and get as much money as possible, too.
From your side, the best you can do is to get information on what’s going on with the seller.
At this point, the home seller should have put together an entire “short sale” package with the help of his or her real estate agent. This package would include such things as proof that the seller has no money to pay the shortfall, proof of financial distress, and a signed agreement that the seller will pay back the difference owed to the bank (the shorted amount.) In some cases, the bank may decide to “forgive” the short fall. This is not a 100% guarantee, though.
Have your real estate agent find out from the real estate agent for the seller how much information the lender is still waiting for FROM THE SELLER. If your real estate agent doesn’t know, or cannot get an answer out of the other agent, ask to speak with your agent’s BROKER.
Unfortunately, we have lots of short sales coming our way nationwide, and lots of real estate agents who have never handled one of these types of transactions.
From the comments left here by other real estate agents WITH experience, it is important for RCG readers to understand how crucial it is for short sale homeowners to select a real estate agent with experience, who can keep buyers like Michele informed and in contract.
My question is: if you own 2 homes and foreclose on one, can they
go after your other home? And also a 1099 is given for short sale, but not on a foreclosure is that correct? What else happens to you
besides a ruined credit after a foreclosure?
Thanks in advanced for your answers.
Seems if you owe someone money, they can attach your assets. So if they sell one and don’t get all of their money from that sale, they can get a deficiency judgment against another asset of yours.
I’m not a lawyer, but that’s my best guess.
Hi Ben,
Short sales are reserved for people with NO ASSETS. A homeowner has to PROVE to the bank (being shorted) that they are financially INSOLVENT. (Not shouting, just adding caps to make a very important point for readers.)
If a homeowner has assets, and yes, equity in another piece of real estate is an asset, then there is no short sale. Instead, you have a transaction called “seller brings in cash to close” transaction.
Yes, the bank being shorted can ask the homeowner to put a new deed of trust against the other home, and the proceeds of the new deed of trust will pay off the shortfall to the bank on the first home.
No, a homeowner does not receive a 1099 on a foreclosure.
What else happens to you besides a foreclosure on your credit?? Well, you get evicted from the house. That’s no fun. All the consequences of having gone through a foreclosure is an excellent idea for a blog article. I will write a long answer and post it separately.
For a homework assignment on the unintentional consequences of foreclosures, I recommend renting the movie “House of Sand and Fog.” This is a great film, adapted from a book by the same guy who wrote “Cold Mountain.” Ben Kingsley and Jennifer Connelly are in it. Well acted, but this is not a romantic comedy. It is very dark.
We placed an offer on a short sale home last week. We are in a position to wait for the lender’s decision; my concern is related to a possible tax lien on the property. We found out after we made the offer that the homeowner is approx. $8,000 in arrears on county/city taxes. Whose responsibility is that, typically? The seller, the lender, or (gasp) ours? Is there any way we could become responsible for the seller’s back taxes?
Hi Carmen,
Thanks for stopping by raincityguide.com
When a home is sold via short sale, the owner is going to use a statutory warranty deed (in WA state; other states might have a different name for this deed) which means that the title to the home is free and clear of all liens that show up on the preliminary title report.
I’m assuming that you’ve already had a chance to take a look at the preliminary title report, which is how the back taxes were discovered.
Yes, this is the seller’s responsibility: to pay off (or negotiate a short sale for) all liens shown on the title report. This does not magically become your obligation, this is the seller’s obligation to pay off prior to (or at) the close of escrow.
You’re at an important junction: It will become crucial to determine the seller’s motivation to do whatever it takes to see this home sale through to the finish. The people who can communicate this to you are the real estate agents. The agent you’re working with should be able to get a read on this from the agent who’s working with the seller.
If not, have your agent call the other agent’s BROKER.
Here is an example of how this might play out (there may be other ways.)
Sale Price: $300,000
Payoff to the lender $310,000
newly discovered tax payoff $8,000
other expenses to sell such as Realtor commission, excise tax, escrow fees, and so forth. Est: $10,000
So this seller is short $28,000.
I order to make this deal go, the seller must be willing to sign a new, unsecured note with the bank, to pay the bank back $28,000 in monthly installments.
Your next step is to find out how motivated the seller is to do just that.
Stop by again and let us know how it all worked out!
Carmen,
Not sure of your location (State), but generally, a local tax or IRS lein would have to be paid at closing to ensure you have an “encumbrance” free title. It is one of the many tasks escrow companies or attorney’s have in closing your transaction. Obviously, because you are aware of the situation as a buyer, it is imperative that these problems are taken care of.
–
My husband and I purchased a new build and just moved in 3 months ago. THe approval process was a nightmare and a separate story ( should have back out of the deal when I had the chance). Anyway, we vacated our other property and it sits with a for sale sign for just about 1 yr. now. Its not moving. At this point I’m 1 1/2 months behing on the payments and have no way of paying them now. My realtor and I have been attempting a short sale but the bank is useless. They wont answer whether this is an option for me4 till an offer is made. That makes it hard knowing what to price at. My question is 1) any advise on how to advertise on MLS etc.. short sale and how to price the home to sell? And 2) Since I have another property am I ineligible for a short sale even though I have no equity in the home?
Hi Daina,
The way your bank is acting is typical. The bank has no obligation to give you a firm yes or no either way until a bona-fide purchaser has made an offer on the home. This is normal.
Your real estate agent will know your local MLS rules for how to advertise short sales. Some MLS systems have rules of disclosing the short sale terms to other MLS members (meaning other real estate agents would know, but the general public would not know.)
Follow directions from your real estate agent as to how to price the home. I can’t help you choose a price. I CAN help you get into the mind of the underlying lender.
The lender wants the total payoff. Anything short of that does not meet their goal to minimize loss. If the home is priced too low in order to net a quick sale and a buyer comes along with a low offer, the bank will want to know what the Realtor is doing to earn that commission: why aren’t better offers coming along? If the home is priced to high, chances of any offer coming in are reduced. Your best angle from the perspective of the lender is to have the real estate agent give you a market analysis as to where the home ought to be priced, not based on how much you owe but how much the home will likely sell for in your market, right now.
In answer to your second question, a short sale is reserved for people who must sell and are financially insolvent. You will have to prove to the lender that you have no other assets. If you do have other assets, you don’t have a short sale transaction. You have a “seller brings cash to closing” transaction.
If you are financially insolvent, then the lender will ask you to pay back the difference in regular monthly installments. You will sign a new unsecured promissory note at closing for the shortfall. If I were the lender, I would ask you to sign a new note and deed of trust, and I’d take a second equity position in your new home (even if it’s over 100% LTV) just to get a secured note instead of an unsecured note. If you promise to do this, I bet you would get more response out of the lender.
Can you find a renter for the first home instead of having to sell it?
Thank you so much for you response. I wonder however, do I need to be discussing the option of a secured note with the lender now or will that come out during the short sale waiting period while they are reviewing the offer. I did ask about moving the HELOC of the old property to the new property under new terms and was denied that request because “that wasn’t countrywides policy”. In answer to your question I have had an ad out for a month now looking for a short term renter however my terms are strict because I need property to remain on the market for a sale, and even if I find a renter that only covers the first mortgage, I still owe monthly on the second and unfortuneitely thats more than I can handle. But I am trying.
Hi Daina,
The underlying lender that is being shorted will send you a short sale package. In there, will be a form that will explain what you will agree to, upon the lender’s acceptance of the short sale. Take this package of documents to an attorney if you have any questions.
There will be an initial set of forms and documents, such as a list of items that will prove that you’re financially insolvent. The lender will need everything on their list before giving you a firm answer.
When a firm offer comes in, they will give you an approval, conditioned upon, for example, a new unsecured note. You’ll receive the lender’s approval package AFTER a firm offer comes in.
Usually, your Realtor would (hopefully) know all this. Readers, please be sure that if you have a short sale going on with your own home, that you’ve selected a Realtor who is familiar with the short sale process.
I need some help!! My parents have a manipulative semi-crazy buyer that has extended closing 5 x’s now. She has put down $5K earnest money. Both Seller/Buyer signed a contract indicating home repairs not to exceed $2K. The buyer has, w/out permission of seller, hired people to do her repairs without taking ownership. My parents 2nd home is now unuseable. Not only has she had the deck replaced @ a cost of $2495, she has had a 3rd, yes that is correct, home inspector come by and tear up their porch looking for dry rot, along with tearing siding off of the house. The home passed inspection the first time, and was written up with a few ‘suggestions’, but no deal breaking fixes needed. This was 3 months ago. Since that time she has hired 2 different home inspectors to recheck the house causing the porch and siding to be torn up. Did I mention also breaking the garage door opener. The garage door worked fine at the 1st inspection, but inspector #3 has twisted the sensor and snapped it off and now she is asking my parents to replace this as well. Along with the threat that if her dog gets out and gets hit by a car she can sue them. She’s a needy nutball. Question: Are they liable for any repairs outside of the original inspectors review and the $2K max? The deal is supposed to close today, I doubt it. She does not have the full amount. Can my parents say deals off, we’ll take the $5K earnest money and use it to repair the damages she caused? Their realtor is useless. He has been paying the repairs with the escrow money, don’t both parties have to agree/sign when money is taken out for repairs? This person is trying her hardest to delay the purchase until she is able to sell her home. The lease on her rental is up in October. I’m telling my parents to run for the hills! Any suggestions?? I really apreciate the help.
You have a lot going on there, Cyndi. A Realtor works for a broker. I would first have your parents contact the real estate BROKER, explain the whole story, and then your parents should very clearly tell the broker what they want.
What state is the property located in?
IN A SHORT SALE,HOW LONG DOES THE DEFAULTING OWNER HAVE TO LIST AND SELL THE HOUSE WITH AN BANK APPROVED AGENT?WHAT OCCURS TYPICALLY WHEN HOUSE DOESN’T SELL AFTER LENGTH OF TIME?IS IT NORMAL FOR THE DEFAULTING OWNERS TO STAY ON PREMISES WHILE HOME IS BEING ADVERTISED FOR SELL.DOES THE BANK THROW UP ITS HANDS AND CALL IN AUCTION COMPANY WITH TRUCKS AND EVICT THE DEFAULTERS?
Hi Jay,
Here are the answers to your questions:
Q: HOW LONG DOES THE DEFAULTING OWNER HAVE TO LIST AND SELL THE HOUSE WITH AN BANK APPROVED AGENT?
A: Not all short sale sellers are in default on their mortgage. In the case where that IS happening, each state’s deed of trust laws are slightly different. Check your document titled “notice of default” or “notice of trustees sale” to get the drop-dead date.
Q: WHAT OCCURS TYPICALLY WHEN HOUSE DOESN’T SELL AFTER LENGTH OF TIME?
A: Well, does the seller HAVE TO sell? If not, could they put a renter in the home? Could they stay in the home and take on an additional renter? If the homeowner is in default, and the home does not sell, the home is auctioned off by the bank in a trustee’s sale and becomes a foreclosed home and the bank takes over title to the home.
Q: IS IT NORMAL FOR THE DEFAULTING OWNERS TO STAY ON PREMISES WHILE HOME IS BEING ADVERTISED FOR SELL?
A: Yes.
Q: DOES THE BANK THROW UP ITS HANDS AND CALL IN AUCTION COMPANY WITH TRUCKS AND EVICT THE DEFAULTERS?
A: Yes.
Check your local deed of trust laws for the exact timeline. Find your state’s main government website and do a keyword search on “deed of trust.”
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I have to disagree with the part of the article that said a mortgage has to be upside down in order to faciliate a short sale. Also, senior mortgagees are willing to negotiate even if they expect to get most or all of their money back. Why? Because the do not want a non-performing loan on their books as it will preclude them from future funding by Fannie Mae. The less Fannie Mae will allot to a lender, the less potential they have for funding future lons and thus less profits. I have negotiated short sales with a good chunk of equity in the property. Also, with the huge inventory of product for sale in my market, the banks know that it may well be a long, drawn out affair (read: hoding costs) before it sells.
My Short Sale was approved. I’m only about 10,000 short but I want to know what to ask for from the lender in terms of documents stating they can’t come after me for the difference. I’m banking on the 1099 but what can I do to make sure they don’t go after my 401k or other asset?
Also, how will this show up on my credit report? What should I ask for from the lender?
Thank you
Hi Chris,
You should ask for a WRITTEN approval from the lender. In that document, all the terms of the short sale will be there for you to review. By all means take it to an attorney if there’s something in there that you don’t understand.
If you’re 10K short, you will either be asked to sign a new unsecured note a closing to pay back the difference, OR the lender, out of the goodness of the kind soul, will “forgive” the debt.
You say you have assets? Don’t count on the lender forgiving the debt. They can’t, per se, “go after” the 10K, but they CAN make the short sale subject to you paying them back 10K, in monthly installments.
On your credit report, it will likely show something like this:
“short payoff”
or
“account settled for less than amount owed”
and then if you were late on your mortgage payment, those lates would show up.
Good luck, and check back with us to let us know how it all turned out!
Jillayne… thanks so much for the reply. I’ll let you know how it turns out!
Chris,
In a time where lenders are sometimes selling short 60 cents on the dollar, I wouldn’t sweat it too much. See if the note has an “exculpatory clause” which when excercised means the lender waives the right to go after the portion of the deficient debt. If they want you to sign something that says you have to pay the deficiency of 10K, I’d tell them where they can stick it. They are going to have to fork over plenty in attorney fees to get it. Their other option is foreclosure, which if you read my other post, they are loath to do.
The above poster is right re: the credit report. It is a MUCH better option than having a foreclosure on it.
Without knowing the details of your sale, of course, I’m under the impression that the negotiator for the buyer or lister isn’t playing hard enough. Good Luck.
I want advice on my condo that was almost a short-sale to an investor, but he backed out at last minute. The bank was about to accept the offer at $42,500 short of what I owed. Now I am wondering if I should see if the bank will let me refinance at the $69,500 that they were willing to accept from the investor? That way I could keep it and not go through foreclosure…any thoughts? Is it too far from reality to even bother with? comments are appreciated.
Chris again. Does passing of this act (see URL below) mean I won’t have to pay taxes on the 1099 I receive from my lender?
http://www.earthtimes.org/articles/show/news_press_release,192625.shtml
Hi Shauna,
Did you have an agreement, in writing, from the lender, stating that they were going to “forgive” the $42,500?
I am guessing “probably not.” Banks just don’t arbitrarily decide to forgive the short fall. Most homeowners are asked to pay that back in regular monthly installments as part of a new unsecured note.
Banks can’t just start to write off, or “forgive” everybody’s shortfall because that would have a dramatic effect on a bank’s financial stability.
Likewise, a bank then would not just decide to allow homeowners the ability to “knock several thousand” off the existing debt in order to refi.
Your question about reality is a good question: This is not living in reality.
Look at it from your perspective: If you loaned someone $69,500. would you be willing to knock off $27,000 and take that as a loss?
No. None of us would: we would all want our $27,000 back. A bank owes duties to its shareholders to maximize profits, and, in this case, to minize the amount of the loss.
Hi Chris,
Thanks for stopping by again.
A: that law has not entirely passed the house and the senate. I think it’s just made it past the house. Watch the news out of Wash D.C. closely for any updates. There might be some time deadlines that may or may not make you an eligible homeowner.
Have you already received written confirmation that your lender will “forgive” the shortfall?
“Look at it from your perspective: If you loaned someone $69,500. would you be willing to knock off $27,000 and take that as a loss?
No. None of us would: we would all want our $27,000 back. A bank owes duties to its shareholders to maximize profits, and, in this case, to minize the amount of the loss.”
I would ‘want’ my $27k back, but would be open to forgiving it depending on the scenario. If the debtor had missed several payments and the outlook for catching up looked bleak, I would definitely be open to ‘settling’ sooner for a $27k loss rather than wait and hope for ‘later’ for them to catch up, the market to rise, etc.
If I were the lender (personally, not as a bank) and the option instead of settling included going through lenghty foreclosure efforts, dragging the time frame out, and hoping to sell closer to what was owed, I would look very seriously at opting for the forgiving of the $27k (if the borrower was killing any deal related to signing a new note).
If that were the only way to get it done, I’d consider it. Face it, if the client couldn’t pay a secured note of ~90k, why would anyone realistically expect them to pay on an unsecured note of $27k? That would just be more paperwork for the bank to keep up with and come over a couple of months later when the client doesn’t pay those payments after the short sale is completed.
Hi John,
Banks have a duty to their shareholders to maximize profits (within the bounds of the law) and a duty to their regulators to make sound business decisions.
If banks decided to just suddenly forgive everyone’s debt, then why would any of us pay on the contracts we sign?
Why pay our credit card bills to the banks? Why make our mortgage payment….if our neighbor is able to walk away from 27K (AND not have to pay taxes on it) then why shouldn’t we?
Granted not everyone is going to approach things from this perspective, but I’m trying to help Shauna see that a bank has to try and minimize loss/maximize profit. They areduty-bound to do so.
Sure, every now and then there will be a situation that is so dire that a bank may opt to forgive the shortfall, but homeowners ought not move forward with a false belief that ALL banks will ALWAYS forgive everyone’s shortfall.
Trust me when I tell you that short sales are always better than foreclosure! I have a client where I short sold their home in July of 2007. It was almost a $100,000 loss for the lender on a $250,000 house. It’s now October, and I have the same client looking for a new home. They have been just approved for an FHA mortgage.
I’m not sure what the exact credit damage a short sale does to your credit standing, but it can’t be that bad. I do about 10-15 short sales per month and that is only increasing daily. It is a way for people to get a fresh start and work out the issues with their home.
The issue is NOT that the people that need a short sale are irresponsible. They simply got caught in a market where lenders where making it way to easy to obtain money for any home at any price. With the ARM mortgages that is. Now that the market is correcting itself and ARM mortgages are swinging to ridiculous intrest rates and payments, what options do these folks have?
With guideline changes on mortgages these folks can’t refinance becuase they have no equity. Yes, they made the choice to purchase this home, but have now become a victim of the market.
The tax issue is being addressed in congress now. They plan to NOT give the debt forgiveness 1099 anymore. And for good reason. If you read the IRS page, it’s clear that if the person is insolvent (assets no longer exceed their liabilities), the tax on debt forgiveness goes away anyway. I ask, who out there short selling their home is not insolvent?
I’ve been doing this a long time and yes, there are always people that abuse the system, but what is happening in 2007 is mostly good people in bad situations. Hold on folks, 2008 will be real estate anarchy!
Just wanted to clarify a few of my points….
—————
Banks have a duty to their shareholders to maximize profits (within the bounds of the law) and a duty to their regulators to make sound business decisions.
—————
Jillayne, I totally agree.
—————
If banks decided to just suddenly forgive everyone’s debt, then why would any of us pay on the contracts we sign?
—————
I never suggested that banks should “suddenly decide to forgive everyone’s debt”. I don’t think anyone here thinks that should be done, nor is it the expectation of someone in a short sale situation to assume that would be the bank’s reaction.
—————
Why pay our credit card bills to the banks? Why make our mortgage payment….if our neighbor is able to walk away from 27K (AND not have to pay taxes on it) then why shouldn’t we?
—————
That’s adding quite a bit of leeway to my example, but, I should also clarify… I certainly think that everyone should pay their debts as agreed. However, IF a borrower had gotten themselves into a situation of several recent missed payments on a property that was upside down and they were in a short sale situation, my belief is that in their situation, they probably wouldn’t be the best candidate for the bank to expect FUTURE payments on a loan after a potential short sale is negotiated and closed.
—————
Granted not everyone is going to approach things from this perspective, but I’m trying to help Shauna see that a bank has to try and minimize loss/maximize profit. They areduty-bound to do so.
—————
I’m definitely not arguing that point – I agree with you and I’d venture to say most of the readers here (hopefully) understand that as well. The bank isn’t going to arbitrarily get every short sale transaction request and stamp “approved/forgiven” and go on with their day. It would only be after careful examining of the entire file and crunching the numbers both ways of foreclosure vs. short-sale, and then 1099 / debt forgiveness vs. signed note at closing (or a hybrid, partially forgiving the short amount and having a note for the difference).
—————
Sure, every now and then there will be a situation that is so dire that a bank may opt to forgive the shortfall, but homeowners ought not move forward with a false belief that ALL banks will ALWAYS forgive everyone’s shortfall.
—————
Couldn’t agree more, you are right – especially with many websites touting short sales as an automatic ‘wipe the slate clean’ type of catch-all answer consumers may be (incorrectly) thinking that no matter what their situation is, they can just do a short sale and solve everything. That, as you mention, is certainly not the case and hopefully the consumer will realize that early enough in the process not to have false beliefs about the outcome.
Hi John,
Thanks for stopping by again. All these foreclosures nationwide make me wonder about our national banking system.
What happens when banks end up losing so much money on foreclosures that they have to take a loss on their quarterly earnings, and then eventually lower the dividend paid out to shareholders?
I think, although I am the first to admit that I am not an expert in such matters, that banks may end up putting themselves in a position to not forgive short sale debt but instead, they’ll be faced with having to justify to their regulators that they are TRYING to collect the shortfall.
Just a hunch..What do you think?
I see where you are going with that, and it is an interesting thought.
Much of this debt was wrapped up into mortgage backed securities sold to investors on the secondary market (many times at top shelf ratings, even if it was a bundle of subprime loans) or was insured by PMI companies.
I think that for banks, it will just come down to the numbers, they really shouldn’t have to justify to regulators about trying to collect, they just show that the decision they made on that particular file resulted in less net loss than the choice they didn’t go with.
That’s a really over-simplified answer to a very complicated question though. Several banks have already passed on ‘one time’ chargeoff losses to shareholders this quarter and last, and I think we’ll see more of that over the next few earnings periods.
Jillayne –
We have discussed several times in the past, information on 1099’s and how they affect a homeowner who has to sell his/her home in a short sale.
I hope you find this post relevant. Feel free to repost any or all info you find relevant.
Ralph
oops… the link is in my name above, or here http://activerain.com/blogsview/248686/HELP-My-lender-is
I was approached by a reader who notified me of an anonymous podcast made by a Realtor who goes by the name Agent 23 regarding a short sale case study in, I’m guessing by what I heard, the state of California. It’s 70 minutes long, and avail in 4 parts. It is interesting to hear Agent 23’s perspective on short sales that he’s seen go through/fall apart.
The downside is that Agent 23 demanded anonymity so his voice is disorted on the podcast.
http://www.anonrecordings.com/
The most interesting part for me was to hear what the homeowner faced once the notice of trustees sale was filed and the pending foreclosure became a matter of public record. People were knocking on the homeowner’s door offering all kinds of creative, yet not entirely legal solutions, and some of them were licensed real estate agents.
As a real estate attorney in Miami Florida, I have been handling a lot of short sales lately. They take time, but seem to be the best solution for the owners. The lenders all seem to be on board, but it does take time.
How longer than a normal sale do short sales usually take?
One I am currently working on was four weeks in, and seemed to be near approval. Then one day they said because of the number of days delinquent, the file would be transferred to the pre-foreclosure negotiation department, which means starting over. It has been a week, and we are still waiting for a new negotiator to be assigned, which could be weeks, considering the holidays. We will likely have to do new BPOs and the buyer’s rate lock will run out. On the positive side, dealing with another short sale customer, when requesting a loan modification of some sort, the lender strongly suggested that they would prefer a short sale. My take from such comments is that lenders are looking to “right their ships” in the eyes of shareholders and Wall Street, which means accurately accounting for all loans, losses and all money in the bank. They don’t seem to want the loan modifications, which often will be right back in foreclosure in six months or a year, which equals financial unstability for the lender. Does anybody experienced with Wall Street and the lending markets have any comments?
http://www.southptc.com/
Hi Bill,
I have heard anywhere from a few weeks (if the home is near the foreclosure date and the seller is on the ball and has all the required paperwork in to the lender) to six months, if the real estate agents do not know what they’re doing.
If you are a home buyer, find out from your Realtor how much the other Realtor knows about short sales. If the seller’s Realtor does not know very much about how to proceed, add several months to your expectations of closing.
Sometimes the buyer’s real estate agent is knowledgeable and picks up the slack, which is great, but it means the buyer’s agent is going to have to do a WHOLE lot more work.
If neither agent knows much about what to do, I would add several more months on to your closing expectations.
If you are a home seller, interview at least three real estate agents. You are looking for a real estate agent that has successfully closed more than a handful of short sales. There is usually at least one or more real estate agents in each market area that are known as the short sale “go to” person because of their expertise.
One way to find this person is to call local escrow companies in your city ( I would start with the escrow companies attached to a national title insurance company ) and ask the escrow closing manager or a senior-level closer for the best short sale Realtor in your town. She will know the answer.
Good luck!
Thanks for the replies. I’m a buyer who unexpectedly found myself in the short sale situation. Two weeks before closing we found that the seller could not cover their part of the agreed sale. Their attorney has now requested a short sale from their lender and we are waiting.
I get the impression that the overall time depends a lot on how efficient the lender is at dealing with the request. Hopefully the process won’t take too long to resolve.
Hi Bill,
That’s too bad. This fact would have been known about when the seller accepted your offer….unless there was some sort of pre-payment penalty on the loan that the seller was unaware of, or some other large payoff or cost that the seller didn’t know about at the time.
This is one of those situations where it is in everyone’s best interest to waive the prepay. Hopefully the attorney for the seller can negotiate this away.
Figure out how long you’re willing to wait.
This has less to do with the lender’s efficiency and more to do with the Realtor’s ability (the realtor for the seller) to move everything along quickly. Just “waiting for the lender to respond” is not what a home buyer wants to hear. You should be updated regularly from the seller’s Realtor as to what’s happening daily in order to make this transation go through.
If not, then ask YOUR Realtor how long you should wait before you decide to purchase a different house. If the Realtor for the seller realizes that you’re going to go away by a certain date, this magically makes the seller’s Realtor work harder (unfortunately.)
Today, Realtors are hungry in many markets due to the slowdown of sales. Both Realtors ought to be working very hard to make this transaction come together.
Remember to get the answer to this question: How much experience does the Realtor for the selller have in successfully completing short sale transactions?
If the answer is “not much” or “none” add months on to your closing expectations. If this is not acceptable to you, ask yourself if you could fall in love with a different house.
For legal questions regarding earnest money, if you decide to fall in love with a different house, consult a real estate attorney licensed to practice in your state.
The key info here is when did the seller know about the short sale and when was that disclosed to you.
I am Realtor working on a short sale now. The client owes $283,000 and we are going to try to sell at 240,000. Of course the bank is being very hard to deal with. My client can afford the payment if the bank will modify the loan to a fixed rate on the payments they are now making, but the bank (Countrywide) says no. It makes no sense to me that they have a homeowner that [pays their payments every month on time, and now because the payment is adjusting and values are gone down they will not work with the client and instead will make it hard to short sale but is willing to foreclose. Makes no sense to me if the client can make the present payment but not the new payment that wil be $800 more per month. Any suggestions??
Hi Gene,
Absolutely. Find an FHA-approved lender in your city. Start with local bank branches that have a local mortgage division. Find a local loan officer with that bank that has experience originating FHA loans.
Your client should inquire about the FHA Secure loan. Here is the FHA website:
http://www.fha.gov/
Realize that your client is going to have to qualify to repay the loan. This means full documentation of income.
Without knowing all the details, it’s hard to say why Countrywide isn’t offering this product to your client (since they are an FHA approved lender.) Maybe it’s because your client has been dealing with the servicing side of Countrywide?
Instead of trying to modify the existing loan, I would encourage the homeowners to look for options to refi into a fixed rate product, especially if they do not want to sell the home. Countrywide has been sending out press releases saying that they’re trying to find people just like your client to help them refi into a fixed rate loan.
Remember, the homeowners will have to qualify to repay the new fixed rate loan and their payment will likely be higher because the loan is going to be amortizing.
If they already know that they are not able to repay a fixed rate, amortized loan at their present income level, then could they rent the home out and would the rent cover the adjusted payment?
If so, then they could rent a place at a monthly rate that would match what they could afford.
No lender is going to just freeze the monthly payment at the initial teaser rate indefinitely. Doing so would only be temporary and it may not be in the homeowner’s (or the bank’s) best interest to postpone the inevitable.
Hi Jillayne,
I am currently in a Chapter 13 bankruptcy. I have been renting my home to my brother since June 2007. I have been having a hard time with the Chapter 13 payments, so want to transfer to a Chapter 7. The catch is, my brother wants to purchase the home from me. I called the bank today and was told that my payoff balance is $130,000. I paid $122,500 three years ago. This payoff balance includes my arrears. I don’t think my brother will want to finance $130,000 for the house, and I don’t feel good that part of what he’ll have to finance is my arrearages. I asked the bankruptcy department at the bank if they would approve a short sale. They said they would not approve a short sale for a relative. I explained that it is my stepbrother and no blood relation. They said they couldn’t do it. I thought the banks would be open to receiving something rather than having to foreclose..? Just looking for your thoughts on this.
Thank you!
Damien
Hi Damien,
Yes, it does seem odd that the banks would not approve your scenario. They are under regulatory guidelines that point lending institutions to approve sales to a neutral third party.
Even though he’s your step brother, he is still considered a family member.
In many cases, when there is a business transaction taking place, depending on the professional involved, the professional is not allowed to have a dual relationship with the client. For example, a doctor is not allowed to operate on a friend or family member. The reason being, there is a high degree of emotion involved.
Since we’re thinking, feeling, humans, it is more difficult to make rational decisions when we have a personal relationship with the other person involved.
So then, getting back to your scenario, the bank’s liability increases when friends and family step up to help a friend/relative.
Let’s look at some other options. If your brother is willing to buy the home, then maybe that means there are other buyers out there who are also willing to buy the home.
Your brother wouldn’t be financing your arrears if he purchased the home and neither would a new buyer. Instead, you would sign a new, unsecured note for the shorted amount, and you would pay back the bank the shorted amount in regular monthly payments.
I have been trying to sell my property for 6 months with no luck and,in order to sell now,I would wind up in a short situation.The only offer I have recieved is for a 2 year lease-option which will is almost enough to avoid a short sale assuming they purchase after 2 years. The risk of course is that they may not buy in two years (although they would loose 10k deposit) and that they market will be much worse than it is now. Any advise?
Hi Steph,
Yes.
Hire an attorney to give you legal counsel on the lease option.
Find a HUD-approved housing counselor located in your city that offers “Default Counseling” so you can learn about all your possible options.
Go to your trusted tax adviser to get tax advice on the tax ramifications of all your options.
Question: if you don’t have to sell, then why lease-option it at all? Why not just rent it for enough to cover the mortgage payment
Jillayne,
Thanks for all the info. Unforunately rent will not even come close to the mortgage payment, however the lease option generates slightly more per month, and although is still under our mortgage payments, is doable from a financial standpoint. However it will still be very tight for 2 years. It is tempting to just want to get out of this whole mess but it seems like shorting it now also brings a lot of pain. We are defintely stuck between a rock and a hard place but we feel that if we do lease option that we are at least trying our best to avoid a short sale. But again the problem arises if the leasee does not purchase the property after 2 years – will we be completely stuck?
See, that’s why you need legal counsel NOW, before you go forward with the lease purchase. It’s important to have an attorney that practices in the county/state in which you live, help you fully understand all the possible consequences if you are not able to make your mortgage payment. You’ve already said that even with the lease purchase, things are going to be tight, so what’s the plan if something happens financially beyond your control? An attorney will be able to help you understand what’s in that lease purchase contract, and what will happen if the purchaser decides not to purchase the home.
Steph, HopeNow has counselors that may be able to help provide you with advice: http://www.hopenow.com
Jilliayne is 100% correct. You really do need to have an attorney review the lease. Even in perfect circumstances with your finances, 2 years is a long time to be in contract with someone.
This is the greatest time to be a buyer/investor. Short sales have never been more favorable and the banks have never been in a more desperate position to negotiate!
We just closed on a short sale for a client, and the lender actually required that the contract price be lowered to match the fair market value as determined by the two BPOs conducted by the lender. This knocked another $12K off the purchase price, which was great for the buyer. It remains to be seen if the Seller ends up with negative tax consequences.
So is the seller still liable for taxable income of the amount of the short sale the bank shorts?
Or has that been done away with?
Hi Utah Short Seller,
Congress is trying to get an exemption passed in Wa DC but at this time, we do not have a fully signed piece of legislation from the house and the senate. We’ll all have to stay tuned.
In general, if the lender is forgiving the shortfall, this is considered a taxable event by the IRS, with some exceptions for people who are financially insolvent. For tax advice, please consult with your favorite tax professional: an LLM tax attorney or a CPA.
HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007,
By Matt Carter
Inman News
“President Bush signed into law Thursday a bill creating a temporary tax break for homeowners who are able to persuade lenders to forgive part of their debt, and extends a tax deduction for some families with private mortgage insurance.
For the next three years, the IRS won’t count as income debt forgiven by lenders when troubled borrowers negotiate short sales or workouts on their primary residence that involve forgiveness of part of their debt….”
I’ve just signed an offer with a listing agent of a new construction in Snohomish county, Washington, the agent told me it’s subject to lender approval which means this is a short sale. There are liens on the property now so the previous title company is not willing to handle the closing. The only title company which is willing to handle it is Ticor. I’d like to ask help from whoever had experience on short sale: Will I be guaranteed to get a clear title free of encumbrance and liens at closing? Why does the closing company mind if it’s a short sale or not?
Hi lucy,
Oh boy.
Maybe you meant “title company” when you asked, “Why does the closing company mind if it’s a short sale or not?”
Sometimes title and escrow (closing) are done at the same company, but not all the time.
The title company minds because if a builder is not paying his or her subcontractors, then the subcontractors (like the drywall contractors, the carpet and tile layers, the painters, and so forth) have a certain number of days after the work has been completed, to file a lien against the home.
A title company can make a decision to refuse to insure a builder’s title insurance policies if they are seeing evidence (within the public records system) that a builder is accruing a record of NOT paying the subcontractors.
See, the title company insures clear title to the home, so that your new mortgage lender can be in “first lien position.”
If there’s a subcontractor’s lien that’s recorded and dated BEFORE your new deed of trust (your new mortgage) then the title company would have to open up their checkbook and cut a check to the subcontractors.
A title company can then make the decision NOT to insure that builder in the future.
If your transaction closes, and your builder transfers title using a warranty deed, then all liens are paid prior to closing (and if not, the the title company is stuck with the bill.) Be sure to check your preliminary title report for other items that will show in the public records such as easements and so forth. If you need help understanding your preliminary title report, there will be a title officer’s name on the preliminary title report. Call him or her, or make an appointment to see your title officer in person and have the T.O. review the report with you. From there, if you STILL need help understanding the title transfer process and lien positions, attorneys are not as expensive as you might think. Hire a competent real estate attorney in Snohomish County for an hour or two. I can give you a referral to a few that come to mind.
Feel free to check back with us and keep us posted as to how your short sale goes.
Jillayne,
Thanks for the answer. I’ll keep you posted.
I’ve check the public record which shows an easement and 5 liens right now. 1 from a glass company. 2 of them were from electric company recorded on Oct. and Nov.. I guess the builder didn’t pay electricity bills. I understand based on your explanation that these liens will be wiped out from the title policy by the time of closing since I’m getting a warranty deed.
I have one concern: who will be liable for the liens recorded and dated AFTER the deed of trust? Such as the property tax for 2007, additional items requested on the offer(like fence, garage opener)?
Lucy, it’s been years since I’ve done lien work on property, so my recollection is rather bad. Also, they have changed the law since I did that type of work to provide additional protection to consumers. But as I recall, they have something like either 60 or 90 days from the time the house is completed to file a lien. So once you’re that far out (if you know), you should at least have a defense to a lien (that’s not to say one couldn’t be filed).
Also, be sure to check the standard exclusions of the title commitment. Chances are it contains an exclusion for liens not of record yet. That means if say a lien creditor does still have a right to file a lien, that your remedy will be against your seller under the warranty deed, not the title company. And if they’re insolvent, or financially in trouble, paying you might not be the highest thing on their priority list. (And BTW, I’m not sure the mortgagee’s policy would contain the same exclusion, but I would guess it does.)
I don’t know of any reason why real estate taxes wouldn’t be pro rated in a short sale, just like a normal sale.
So basically the answer to your question is you only need to worry about subsequently filed items if they related back, like materialman’s lien claims can.
Hi Lucy,
“I understand based on your explanation that these liens will be wiped out from the title policy by the time of closing since I’m getting a warranty deed.”
Not quite. “Wiped out” would not be the words I would use. Since these are current liens showing on the preliminary title, that means they will have to be PAID OFF prior to closing.
Since it sounds like your builder owes more to various lenders and lien holders than the purchase price, this means that the lenders and lien holders will have to agree to ACCEPT LESS than the amount owed in order for your builder to use a warranty deed to transfer title to you.
The job of negotiating lower payoffs generally falls on the shoulders of the listing agent (the real estate agent for the builder.) However, sometimes this real estate agent is not experienced in doing this and then the real estate agent for the buyer ends up picking up the slack.
AFTER the close of escrow, after title has been transferred to you, if there are any workman’s liens filed between the time the work was completed and the time your new deed of trust was recorded, the title company will generally have to pay the subcontractor lien in order to be able to ship a clear title policy to the lender. There’s a time deadline here. I don’t remember the exact number of days; an attorney will know.
It sounds like only Ticor is willing to do this. That means Ticor probably has an signed agreement on file with this builder that says something like this: “If we (title company) have to pay any of your (builder) subcontractor liens, you (builder) will agree to pay us back.”
At this point, I recommend the following:
1) Find out from your real estate agent how much the agent for builder knows about negotiating short sales. How much experience does this agent have? If the answer is negative, then you’ll need to find out how hard YOUR agent is willing to work, for the commission your agent is earning, to pick up the slack.
If neither agent knows what to do, you ought to be ready to wait a LONG TIME for your transaction to close; many months would be my guess, if both agents have to “learn” what to do during YOUR transaction.
2) Find a real estate attorney that is located in Snohomish County and have that real estate attorney be on retainer for you, at an hourly rate, so you can talk with your attorney on the phone or drive to his/her office when you need help understanding all the legal documents. Do not rely on a real estate blog or me, for legal advice.
3) Get to know the name of the escrow closer who will be handling the closing of your sale. Often, escrow closers are very familiar with short sales and can explain how things will proceed from their vantage point. Look for an escrow closer with the initials LPO after her name. This means your closer has lots of experience and holds a higher educational designation than some of her peers. Your LPO closer cannot help you negotiate the short sale payoffs or give you legal advice but she can help you understand the process. She will also help you understand how property taxes are pro-rated at the close of escrow. (I use the pronoun “she” because most all escrow closers are women, but not always.)
Jillayne wrote: “If neither agent knows what to do, you ought to be ready to wait a LONG TIME for your transaction to close; many months would be my guess, if both agents have to “learn
BTW, I’d add that I often found title companies would pay for things they didn’t have to (and refuse to pay for things they should). So it’s possible the attorney you see might give you a wishy-washy answer. But the one thing they should be able to tell you with certainty is the time limit for filing a lien, so if you’ve been familiar with the house for a few weeks, you might know when the risk of a proper new lien being filed would pass.
Historically the big monster has been “Mechanics Liens” which may not show at time of closing given the timeframe a sub-contractor has to file after the work is completed.
New construction and recently remodeled homes would have this problem more than an old house with no recent repairs.
I don’t know the laws here, but that is the big red flag in most cases. A contractor gets to put a lien on the property where he worked, whether or not the owner is the same at the time of the lien vs. the time the work was done. Check that the timeframe for all mechanics liens has expired.
The deadline to record a lien is 90 days. Original est. comp. date of the house was June. The listing date of the house is Oct on the report. So even if all the work were done on Oct then and all mechanics liens must be recorded before Jan. In that case, time is on my side because 1. up till now, the offer is not approved by the lender yet. 2. Jan 30 is the closing date.
I have the name of escrow in case I need information. I’ll check the standard exclusions of the title commitment. Worst case is against the builder.
I don’t know how much experience of short sale the listing agent has. What I know so far is that she has been in this business for more than 20 years. She also told me Ticor is going to spend extra money to handle the liens and the builder has to pay more to Ticor which is just as the scenario Jillayne described.
Good work, Lucy.
20 years in the business could mean many things. Has this agent been working part time for 20 years selling on or two homes a year? Has this agent done only new construction for 20 years and no short sales? Find out from your agent how many short sales the listing agent has successfully completed.
Now how’s it going with your search for an attorney? There are two real estate attorneys who blog here on raincityguide. Their pictures are up there on the sidebar. They’re both good. Michael Hagen’s office is on Everett Mall Way, he also has a good reputation.
These short sales are beginning to pile up I think the banks will be more flexible in the future.
Jillayne,
Thanks for the recommandation on attorneys. I will consider contact one only after the bank accept the offer. Now it’s not looking good as I was told by the listing agent since there’re many liens on the house. She has been a full time agent for 20 years and had experience on representing both seller and buyer in short sale.
My short sale has been approved by the bank. The bank state in my contract that seller achnowegdes that banks mortgage involvement is in accepting an amount less than the full amount due and in releasing its lien on the property upon receipt of the agreed upon net proceeds of the sale. Seller is hereby advised that in accordance with the IRS regulations, bank will report a 1099c cancellation of indebteness and will report this account to the credit bureau with special comment code AU.
Is the bank releasing me from any future debt? Can the bank go after future income or assets? What does AU stand for? how much might AU that affect my credit? When would AU be removed from my credit, 3,7 or 10 years? Any other concerns or thoughts.
Thank you
Hi Aaron,
Comment Code “AU” means, “account settled for less than amount owed.” This will stay on your credit report for at least 7 years. This is far less damaging for your credit than a foreclosure or a bankruptcy.
The only way to know if the bank is fully releasing you from further debt is if you take your paperwork to an attorney, licensed to practice law in your state. If you are financially insolvent and cannot afford an attorney (most short sale homeowners are) then contact your local state bar association and apply for free legal aid.
Also, see a tax person such as a CPA or a LLM tax attorney for advice on the 1099. I believe that our government is getting ready to pass a law that would reduce your tax bill in certain cases. Again, see a tax preparer for tax advice.
Thank you,
Have a happy new year.
Jillayne, free legal programs through the bar are usually income dependent, so most homeowners wouldn’t qualify (absent a change in circumstances that affected their income).
Interesting…what about a homeowner who’s overmortgaged, financially insolvent, and meets income guidelines?
Hi Jillayne,
I am a buyer in the midst of (hopefully) buying a short sale property. In this case, there are two mortgages similar to what you have shown in your example in the original article. This process has taken FOREVER (i.e. about 4 months) and about 2 weeks ago, the first bank accepted our Offer to Purchase and we are now waiting on the second bank to respond. The first bank is now getting impatient and is now saying that if the second bank does not accept our offer within a week, they will move forward with foreclosing on the property and we will lose out on being able to buy the property. My question is, what actually happens to the amount owed on the second mortgage if foreclosure occurs? Do they get anything at all? Are the sellers then responsible for it in some way?
Any clarification you can lend would be appreciated. Thanks!
Usually before the foreclsoure actually happens, the 1st “moving forward” increases the payoff for the first, and adds attorney costs. So even if the 2nd approves the payoff before the first forecloses, the amount the 2nd is approving is getting lower, while they are deciding whether or not to approve the higher number in their hands.
Hi Matt,
Your situation is more common than not. The first mortgage holder wants: 1) their monthly payment, or; 2) they want the house back so they can try to recoup their losses, or; 3) in the event of a short sale, they will want the seller to pay them back.
They DON’T want to wait any longer than necessary to get things moving. Banks are required to take action in order to minimize potential losses. There’s nothing wrong with the bank moving forward with the foreclosure process if the second lien holder isn’t acting. If you were the bank, you’d do the same thing.
The answer to the question “what actually happens to the amount owed on the second mortgage if foreclosure occurs” is a complex question and would depend on many factors starting with the state the property is located in, the type of foreclosure, the type of first mortgage, and so forth.
The people (probably the Realtors) who negotiated the short sale approval with the first mortgage holder should also be actively working to negotiate a short payoff with the second mortgage holders.
The “within a week” time deadline is a way for the first mortgage holder to find out if there’s a chance at all that this short sale is going to go through, or not, because the second mortgage holder must also agree to release their lien and allow title to transfer to you. They would need to do the same thing the first is doing: agree to release their lien for less than the amount owed.
Yes, the sellers are always asked to pay back the money that was shorted to the first and in your case, the second mortgage holders.
Jillayne, if you’re assuming the property might not be in Washington, then you have to account for California’s odd rules. I don’t recall them precisely, but if I recall correctly, your original (purchase money) mortgages are basically non-recourse, but if you refinance they’d be recourse. I don’t know if that means the bank couldn’t request new debt in order to agree to a short sale, but it would make it less likely the owner would want to agree to that debt.
To answer Matt’s questions, assuming the property is in Washington, the second wouldn’t get anything unless the property sold at foreclosure for enough to pay off the first in full. And typically the owner would continue to owe the money on the second if the first foreclosed, but there can be exceptions to that. But chances are it’s greatly in the interest of the owner for the sale to you to go through.
I totally understand where the bank is coming from as far as wanting to move quickly, although it is a bit annoying that they took their time before and now want to hurry up. So let’s say that the house does go in to foreclosure with the first mortgage holder. I assume the property is then classified as “bank owned
Hi Matt,
Assuming the first mortgage holder is foreclosing, the bank in first lien position would become the new owner….provided somebody else doesn’t bid for it at the trustee’s sale/public auction. You could try to become the high bidder at the auction, however, you would need cash on hand to do this, and I recommend that you hire an attorney to help you if you’ve never attempted to do this before. Property is sold “as is.”
If there are many bidders at the auction and the opening bid, established by the first mortgage holder, gets pushed up higher and higher, the excess money would go to pay off the other liens like the second mortgage you refer to.
If you’re not high bidder or you chose not to bid at the auction, you could approach the new owner or the bank’s REO (real estate owned) department and make an offer.
Many people say that this is LESS of a headache than working through a short sale.
HOWEVER, this statement only holds true when the real estate agents involved have no idea what they’re doing. When a “short sale competent” agent is manning the helm, the process can be much easier and faster.
In order to make a good decision, you’ll need to figure out how motivated the seller is to paying back what is owed (the shortfall.) If the seller refuses to do this, you’ll need to find out what the second mortgage holder is going to do. The real estate agent for the seller should be on top of all this for you.
Thanks Jillayne. My real estate agent seems to be pretty competent in short sales, however the seller’s agent is not. To add to this, the seller does not seem to be motivated in preventing the property from going into foreclosure. Due to this, it is likely that we will lose the short sale to foreclosure. I just wanted to see what our options were after that. Thanks again for your help.
“the seller does not seem to be motivated in preventing the property from going into foreclosure.”
Seller motivation to do whatever it takes to help the short sale go through and avoid foreclosure is crucial. Many short sale sellers, when they hear that they will be asked to pay back the shortfall, end up deciding to let it go into foreclosure.
Make sure you talk to YOUR real estate agent. Sometimes the buyer’s agent is willing to pick up the slack when the seller’s agent is not performing. Reason being, your agent will earn a commission if the short sale goes through. Unless there’s some written agreement with you stating otherwise, your agent will likely earn nothing if you buy it at the foreclosure auction.
Remember to find a real estate attorney to help you sort through all these new facts if you decide to pursue the home as it forecloses.
Tanta at CalculatedRisk posted a good article today on short sales. What I’d like to pass on to short sale sellers and buyers is how Tanta’s article illustrates the excruciatingly important need for the seller to select a real estate agent with experience successfully completing short sales. I would select an agent with no less than 5 successfully completed short sales under his or her belt, and I would ask for personal references on those five transactions. If the agent does not want to provide that homeowner’s contact info, ask the agent to have the former client call you. This CAN be done.
This is your home, it is a huge decision, and I recommend you take great care in selecting the Realtor this time. Devote triple the time you allocated to chosing a Realtor when you purchased the home.
http://calculatedrisk.blogspot.com/2008/01/phone-hustlers-dislike-short-sale.html
My short sale did not go through because the builder could not accept so much short. The listing agent said it’s going to foreclosure in 2 month. If no body bid, it will go back to market again as REO. I recently found another new construction for sale. I feel the build is also in similar situation. I have an idea to avoid risk of getting all liens on the title after closing: I would ask the builder to have enough money (ex. $100k) in escrow at closing for 90 days, he will get the balance after paying off all the liens recorded during that 90 days. Do you think it’s a good idea?
Hi Lucy, Do you mean mechanics liens? I would wonder if the builder actually has that kind of money to put into escrow for 90 days. I would guess not.
When a builder transfers title to you using a warranty deed, all liens must be cleared from title prior to closing.
Ask your real estate agent to obtain a copy of the preliminary title report on the new construction home. BE SURE to look at the DATE on the preliminary title report. If it was completed a while ago, call the title company phone number shown on the report and ask for the title officer or his/her assistant. Their names will be right on the report. Ask for an UPDATED preliminary title report.
Jillayne,
You’re probably right about builder not willing to put money for 90 days. I am just trying to find a way to minimize the risk of buying homes from builder in uncertain financial situation.
The new home is completed on Jan. The preliminary title report Date is July last year. I’ll definitely ask for an updated one. Thanks
Hi Jillayne,
Your posting is very informative and it’s great that you’ve been responding to people’s inquiries for so long. I would like your opinion on my situation as I have been attempting to gather info in order to make an informed decision. I’ll explain and maybe you can give me some insight because, to me, a short sale seems the best route, however I’m not positive that we’ll even be able to qualify to do so. My boyfriend and I had a house built in Port St Lucie, FL (ready june of 07′) and have recently put it for sale though we have no hope of its being sold. Buying this house was a huge mistake as it is a 1:15min commute to work and 45min even further to school. Though we ARE able to afford it, it has taken such a toll on us to live at such a distance from everything we know and has made us miserable. We just broke up. It is so unbelievably impossible to live in this house and continue to commute and now we aren’t even together. We’ve had the house for sale for about a month now although we have absolutely no hope for it selling for what it’s worth (250,000). Here’s the problem, we have no financial distress to prove…we have a minute amount saved, but we are staying on top of everything and defaulting on our loan is not a worry…just our sanity. So what can we do? How do you get out of a house like this? We have a fixed FHA loan and have paid it down to the lower end of 248,000. If I could, I would just hand off the loan to someone and just walk away. Do you know anything that we can do? Also, I’m absolutely crazy about my perfect credit and don’t want to do anything to hurt it…I would obviously prefer a method that is least volatile in that respect.
One idea that we mentioned (who knows if it’s valid because we literally know nothing)…is there anyway to transfer the loan to his name and THEN be able to say there’s only one income as opposed to the two from before and maybe more easily obtain a short sale. I would REALLY appreciate some guidance.
We’re so lost right now and don’t know what we can do…
THANKS SO MUCH FOR TAKING THE TIME TO READ THIS.
Hi Stacy,
You and your boyfriend have both signed the deed of trust, correct? If so, then just transferring title from two people into just one of you means that the person who transferred title would have no interest in the real property
BUT this does not relinquish that person from obligation to pay the deed of trust and note: You’re both still liable to pay the mortgage.
If you cannot prove financial distress, then you don’t have a short sale, you have a “seller brings cash in at closing” transaction. You both would bring in the amount necessary to completely pay off the lender as well as your closing costs. This saves your credit rating, and the lender is hoping that you will do this.
So with the loss of your relationship along with the loss of the home, you are facing two very highly emotional situations. This is an excellent time for you to hire an ATTORNEY for YOU, not for you and your boyfriend, but an attorney that can help line out all your options. Realtors cannot practice law. They are motivated to help you SELL because that’s how they earn their commission. Most all Realtors are not trained in helping to counsel a short-selling homeowner on all their available options.
For example, if neither of you can afford the payment on your own, have you considered moving out and finding tenants?
If one of you would like to keep the home, maybe that person would prefer to take on a renter to help make the payment. In this case, you would want your boyfriend (for example, if it wereh him,) to obtain a brand new mortgage qualifying on his own, and paying off the existing FHA loan.
Defaulting on an FHA loan has consequences beyond just a reduced credit rating. Find a real estate attorney, and then come back and visit us here and let us know what he or she advises.
Don’t be afraid of their fees. Sometimes an attorney’s hourly fee is much more affordable that we would imagine.
Hugs,
Jillayne
Stacy,
Having an FHA loan gives you an advantage for selling your house. Your loan is assumable and if you have a low interest rate that can be appealing to buyers.
Good luck.
Here is a great article on second mortgages that I would like to pass on
http://www.shortsaledeals.com/secondmortgages.htm
What we have been seeing is that the Seller may make a deal with the second mortgagee to give them a little extra money, maybe $4,000 or so to help convince them to accept the offer. The title company cannot write a title insurance policy without a release from the second mortgagee.
Hello, this is my situation: My husband and I bought our house 2 years ago with 100% financing. Yeah I know. We bought the house for 240,000 and now we owe 235,000. Our market has been extremly hit by the housing crises and our house just appraised for 225,000. We also only have about 6,000 dollars in savings.My husband is in the military and we were given orders to a different state. We want to sell the house and we were given the advice of doing a short sale. My concerns are the phantom income tax I have heard about. I have heard that even if the mortgage company agree’s they can sue you for the difference. I have also heard that they would not consider you unless you were behind in payments. And lastly I do not know if a short sale can hurt my husbands top secret security clearance. Is there anyone who can give me a little advice.
Hi Shelly,
What kind of loan do you have on the home? FHA, VA or conventional?
Are you current on your mortgage payment?
Could you RENT out the house for enough to cover the payment?
I am current and never have been late on a payment. I have a ARM loan that is an 80 20 loan with the same company. Our payments are 2000 a month and we could only rent it for about 1200 a month and that would not cover our cost of living where we are moving.
Shelly,
Forced relocation IS an acceptable reason for your lender approving a short sale.
The good news is that you’re not very short. The second mortgage lender is the one you’ll be negotiating with. If you agree to pay back the short fall (around 10,000) then your credit rating will not be as damaged as if the home went into foreclosure.
It’s not that the mortgage company “sues” you, they ASK you to pay back the difference between the amount owed and what you can sell the home for.
If you have $6,000 then the lender will ask that you contribute that towards the shortfall.
With a short sale, you have to prove that you are deserving. This means that you have to prove you have no money. So if you have $6K, that goes toward the shortfall.
You’ll be asked to sign an unsecured note at closing for the amount of the shortfall.
In terms of your rights under your state’s laws, I highly urge you to find an attorney in your town. They are not as expensive as you might think. Look for an attorney that handles real estate law or consumer protection laws. Start by googling your state’s Bar Association. If you have $6K it will be worth it for you to spend a couple hundred dollars to hire an attorney for an hour or two. Your attorney may also be able to advise you as to how your credit rating may or may not affect your husband’s military clearance.
You’re not alone: There are other military families who have emailed me and they’re in the same position as your family.
When selecting a Realtor, interview at least 4 agents. Ask them how many short sales they have successfully closed. Ask for references and CALL them. If the Realtor doesn’t want to give out those names, then ask the Realtor to call the past short sale clients and ask if they would contact YOU.
Have each agent outline exactly what they are going to do for you to get your house sold, step by step. An experienced agent who has many short sales under his or her belt will know exactly what to do. Try googling: Short sale expert _your city_ to see who knows what they’re doing in your town.
Thank you for the information.
You’re welcome! Be sure to stop by raincityguide again if you have more questions and for sure let us know how it all works out.
Hi Jillayne,
Here’s my questions, I live in Ca. I’m going to be foreclosed on.
Did 100% financing,have not done anything to loan(still original status)
1st lender is foreclosing. What is the effect of this foreclosure? Can 2nd lender go after me if not sold enough? I know about my credit being severly damage. What other stuff should i know will happen?
Thanks in advance,
Matt
Matt, you really need a local attorney to answer your question. My understanding from up here is that if your loans are purchase money loans (the loans used to purchase the property) that they cannot go after you in CA, but they could if you’ve refinanced. But that might not be correct, or there might be exceptions. There’s no substitute for getting local legal advice.
BTW, I’d also suggest seeing a bankruptcy attorney, sooner rather than later. First, they’d probably know the answer to your mortgage debt question. Second, if you also have credit card debt you might be able to wipe that out and save the house (or the house and credit card debt might interact in some other way). Again, do this ASAP.
Hi Jillayne,
I also forgot to ask about property tax. I know if you don’t pay
your property tax, they can foreclose your home. Now if the lender
is foreclosing your home , do you have to pay the property tax?
Especially if your are foreclosed on this month which is half of the
6 months you pay twice a year on tax. By this month it
would be bank owned. Don’t the tax collector collect from the
owner(which would be the bank). Most people i talked to said “Don’t
pay the prop tax” you’re going to loose it anyway. What do you think?
Matt
Hi Matt,
Propety taxes are pro-rated. The homeowner will owe property taxes up to the date the transaction is closed.
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The banks are getting bailled out by the fed (in response to their bad judjement), Since they have influence on the capital hill. And the home owner is getting thrown out, since no one defends them. And all the americans are just fine with that. After all why should they care. It all belonged to american indians before they took it by force.
Im in the market for a short sale….
Is there anything wrong (Not legal) for giving the owners some cash, out of sympathy, after buying their home from their lender…??
They are about to loose their home, need a place to go, some money to feed and survive until their current financial crisis improves..
I hate the fact that the banks also made huge mistakes and everyone is trying to help them(the goverment is first in line),,,,,the home owners however are out of luck for the most part…
Hi olga,
Any money changing hands must be dislcosed to all parties. In many short sale scenarios, lenders have, in the past, not allowed any cash back to the seller.
However, over the past six months, I have been hearing that banks in fact are now allowing this to take place so that the homeowner who is in a proven financial distress situation, has the ability to put down first & last month’s rent plus damage deposit on a new place to live. At escrow, the check is made payable to the new landlord.
Remember readers, in these scenarios the homeowner is agreeing to pay the bank back (for the shortfall) and signing a new, unsecured note at closing.
The answer is that it is not legal for the owner to take money on the side if the bank is short.
I have “heard-tell” that some buyers purchase some personal property from the owners to provide them with the money to move out. Maybe they have a pool table or a boat that they can’t take with them to a smaller rental, the washer, dryer and refrigerator might be purchased as personal property vs. included in the sale. I think you can buy those things.
Jillayne, have you heard of anyone buying personal property, and whether or not the banks prohibit that? If the personal property is not part of the purchase and sale agreement, and the amount is not excessive like paying $10,000 for the refrigerator, it’s likely OK.
Maybe you can give them money through their Church as a charitable donation and the Church can help them with moving out. Just a few ideas that might fit the situation.
Thanks for your response Jillayne!,,
So, 1st, Last month rent + deposit should be about appropiate to ask for.
Do we ask for this OR is it something the seller should ask for?
while making an offer.
thanks again
Thanks Ardell,
Great Ideas to help out are always welcome,
who knows tomorrow it could be myself, in desperate need as the sellers of this property are.
Hi Ardell,
The only stories shared with me in regards to the buyers buying personal property from the seller are from hard-core, experienced short sale buyers who do this all without telling the lender.
Most of the time, the personal property of the seller is not of much use to the buyer and the buyer is really just using the seller’s desperate emotional state to manipulate the seller into moving out of the home without trashing it. I mean, how many of us really want a used pool table? Answer: not many of us.
Disclosing all facts more often than not results in maximizing good consequences for everyone.
In regards to the church, although I do not frequent them, I have been told that in cases like this, church members will help their neighbor if asked, with or without a donation.
Hi Olga,
It doesn’t matter who asks for it, what matters is if the seller is financially insolvent. Remember, the seller has to prove they do not have the funds for 1st, last, damage.
Also remember, the home has to appraise or the sales price is re-negotiated. Simply inflating the price to cover this expense might backfire if the home does not appraise. Consult with your real estate agent on this.
I have seen a situation where six of the buyer’s friends actually went and helped the sellers pack and move.
There’s always room for good things to happen in bad situations.
Thanks, we are definitely going to do everything possible, within the law, to help these people out..
Hi Jillayne,
I’m a buyer in this crazy WA market right now. My husband and I are in a sales and purchase agreement with the seller on a short sale home. The market price was $259,950, and we agreed upon $248,950 plus $10,000 cash back for repairs. The seller is already out of the house (and left behind quite a mess). I was told the bank that holds the loan has started to process our request, and has completed the appraisal on the house. However, my agent just informed me someone else is planning to put in an offer for the asking price, plus the closing costs.
if I’m already in a contract with the seller, how can someone else put in an offer? Does the bank have to review and reject my offer before being able to look at another offer, or can they compare them side by side even though I’m in contract (and paid earnest money)?
We had to rescind a back up offer on another house to put in this offer, because a buyer can only be in one contract. Can a seller be in more than one contract? If so, what’s the point of being in a binding contract, or putting down earnest money if the Seller and/or bank has the option to dump my offer for the next one that comes along?
Help! I’m lost!
Hi! My house is on short sale right now, do i have to pay my property tax which I owed last year 2007, I still owe them half of it which is due this april 10th., please help, thanks!
Generally the lender will allow it to be paid at closing from the seller/lender proceeds. It will, however, be accounted for in the total amount the lender is willing to accept.
If it’s a short sale, likely your real estate taxes were included in your monthly payment during the time you were making the monthly payment. It depends how far behind your mortgage payments are. Most lenders will make the tax payment and carry a negative escrow amount. If you can’t make your mortgage payment it’s more of a question of “can you” pay your RE taxes than whether or not you “have to”.
Keeping the utilities on may be more important if you are juggling what to pay. Hard to sell and close a house with no utilities on.
I am trying to purchase a home in Central California via a short sale process. The seller owes 690k. The house has been appraised by the lender at 370k. My offer prior to the banks appraisel was 350k, which was my estimate of what the current value would be. The problem has been a total lack of response from the bank to my offer. It has been 48 day since the offer. The seller and her agent have been trying to contact the lender but are usually put on hold for hours at time. Any ideas of how to speed up the process to at least get a response to the offer. It appears that the lender is just going to let the home go into the foreclosure process, which seems like a waste of time and money since my offer is so close to the appraised value in a declining market.
Ryan,
Contary to popular current trend, the only way I know to do a short sale successfully is not expect the lender to respond to “an offer”.
Buyer and Seller sign the contract and open escrow. Then the bank is sent a payoff to approve, not a contract to approve.
Recently many have been wanting banks to approve the contract BEFORE the seller signs it. I do not find that method to be effective.
That’s an awfully deep discount from $690,000 to $350,000. If I were the bank, I might want to foreclose and market test that one myself. Where in CA are you seeing an over 50% price decline?
This partcular home is in Merced California. In this case the seller and buyer did sign a contract and opened escrow. It is at this point where we have not had much response to the bank. Yes, the write down in this particular home is great and not typical for this area.
Hi Ryan,
Have your Realtor find out as much as she can about what the other Realtor has done thus far. Has the seller put together their short sale packet? Have they sent it to the bank? Are they willing to pay back the difference? I’m thinking not since it’s such a huge amount. In that case, is the bank already willing to forgive the debt?
Next question: Are you willing to bid on the home at the foreclosure auction? If so, find an attorney to help you out if this is your first time.
My experience is that it depends on both the lender and the seller. I have sellers dealing with the standard banks, which should be easy, who can’t seem to get the approval moving. More importantly, I have some very aggressive “salesmen” type of sellers who are very persistent, don’t take no for an answer, and start climbing the corporate chain past the middle management at the lender until they get the deal done. It is amazing what time and persistence can do, but most Realtors tell me they really don’t have the time to take on this kind of task, as it my be 3-5 hours a week.
I was trying to do a short sale in Florida. The markets bad, and I only have one interested buyer. The note is 340,000. I put nothing down because it was a construction loan. The short sale is for $180,000. I can’t continue to keep the home because I was frauded by a stockbroker and lost a lot of money. The bank has agreed to a short sale with the conditions that I come up with $35,000 at closing. If I give the bank $35,000, it would be difficult to pay all the IRS taxes and strain me more financially.
I have kept current on all my payments and taxes to date. Should I except the banks terms or walk away and foreclose? I tried writing the bank explaining my situation but the bank saw money in my saving account that they want. The money is used for my primary home and expensive.
Would the short sale ruin my credit as much as a foreclosure? I have a present 750 credit score. What would my best option be to preserve my credit in this situation? Can I negotiate with the bank not to report the loss to the credit bureau or do all short sale get reported to credit bureau and the IRS?
Jillayne –
Great blog here. Lots of useful information here, for both buyers and sellers.
I am a buyer in Colorado (born and raised in Seattle though!) and I just sold my home in Bend, Oregon (talk about a declining market).
I found a short sale in Colorado that I made an offer on and was accepted by the seller. The listing price was 229K and I made an offer of 234K because there were competing offers.The last assessed value was $342,500, but we are in a declining market and I am not sure how it will be assessed in the future.
The remarks in the MLS state that this home must close fast. Given what little I know about short sales, I wonder about how fast it can really close and I posed this question to my agent to ask the seller’s agent.
Apparently, the lender is not a large institution and the seller has the package completed and is using a 3rd party to expedite the transaction. I went under contract 4/9 and the completed package was submitted to the lender on 4/18. The seller’s agent has said that they need to close by 6/2 and I wonder why this date? What happens after this date?
I have questions, many questions!
1. Can you tell me what the numbers on the Pre-Sale list mean and what they mean for me and the buyer. I found this presale list in an Internet search, but am not sure how to interpret the numbers.
First Publication: 01/05/2008 Last Publication: 02/02/2008
Lender’s Bid Amount: $270,000.00
Deficiency: $77,784.45
2. I believe the seller has a first and owes 310K, but I am not very sure about this, I think it was a number my Realtor pulled up on some site I don’t have access to. My question is if he owes 310K, why doesn’t the lender try and get 310K for it. Or, does the seller owe 270K on it as shown on the presale list?
This home was on the market last year from April to October at varying prices, from 360 – 420K. I am somewhat confused by the whole process and again, wonder how the bank will determine if my offer is acceptable and when they might respond. What criteria will they use if they decide the offer is too low? Can they counter? Can I accept?
3. It appears from the assessors website that taxes have been paid and current taxes are due in June. Your article reminded me to ask about HOA, as there is a yearly fee for snow removal and I am not sure if the HOA dues are paid in full. I will check, but in the meantime, can you tell me WHY his taxes are current? I would expect that someone who can’t pay their mortgage, might alos not be able to pay his taxes.
4. Finally, what information am I missing? Should I ask my agent to get a preliminary title report while I am waiting? What other questions should I be asking at this point? Questions for my agent? Questions for the listing agent?
We have met at the home with the seller and I feel terrible for his situation. Given that he paid 220K for the home in 1996 and now owes 270 – 310K for the home, I can only guess that he refinanced when times were good and property values were at their peak. He said he did not have any plans yet on where he was going and it really breaks my heart. At the same time, I accepted an offer on my home in a badly declining market in Bend Oregon at 60K under my asking and am not in the position I thought I’d be in when my house sold. I am trying to be grateful every day that my house sold at all, and am excited at the prospect of buying this home, a home I see myself and my daughter living in for many years to come, but since this is the first short sale I’ve ever navigated, I am a little uncertain of the process and wonder if I am doing the best I can to be as informed as I need to be.
Thanks so much for creating this blog and for answering everyone’s questions. It is hard to find good, reliable information on the Internet, but I feel like there is wisdom here on this forum.
Thanks again.
Kate,
have you tried asking your real estate agent these questions?
If your agent does not know the answers, does the agent for the seller know the answers?
All of your questions are very common, standard questions that any competent real estate agent should be able to answer right away.
I guess I’m just overanalyzing why you would trust me, a teacher and a stranger to you, over your agent.
It’s pretty late here and it would take me at least a half an hour to type out an intelligent response to all these question. I promise to do so tomorrow morning. 🙂
Thanks for such a quick reply.
I think very highly of my Realtor, but seriously, I don’t think she has seen a lot of short sales. The area I am buying in doesn’t have a large number of foreclosures, and home values have held steady here for years.
Plus, I like the input from total strangers, people who are not close to the action, people who are not invested in any way.
I’ll drop yet another email to my Realtor 🙂 and look forward to more replies on the forum.
This certainly is an education!
Sounds good. Talk w/you tomorrow!
I figured out the tax question. The lender has been paying the mortgage, so that is why it is all paid up.
I am still confused as to what a “presale” is and what these numbers represent:
First Publication: 01/05/2008 Last Publication: 02/02/2008
Lender’s Bid Amount: $270,000.00
Deficiency: $77,784.45
Thanks to anyone who can fill me in on this. 🙂
Hi Kate,
Thanks for your patience. Here are the answers to your questions, one at a time.
Jillayne
*****
“Apparently, the lender is not a large institution and the seller has the package completed and is using a 3rd party to expedite the transaction. I went under contract 4/9 and the completed package was submitted to the lender on 4/18. The seller’s agent has said that they need to close by 6/2 and I wonder why this date? What happens after this date?”
Kate, to me it seems that you’re in need of communication and answers to your questions as the buyer. This is no different from any other homebuyer, but communication is crucial when it comes to a short sale transaction.
Kate, if the seller is paying a third party to expedite this transaction, I would start right there. Many many people have told me that these “third party intermediaries” promise the world and underdeliver. One of the main reasons why is because the profit margin as a third party intermediary is very low. This means the intermediary is running on a shoestring budget. This means phone calls to you aren’t always returned. HOWEVER, if someone is parting with money in order to pay that third party, THE THIRD PARTY INTERMEDIARY SHOULD BE ABLE TO ANSWER ALL YOUR QUESTIONS.
I typed that in bold out of frustration with third party intermediaries. Home sellers reading this blog, how many times now in the comment section have I said “hire an agent who is competent with short sales?” I don’t even want to go back and count. Home sellers: If you hire a competent short sale agent, you won’t need this intermediary.
But I digress.
In answer to your question, I can only guess without seeing the preliminary title report but I imagine the foreclosure sale (sometimes referred to as the trustees sale) is scheduled to take place on June 2nd. That means the seller and the seller’s agent have just a little over a month to get the lender to say “yes” to the short sale, or the home is auctioned off.
In order to get an accurate answer to this question, ask YOUR Realtor who the escrow company/escrow closer is for this transaction. Get the name of a person. Call that person. Inquire as to that closer’s experience with short sales and preforeclosures. If the escrow closer has never done a short sale or a preforeclosure, demand that the transaction be given to another closer in that same company with experience.
Then, ask to talk with the experienced escrow closer. Have the closer review the preliminary title report. Have the closer explain everything in the “special exceptions” section. Another very helpful person to talk to will be the title officer from the title insurance company from which the preliminary title report originated.
Kate’s next question:
“1. Can you tell me what the numbers on the Pre-Sale list mean and what they mean for me and the buyer. I found this presale list in an Internet search, but am not sure how to interpret the numbers.
First Publication: 01/05/2008
Last Publication: 02/02/2008
Lender’s Bid Amount: $270,000.00
Deficiency: $77,784.44”
This home is in foreclosure. The lender foreclosing is owed 270,000 and the homeowner is is past due by 77,784.44
There could be other liens against this property. The only way to know is to ask for the preliminary title report and review it with an escrow closer or title officer.
JIllayne, am I reading this wrong:
First Publication: 01/05/2008 Last Publication: 02/02/2008
Lender’s Bid Amount: $270,000.00
Deficiency: $77,784.45
Doesn’t this tell Kate that the underlying lender has bid $270,000 for the property, so her bid of $234,000 won’t be accepted?
Kate asks:
“2. I believe the seller has a first and owes 310K, but I am not very sure about this, I think it was a number my Realtor pulled up on some site I don’t have access to. My question is if he owes 310K, why doesn’t the lender try and get 310K for it. Or, does the seller owe 270K on it as shown on the presale list?”
It is possible that the original amount of the mortgage loan was $310 but the seller made payments and brought the payoff balance down to $270.
Kate asks:
“This home was on the market last year from April to October at varying prices, from 360 – 420K. I am somewhat confused by the whole process and again, wonder how the bank will determine if my offer is acceptable and when they might respond. What criteria will they use if they decide the offer is too low? Can they counter? Can I accept?”
The bank’s decision will be based on several factors.
1) Comparable home sales in that area. An appraisal will be ordered by the bank’s loss mitigation department. If your offer is dramatically lower than what the bank’s appraisal indicates, the bank will make a monetary decision: Should the bank accept this low offer, or is the bank better off foreclosing, taking the home back, and trying to resell it at the price indicated on the appraisal. This is a business decision made by the loss mitigation department at the bank.
The bank is not a party to the agreement between you and the seller. The SELLER can make a counter offer to you, not the bank. Consult your Realtor on this one.
The answer to Leanne’s question in comment number 191 is: not neccesarily. We’re not at a trustee’s sale here. Kate is buying the home prior to the auction.
If Kate were standing on the courthouse steps making a bid at the auction on June 2nd, she’d have to have 270K in cash to receive a bid number and buy the home at that price.
Kate asks:
“What other questions should I be asking at this point? Questions for my agent? Questions for the listing agent?”
You need to ask yourself some questions:
1) How long am I willing to wait for an answer? Can you go all the way to June 1st, while the loss mitigation department tries to make up their mind?
2) If the bank rejects your offer, how much higher are you willing to go to get this house?
3) Are you willing to bid on this home at the trustee’s sale and try to get it at the foreclosure auction on June 2nd? If so, then you must be prepared to hire an attorney that practices real estate law in the county in which the home is located. Put the attorney on retainer and have the attorney advise you every step of the way.
Questions for your agent. These questions can be asked by your agent to the agent for the seller:
1) Has the seller agreed to pay back the money he owes the bank?
2) If the answer to that question is no, has the bank agreed to “forgive” the debt the seller owes the bank?
3) If the answer to that question is yes, ASK TO SEE A COPY OF WRITTEN COMMUNICATION FROM THE BANK TO THE HOMEOWNER agreeing, in writing, to forgive the debt.
Without that agreement in writing, the bank will be asking the homeowner to pay back the difference.
If your home seller does not wish to pay back the difference, and the bank is not willing to forgive the debt, the chances of this home going into foreclosure at the auction on June 2nd are very, very high.
Refer back to thought question number 3, in my list of questions for YOU to think about.
Thanks for stopping by RCG to ask your questions! Feel free to come back and update us on what happened.
What an interesting case!
I am willing to wait.
I can increase my purchase price by some, but cannot go to 270K.
I am not going to buy the home at auction on the steps of the courthouse, but I might be willing to wait until the home is kicked back out into the MLS after foreclosure.
I have taken in every single piece of advice given here, and currently have a call into the title company (who apparently does a lot of short sales and foreclosures) and I have another long email started with questions for my Realtor. There are many questions that need answers, and if the listing agent is worth his salt, we should be able to get those answers soon enough.
My concern again is in the bank approval for the purchase price. I wonder how the listing agent and the seller came up with a listing price of 229K when there is 270K owing? I am going to have my Realtor do a CMA on the property and am going to see if the listing agent submitted a CMA with the package to the lender.
On third party intermediaries…hmmmmm is all I can say. Not knowing too much, I can see where a Realtor who is NOT familiar with the foreclosure process might hire out for this service. And I was shocked at the price. I think it was about $600. This company was presented by the listing agent as a company that would sit on the phone all day, contacting lenders so the agents wouldn’t have to.
This is a learning experience for sure, and while I am willing to wait, I have also been keeping an eye out for new listings and have checked with my current landlord to stay in this rental for awhile longer.
The right house will come at the right time.
Thanks for the wealth of information you all have provided to me here on this forum and thanks for the input. It is nice to have outside opinions on this very complex, and very interesting case!
I’ll keep you all posted, and hopefully I’ll be able to share some good news with you soon.
With gratitude,
Kate
Kate wrote: “I wonder how the listing agent and the seller came up with a listing price of 229K when there is 270K owing?”
The value of the house has little or nothing to do with the amount owing.
I haven’t been following this discussion, so sorry if this repeats something, but with that much of a spread I’d be concerned you’d need approval from two banks, which could complicate things, if not make things near impossible.
“but with that much of a spread I’d be concerned you’d need approval from two banks, which could complicate things, if not make things near impossible.”
Do you think there might be another lien I am not aware of?
I have contacted the title company and they are going to get back to me with a preliminary title report.
Is there anything else I should be doing? I feel like I finally have the questions I need to proceed with some semblance of confidence. If I can get the answers I need, I will have to move on to another property.
There is the old saying “if it sounds too good to be true, it probably is!”
“but with that much of a spread I’d be concerned you’d need approval from two banks, which could complicate things, if not make things near impossible.”
Do you think there might be another lien I am not aware of?
I have contacted the title company and they are going to get back to me with a preliminary title report.
Is there anything else I should be doing? I feel like I finally have the questions I need to proceed with some semblance of confidence. If I can’t get the answers I need, I will have to move on to another property.
There is the old saying “if it sounds too good to be true, it probably is!”
80/20 loans were pretty common until very recently. And if they weren’t the same bank (or assigned to different banks after), you could be dealing with more than one.
Like I said, I haven’t been following this. I don’t even know what state you’re in, or much else. Your courthouse steps comment just caught my eye (and I was relieved to see you weren’t planning on doing that, because that has other issues.).
Kary –
I am in Colorado and not planning on buying a home on the courthouse steps. I am hoping this deal goes through, but until I get some answers, I am working on my own 80/20 principle:
80% chance the deal won’t go through.
20% chance it will close.
I am hoping I can switch that around soon. 🙂
Yep, that probably is your 80/20. 😀
Most of the discussion seemed to focus more on the seller. Can someone give me some pointers as to what are the risks in buying a shortsale home ? what should I watch out for ?
How important is a buyer’s agent in this process ?
Sam,
I wrote a post for my buyer clients back in December
http://www.raincityguide.com/2007/12/13/should-you-buy-a-short-sale-property/
That may be helpful.
Risks? It may not close so don’t bet the farm on it actually happening. You need to be willing to risk about $1,000 for home inspection and appraisal. Maybe $800 is more like it. Depends on the size f the house.
Most everything else should be in that post in the link.
Should you have a buyer’s agent? Most people who ask that question should have one. Those who clearly don’t need one usually don’t ask the question. But many agents won’t work with short sales.
Speaking of that, did everyone see Redfin’s new policies on short sale purchases?
Yes, I saw the Redfin policy over the weekend on the redfin blog.
Kary has been talking about unresponsive lenders for a long time now.
If agents refuse to “show” short sale listings because of the stigma, I see huge consequences on all sides with the end result being more foreclosures in the years to come.
Ardell –
Great post and nice follow up threads.
Buying a short sale is full of unknowns, but for me, it is a good lesson in patience and non-attachment. The house I am pursuing is the perfect house for me, and I have a flexible lease on my rental, so I am going with the flow. I sold my previous house at a loss in March, but now I am in a rental and in a position to wait and see what comes of the short sale, and if it falls through, I haven’t lost anything. Meanwhile, I am keeping my eye on the market…just in case.
Thanks again to you and Jillayne for all the great information.
You’re welcome, Kate. I’m not really watching the other threads on RCG at the moment. Have my hands full with working and keeping up with my own posts and comments.
Just happened to see that question in the sidebar and thought it might be helpful.
Best of luck to you.
Jillayne, it’s not good for anyone. But the problem is the banks. They know which loans are in trouble, and they should know which sellers are trying to sell. They should be able to provide prompt answers (e.g. 3 business days). It’s in everyone’s interest, especially the banks, but they refuse to change.
I heard WAMU is backed up and it takes 4-6 weeks just to get a “negotiator” assigned to the case. That takes you to day 1 and counting.
I wonder what WAMU employees could possibly be doing that would possibly have more impact on the bottom line than preventing the loss of tens of thousands of dollars on any given loan? You’d think they’d be able to provide adequate staff for such an important position.
K and A,
It’s a multifactorial problem. Loan servicing typically employs entry-level workers who must be trained and educated before they can begin to make the basic decisions required to push the file up higher for approval.
Loan servicing operates on a shoestring budget since servicing was, until most recently, considered as a profit center instead of a place to SERVE the customer.
There are also state and federal laws to follow along with regulatory rules.
I’m surprised we haven’t seen loan servicing melt down yet. Since we’re on a “predictions” theme on the home page, i will go out on a limb and predict a loan servicing meltdown this summer. Especially if the mortgage insurance companies run out of cash.
I am hopeful that Kate’s sale can be pulled together since she is working with a local, state chartered bank. However, state banks are also facing huge write-downs this quarter.
Hi, I have a question.
If I work with the bank and I’m not satisfied with the amount they offer to forgive, let say $30k. I could fall into foreclosure, save $10k in mortgage payments (10mos) until I’m evicted. Then save $10k in realtor fees. I pay the bank back the 20k and I carry a $10k debt.
What’s the difference between a short sale and a foreclosure? Aren’t both devastaing to your credit report?
I think a foreclosure would be worse, but Rhonda could answer that best. The opinion columnist who’s at the bottom of the real estate page of the Sunday Seattle Times had a piece on this just two weeks ago. You might try searching their website for terms like foreclosure and fannie or freddie.
Hi John,
I highly doubt you’d be able to live in the home for 10 months. A foreclosure is more damaging to your credit report than a short sale because with a short sale, you are paying back the difference.
Consult a real estate attorney in your state before you make a decision.
Jillayne wrote: “I highly doubt you’d be able to live in the home for 10 months.”
It’d actually be simple to get 10 months. He’d just list his house for sale for two months, then have a bum off the street write a short sale offer, submit that to the bank for approval of the short sale, and it’s probably be eight months before he got an answer back from the bank. 😀
(I’m not serious–obviously.)
Kary! OMG that is hilarious. If you had not have put the smiley in there, I would have assumed you were completely serious. Unfortunately, there might be a kernel of truth in there.
The kernel of truth in that one was so big, it needed both a smiley and an explicit disclaimer.
And to think I gave that advice away for free. I wonder if you get that quality of advice when you pay the “walk-away” people for their services? 😉
That is not far from the truth. I tenderd a short sale offer in California 90 days ago. The seller gave notice to the lender late in November. Still no answer from lender. So we are at 5 months so far 🙂
Maybe 10 is not so far off 🙂
Hi Jillayne
Thank you for your response.
I’m still not clear if the bank has to report to the credit bureau
the short sale and generate a 1099 form to the IRS. What would
AU on my credit report do to my credit, and for how long?
Regarding the short sale I have an offer in on:
The lender has assigned the case to a rep.
This is good news, right?
What is the process like from here on out?
Hi Kate,
Yes this is a teeny bit of good news. Chances are the real estate agent for the seller has already received written, signed permission from the homeowner to talk with the bank about the seller’s case.
Chances are good that YOUR real estate agent doesn’t have that same permission granted. This means any “updates” from the lender will have to come from the seller/seller’s Realtor, to your Realtor, then to you.
Kate, did you put an “expiration date” on your offer? Example: This offer to buy this home will expire if we, the buyers, do not hear from the lender by _______ date.
Jillayne –
We don’t have permission to contact the lender, but the listing agent is keeping us updated and has been good with his communications.
Everyone is under the gun here, as the house is in the redemption period and will go back to the lender on June 2nd.
The seller and seller’s agent have already submitted the required packet and were talking with the lender before they listed the home. I think the redemption period is pretty short here in Colorado, and I am sure that the listing agent wouldn’t have taken the listing if he didn’t expect at least a good chance that this deal would make it to closing by June 2nd.
In the meantime, I still have my rental, and am still looking at other properties, but this is a great house for me, and looking at comps, I am confident the lender will look at my offer seriously as an alternative to getting the house back.
I have about 2 more weeks to get approval, and then another 2 weeks to close, which is not a problem on my side.
The deadline is tight, but workable given the circumstances, so I am hanging in there, learning as much as I can about the process as I go.
I appreciate your reply and will keep you posted.
Kate wrote:
“Regarding the short sale I have an offer in on:
The lender has assigned the case to a rep.
This is good news, right?
What is the process like from here on out?”
Well, the smart-assed answer would be: “Your rep will be reassigned or leave the company, and you well get a new rep who will be reassigned and/or leave the company, etc.
Seriously it does appear to be movement, but never expect them to act quickly–just be happy if they do.
I have no expectations.
This could be a first for me 🙂
One of my associates was working on a short sale with Countrywide and was recently told (by CW) that they had a rep assigned. Two days later the rep contacted them and told them they were no longer doing short sales on anything other than a primary residence (this was a second home).
That didn’t make sense to me, they stand to lose just as much money going through the FC procedure, no matter if this was a full time rental, primary, or 2nd…
Hi John,
It makes sense to me. Short sales are reserved for people in financial distress. When a homeowner has other assets, such as other real property, there is no short sale. Instead, it turns in to a “seller brings cash to closing” transaction.
Without knowing the facts, I can only guess that the representative took one look at the asset sheet on the client and said “no” to the short sale.
I got a copy of the assets sheet from them and they are upside down on their primary as well – they are considering a deed in lieu now but really wanted to try the ss route…
John, one thing to consider before they go further is the tax implications. I know there was some relief passed, but I’m not sure it goes to second residences.
As to Countrywide’s decision, were they perhaps in a second position, or in some other way able to go after the income of the clients? That might make them less likely to do a short sale. On the other hand, perhaps they simply don’t want to go to the work of determining whether they’re really upside down on two residences.
Kary, good questions – as far as the tax implications were you thinking the new items passed would make it better for them to pursue ss or go dil?
As far as CW, they were actually in 1st and 2nd, servicing both – they also submitted a recent tax appraisal on their primary with copies of those notes. In fact from the package they brought to me (just asked me to ‘proof’ it for them with a 2nd pair of eyes) it looked extremely complete and well put together.
Hi John,
Were the homeowners able to prove that they have ZERO assets?
Also, I’m wondering how motivated Countrywide is these days with their BOA merger right around the corner.
John, I’m just saying I don’t know whether the owners would get the same benefit out of the legislation (no tax consequences in certain situations) if it’s their second home. Before they move forward, consulting a tax adviser would be very prudent.
Jillayne, their PFS that they filled out showed a few small assets, basically $1,000 or so in a checking account and a few thousand in retirement accounts. Their net-worth was negative though because of the property.
I thought the same way about the motivation of CW through this, although it still appears they would be MUCH worse off foreclosing on this one, but who knows…
Hi Jillayne,
I never saw your response back to my question. Did I miss it.
I’m still not clear if the bank has to report to the credit bureau
the short sale and generate 1099 form to the IRS. What would
AU on my credit report do to my credit, and for how long?
Hi Clint,
Sorry about that; I missed your question earlier. Every bank/lender is different in terms of how they report to the credit bureau. Most all DO report mortgage info to the credit bureaus. The best way to get the most accurate answer is to ask your bank.
If you’ve been late with some payments, your credit report will reflect the late payments. Then, your credit report will show something like this: “short sale; account settled for less than amount owed.” This is better than a foreclosure. This will stay on your credit report for 7 years.
If your debt is forgiven, instead of receiving a 1099, you may be able to receive some tax relief during 2008. Consult with your favorite CPA or tax attorney.
Not sure what AU means. Automated Underwriting?
Thank you for your response back.
The AU is a code being sent by the bank to the credit bureau, stating the mortage was settled for less than the loan amount.
All my payments are current and on time. The 7 years on your credit report, is for the short sale, Foreclosure or both?
Bankruptcy: 10 years, all other matters of public record (such as a foreclosure): 7 years.
The question then becomes: is a short sale a “public records” matter. I am not sure. Let me ask Rhonda to reply.
Thank you Jillayne.
This wed site is great. I spoke with attoney on my short sale, and he recommended foreclosure and bankrupty. I think he wanted to just make money on my situation. Now I’m working with the bank on my own and my realtor, who does not seen to have near the understanding you have on short sales.
Thanks again
Clint, you’ll most likely always have to answer “yes” to the question of “Have you ever had a house foreclosed?” 7, 10, 15, 20 years, it won’t matter. When the mortgage loan app asks for “ever” that means at any point in the past.
You asked a tax question above too, and I’d say go to a tax adviser. I’m not up on the latest legislation, but there are a number of exceptions to being taxed on the sale/loss of your house, and you want to make sure you can take advantage of that. Years ago I had a client get foreclosed out about 2-3 months before the time the $250,000/$500,000 exception kicked in (and 3-4 months before he consulted me), and he ended up owing something like $30-40k in income taxes (with no funds because he had debt over basis).
As to the bankruptcy or short sale, I don’t know your other facts, but off the top of my head I can’t think of a single reason to not try a short sale. When it comes to the time of picking the time to file a bankruptcy, generally the risk is filing too soon, not too late. The only exceptions I can think of is if there’s pending litigation–you might want to file bankruptcy before that goes to judgment. Or if you’re going to get married, you probably would want to file before the marriage. But other than those two things, I can’t think of other things that would indicate someone should file earlier rather than later. You might want to talk to the attorney again to see why they thought you shouldn’t at least try a short sale (and also the tax adviser).
Although the FC will drop off after 7 years, won’t a judgment show for longer? Isn’t that the case most often – the lender will try for (and probably be awarded?) a judgement against the borrower that they FC’d on?
It depends on the state, but here in Washington the foreclosing creditor cannot get a judgment. A second position creditor that didn’t foreclose could.
Judgments in Washington last for 10 years, and can be renewed for another 10 years. They can also be transferred to another state, which could affect their life.
I should have said a foreclosing creditor that uses the non-judicial process, which most do.
Also, as I recall they can still go after a guarantor, even if the non-judicial process was used. That was changed sometime after I went to law school.
Quote: Also, as I recall they can still go after a guarantor, even if the non-judicial process was used. That was changed sometime after I went to law school.———-
So what does that mean, can they garnish wages or go after existing assets in some way?
Yes, if my recollection is correct. They could get a judgment and then pursue the guarantor. But that would only be someone who signed as a guarantor (or someone who was obligated on a deed of trust where they didn’t foreclose). Again, this is only Washington law. Other states could be different (and likely are in the case of the guarantor thing).
Cool – what do they normally do in pursuing the actual borrower, just file for a judgement or do they try to ‘get’ other assets?
Assuming they could pursue, they’d first need to obtain a judgment. That will typically attach to real property, but they may need to record it elsewhere (and/or with the county auditor) to reach all real property. Sometimes they’ll just wait at that point.
Sometimes they’ll pursue other assets, such as wages or personal property.
Original poster,
I think you might be a little confused. Real estate agents can contract to buy a short sale home directly from the homeowner as long as they disclose their position. Now it might be unethical for an agent to represent a buyer and then put an offer on the property.
Hi Donte,
State laws vary. Here in Washington state, the legislature just passed a very harsh law, HB 2791 concerning distressed home conveyances. There are 13 ways in which a person could end up being classified as a “distressed home consultant” and this would turn the DHC into a fiduciary of the homeowner.
Any and all Realtors wishing to buy short sales simply MUST have legal counsel on retainer at all times.
I can’t imagine a scenario where it would be wise for an agent to buy a property from their client. Throw in the client being in financial distress, and it would be even more risky (even absent the law which Jillayne mentions).
I know all real estate is unique, but that doesn’t mean you should ever be so enthralled with a piece of property that you buy it from your client.
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I used to be a Realtor but am no longer. We moved for my wifes job. To do so we took out a second to shuffle equity to get into the new house(I’ve never had a second before). Then, the market took a dive. So, we now have two houses….the one we left and the new one. Ten months later my wifes company downsized and she was out. We struggled for a year and were never late on anything. The house we moved from has been on the market 500days and the one we moved to a year. We have a short sale buyer for the second house (one we moved to). It’s been going on for 6mo. 48hr before closing the bank tells us they want 35k from us. This blows the whole thing up. They’ve been absolute A**holes about the whole thing…and they hold both mortgages! We have no choice but to file bankruptcy…only because of the houses…nothing more! They’re going to spend a fortune ditching these houses when there are buyers available. They’re bound and determined to stick it too us…and we have nothing. I’m just wondering if, after the bankruptcy, they can still come after us (mortgage holders of “either” house) because what they eventually get doesn’t cover 100% of the second….and the second is secured by the house. What a mess…and the bank is determined to take us down.
Hi Ronald,
Lots of issues here. First and foremost: find an attorney.
Second: Yes, the bank can ask you to repay the $35K. If they believe you have the money readily available to you, they can ask you to bring it in at closing. If they believe you have the ability to repay the $35K, they can ask you to repay it over time, by signing a new unsecured note at the final closing.
Even if you decide to sign, and THEN file bankruptcy, a bankruptcy judge could decide to not discharge that debt.
You need to consult with an attorney familiar with real estate law in the state in which the property is located, and an attorney (could be a second, separate attorney, might be the same person) that understands consumer protection laws and bankruptcy.
It’s not that the bank is determined to take you down, it’s that they too must try as hard as they can to minimize their losses. They are bound by regulatory oversight, and stockholder governance.
Have an attorney help you understand all your possible options. There may be some options available to you that you are unaware of (from a legal perspective.)
Good luck with your decision and stop back by and let us know how it turned out.
I’ve been to three attorneys. All say there’s nothing I can do. The bank knows we do not have the ability to repay ‘anything’ but still insists on a promissary note or money up front. So, at the end of the day they get nothing. By the way, when I hired an attorney they refused to talk to me. The orginal buyer actually came back 2months later and the bank is still being a pain dealing with him. EVERY person from the attorneys to a title company to the cash buyer to everyone else thinks this bank is being an A**hole about the whole thing. I’m still trying to figure out how they are the “Loss Mitigation Dept” when, at the end of the day, they get creamed on this deal when we go to bankruptcy. If they hand me a promissary note I suppose I could sign it, but we can’t pay it so we’d still end up in bankruptcy. Sounds like a case of fraud on my part if we did that…and attorney thought the BK court might think so to, so, the bank ultimately is the one driving us into bankruptcy. This is a brand new house in Florida. The pool will be ruined in a short period of time, mold will be an issue quite quickly, the HOA is pretty nasty and will be coming down on whoever owns it relatively soon. If they’re not just being A**holes, then what could be the answer. They lose bigtime by not taking a buyer…and we had one.
Ronald–good point about the fraud claim in bankruptcy. Talk to your attorney, but you might be able to make it clear that you’ll probably be filing bankruptcy, and thereby avoid the discharge issue.
This same issue comes up when people take advantage of low interest credit card offers trying to get themselves out of trouble. That can convert dischargeable debt into non-dischargeable debt if they should have known that they wouldn’t be able to repay the debt (on an objective standard, not a subjective standard).
This is not directly related to short sales (because not all short sales are distressed properties), but why hasn’t there been any discussion here on the new Distressed Property laws going into effect in Washington on June 12? Over in P-I land we’ve had three separate pieces on it.
Seemingly consumers would be interested in it too, since it will make it much more difficult to sell a house that is actually in foreclosure.
Kary – I’d be interested in reading about that particular law, even though I am in Colorado. There was just an article in the Bend (Oregon) Bulletin about Short Sales and how they constituted 7% of all listings there.
I have a general question about short sales, since I am trying to buy one.
I just found out from the seller 2 weeks ago that there has been a back up offer sitting at the lender this whole time. Amazingly, the purchase price is the same (we both offered $5K over) but I am not sure what kind of buyer’s side commission they are seeking as the other buyer is an agent. His is a cash offer. Mine was based on a loan. I called in a huge favor and was able to convert my offer to all cash after finding out this information, and my agent says the lender will either accept, deny or counter my offer, and since I am in first position, I will have the opportunity to accept or reject the counter.
Is this true? How do I find out if this is true? My agent is certain that I get first right of refusal, but I’m not sure if I trust the lender!
This is just one concern, the other has to do with the time frame, as this house needs to close by June 2nd or it belongs to the lender. Redemption period over. That’s all she wrote. And they haven’t even done the BPO yet (as far as we know).
I am still hoping for a favorable outcome, but the clock is ticking, LOUDLY!
Here’s the time frame so far:
4/6 wrote contract on home
4/7 accepted by seller
4/17 short sale package submitted to lender
4/30 lender rep assigned
5/9 BPO ordered
5/15 Transaction coordinator says “after about 12 phone calls today, I was finally able to speak with supervisor. He SWEARS that he is ordering a rush BPO to be done. I will be following up again tomorrow.
Kate, if your state legislature ever passes a law covering the same topic, hopefully they’ll get someone who can actually draft a statute to write the thing. The main issue with ours is it’s very poorly drafted and poorly thought out. They had good intentions, but just didn’t put them to words very well.
As to your situation it would most likely depend on local contracts or local law. Our MLS recently added a short sale addendum, which specifies what can happen with respect to other offers.
Kary, I have a short sale addendum. I’ll have to see what it says. Or ask my Realtor to take a look for me, since it’s all Greek to me.
I’ll be keeping an eye on this blog for more info on your local short sale situation.
Thanks for the reply.
I have bigger fish to fry right now. Somehow I’ve morphed into the resident policy wonk. I’ll do a post on the distressed property law soon.
hi, i’m in the middle of a short sale. the buyers hired an inspector as a part of the sale and i have received a letter from the county saying that there are some problems with the electrical and plumbing that was reported by the inspector will i be held liable to pay for the costs when my realtor has informed me that filing for a short sale will not cost me anything. that’s basically the reason why i have filed for a short sale because my family and i are having financial hardships. pls get back as soon as your able this is really bothering me because i will not have the money to cover the expences if it comes to it.. thank you so much
Hi Chris,
“my realtor has informed me that filing for a short sale will not cost me anything.”
Please get this answer from an attorney, not a real estate agent.
If you have the ability to pay back the shortfall, the lender will ask you to pay back the difference. Tax consequences of “forgiveness of debt” should be explained to you by your favorite CPA or a tax attorney.
You will have to prove to the lender, with documentation, that you do not have any money to pay the shortfall as well as zero money to pay for the repairs.
If you are in default on your loan, your lender is going to have to determine, from a business perspective, whether or not it is better to foreclose and take the house back or approve your short sale. Foreclosure means they could possibly sell the home “as is” without paying for those repairs. You will need to obtain bids on how much the repairs will cost, and send those in along with your entire short sale package. Preparing the short sale proposal for your lender is traditionally done by your real estate agent.
Hopefully you’ve been assigned to a loss mitigation representative at your lender by now, and you or your real estate agent or your attorney can review your questions with that person.
hi, thank you so much for the information you provided. my short sale is on a condo unit my realtor and i are waiting for the lenders feedback on if they accept the short sale or not by the end of this week. knowing it’s a condo unit will the repairs be something that the HOA of the condominum be responsible for or will it fall back on myself? the complex area has had many problems in the past with the buildings shifting, causing units to have damages in the walls as well as the flooring. they have said to put work into these repairs last year but from what i know no improvements have actually been done yet. so pls let me know what the HOA is really responsible for with condominum properties?
Hi, is there any discussion about Buying bank owned/ real estate owned properties here ? What are the pros and cons ? How important is a buyer’s agent’s role ? how long does the process take ? What are the things to look out ?
Will greatly appreciate the information.
Thanks,
Sam
Hi Sam,
That’s a great idea. This thread covers short sales and pre-foreclosure Q&As. I’ll write a new post on REOs (Real Estate Owned) property.
Hi Jillayn
Do you know of a resource for loan officers to learn how to do a short refi?
I am trying to figure out what I need to do different from a regular short sale. But I think i may be missing a step or two of the process
Thanks,
John
Hi John,
Where are you located? What city/state? I teach short refis in multiple locations each month.
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Hi,
My question is this….. Is it possible to have the lender report my short sale to the credit companies in a different way as to not effect my credit as badly? Is it Negotiable?
Hi Pam,
The answer is YES, this is negotiable. Traditionally, the way the short sale is reported to the credit bureau will be shown in the final documents you’ll be signing with the lender. Ask to see a sample of their short sale settlement documents well ahead of time.
Traditionally, a short sale is reported to credit bureaus like this:
Account settled for less than amount owed
or
Short payoff.
In addition, if you have any 30/60/90 day late payments, these late payments will also show up.
If you are paying back the shorted amount, this new unsecured note will show on your credit report as a new debt.
I am hoping that you have an attorney you’re working with on your short sale. He/she can help you negotiate how your SS is reported to the credit bureau.
Hi Jillayne,
It’s been a while since I’ve been here, and I wanted to see if the conversations here have changed at all. Last year I closed 60 short sale transaction. This year I have more short sale listings, but am getting less offers and the lenders are taking EVEN LONGER than last year to get them approved. Have you noticed this? Also… Do you have any plans to partner with an FHA lender for potential candidates for the new FHA short payoff, foreclosure bailout refinance they are unrolling in November?
Hi Ardell:
Any liens or judgments recorded against the sellers property appear on the Preliminary Title Report- which is always furnished to the buyer for approval during escrow. It is also furnished to the buyer’s lender. The escrow officer disclosing that info to you on your previous transaction was doing their job.
Sincerely,
OC Escrow Officer
Escrow Officer,
There are 269 comments here…I have no clue which one you are answering. Can you note it by # so I don’t have to read them all to figure it out? Thanks.
I tried scanning…but couldn’t match up your comment to one of mine.
I wanted to update the thread with a POSITIVE outcome from a recent short sale transaction with COUNTRYWIDE.
Investment property purchased in 2005 for $575k, 80/10/10 with the 80 being an option arm. Payoff of the 80% 1st and 10% 2nd (both with CW) ended up in the $540k+ range.
CW approved the SS with a sales price of $345k, the 2nd getting $3k and the 1st getting $320k after fees. Borrower/seller did not sign a note at closing and did not bring cash to closing.
Since this was an investment property can they take a loss on their tax returns to offset the huge 1099 they are expecting to get from the loan forgivance?
Short sales have really taken off as of lately. I have noticed lenders really loosening up on their requirements and turn around. A short sale can truly create a win win situation for all parties involved if done correctly.
This has certainly been an interesting read concerning short sales. Since prices in Las Vegas have dropped so much… short sales are becoming more of a norm and you just can’t avoid not learning all you can about them if you want to stay in business.
As Jonathon points out above.. lenders are certainly becoming more receptive to short sales and in our opinion, certainly much better for the lenders then foreclosure.
Either that… or we are getting really good at doing them. 😉
HI, I am in a situation which I may have to seriously consider doing a short sale on one of my rental houses due to large negative cash flow.
How will it affect my other rental houses and my credit?
Hi hodo,
Short sales are reserved for people with no assets. Your other rental property will have to be declared as an asset. If you have equity in any of your other homes, the bank will ask you to go get a loan against that other home and bring the cash in at closing.
Thanks, Jillayne for your response.
Although we do have a few rentals and inspite of putting 30 % down on the mortgage,due to decline in value of the homes,there are hardly any equity on any homes including our primary residence. We are willing to stick it out and bear the negative cash flow on all other rentals except for one which will still be a burden enough.We have perfect credit and some assets in retirement fund that we want to protect.
Any advise?
Hobo, you should consult a bankruptcy attorney in your area about the retirement assets. Washington has pretty good protection (and there is also protection at the federal level for certain types of retirement assets). If you have your retirement in something that is not exempt, it may be possible to roll it into something that would be.
hodo, you’ll have to consider the ramifications of bankruptcy. Especially if you You said you have good credit. Is it possible for you to sell short and bring cash in at closing?
Jillayne, I wasn’t suggesting that hodo file bankruptcy, but that they consult a bankruptcy attorney about their exemptions of retirement assets. That’s something that just about any bankruptcy attorney should know, probably better than attorneys practicing in any other area.
Of course, while they’re there . . .. 😉
Our retirement asset are in IRA or 403b, we have no equity, so if we do the short sale, what will be the consequence?
Are there any way to preserve our credit which right now is at 800’s.
hodo, how “short” are you on your rental? $$
Hodo, you really need to talk to a local attorney about your IRA and 403(b) situation.
We bought the house in 2006 for $245K with $ 70K down, each month we have to come up with $700 to meet the mortgage. I think we can only sell it for $100K at best.
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Question for you–In need of an IMMEDIATE answer…Pleeeeez!
My father had a 1st & 2nd with a balance of 25K. His health and the expenses associated with his care have left him unable to continue the payments. With the foreclosure sale rapidly approaching, I have been able to negotiate a short sale to me for 12K. This will be a cash sale. Are there any downsides or blind sides I should be aware of going into this?
Hi CC,
“Are there any downsides or blindsides I should be aware of going into this?”
Yes. Typically, a bank will not approve a short sale to a relative. The buyer must be a neutral, arms-length third party.
Who have you been “negotiating” with?
cc, this is an example where you should really see an attorney to look at your father’s entire situation (which seemingly is caught up in his health situation too, which does affect things).
I not going to try to guess your situation, but both older people and disabled people have special rules that pertain to them, and for both it’s due to the fact that “you can’t get blood our of a turnip.” I used to take pro bono referrals from the King County Bar Association, and only one of those referrals that I recall ever actually needed a bankruptcy because all of them had insufficient income to be garnished. The creditor could sue, but not collect, and when they learned that, they never sued. But taking that route I’d have to deal with credit agencies–sometimes for years as the debts would get assigned from one agency to another.
Anyway, given your father’s situation there may be better options than a short sale, especially if you’re a cash buyer. Also, there may be different tax results if your father sells to you (I don’t know–I’m just guessing the exemption on sale of a residence might not be available to such a sale). Depending on the situation, you might be better off just paying the mortgages for a time or even buying at a foreclosure sale of the first. Or there may be some other solution. An attorney looking at your entire situation could help you determine the best course of action.
Thanks to both of you. I’m working with the Loss Mitigation Division of Wells Fargo. Keeping the house is to keep my dad from being so upset about the situation he is in that his health deterioriates further. The sale is scheduled in a few days and I’ve been advised by some in the real estate business that I don’t want to end up on the courthouse steps because there may be others willing to put up 15k-17k-20k to get investment property. He would NEVER even agree to discuss bankruptcy much less file to protect it.
My attorney hasn’t yet given me those alternatives.
What are further questions I need to raise? Here is what I’veasked so far:
What would be the tax consequence for dad on the forgiveness of the remainder of the debt?
– Does SC law allow for Wells Fargo to go pursue a deficiency judgment for the difference between the loan amount & the amound paid? — Have you seen where a bank might pursue that if it is an option?
– Given this will be a cash sale, is the HUD 1 they are requesting really necessary?
– What are the consequences for the estate if medicaid challenges the sale because it is within the 2-5 year period?
Did I miss anything?
I’m relieved to see that you are dealing with an attorney, and seemingly you’ve asked a lot of good questions.
I don’t see bankruptcy as helping much. The main thing it would do would allow time to bring the loan current, but you seemingly have the cash to do that if push came to shove.
You’re right there’s a risk of going to the courthouse steps. That could be very situation dependent.
Is the first and second held by the same bank? If not, you may have issues there.
No other questions come to mind, but if I think of any, I’ll post them.
Yes the 1st & 2nd are with the same bank. I’ll check back for any additional thoughts you may have.
“- Given this will be a cash sale, is the HUD 1 they are requesting really necessary?”
CC, I don’t know anything aboug South Carolina, but I do know that the HUD 1 is necessary regardless of how you will be paying for the property. The HUD 1 tells your Dad’s lender what they will be getting as a payoff after expenses of sale, and is required for any short sale. They also want to review the detail from gross sale price to their net payoff to make sure there aren’t big fees in there, such as agent fees above the amount they allow. So they need to see the detail of costs and not just the gross sale price, and the HUD 1 gives them that detail.
Thanks for clarifying.
cc.
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Where can I find a list of foreclosures in the NYC area?
Thanks
Jp.
Thanks Jillayne!!
State of the Market?
Ok I know that there is still tons of bad news out there and plenty of reasons to believe it but here are a few things that MIGHT indicate that the real estate market is starting to firm up in Phoenix.
A mortgage lender friend of mine says that April will be his best month since 2005.
I wrote purchase contracts on two different properties today and received offers on two different listings this weekend. This constitutes the busiest weekend I have had in four years. One of the offers I received was for full price.
My wife, an escrow officer, says that April will be her busiest month since 2005. About 50% of the transactions are refinancing of existing mortgages and 50% purchase contracts. Yes, most of the contracts are of lower priced foreclosures but its still promising to see that so many people believe prices now “make sense
Unfortunately no one really does know the truth about
starting in real estate until you get started.
It is a demanding job and you have to be able to talk (sell) people.
If you don’t go out and get the business you will be like 90%
of other agents and only have a few deals a year.
Both can do wonders for a person’s business. Thanks again!
I have started to see more and more homeowner’s just walk away. This is prevalent here in Florida. I was wondering about other areas of the Country. If this is a growing trend, we may be in for another huge wave of foreclosures, but short sales will be abundant.
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Excellent and useful article, I really think that the present bottomed out housing situation opens up all sorts of opportunities for the vultures sounding like angels to come sweeping in and how many people really know or aware of their options. But it does make basic sense that an underwater home owner should look at renting out a room or sharing of some sort to improve their payment ability if they do not want to move. Banks dont want to do forclosures it is not the business they are in so why not try some form of renegotiating the loan, possibly refinance but make certain that they have good professional counsel, why is there not more government basic information dealing with their options available for distressed homeowners I get the impression many of them are either in the dark or in denial and that is not good.
I’ve been involved in a few short sales and always find it interesting how many agents (including myself) have agreed to less than full commission. Clearly any 2nd mortgage holder is not in nearly as strong a position as they want you to think they are but they play on an agents fear of losing the deal. One side note, there is a law (can’t remember the name right now) that was enacted in 2007 and extended through 2012 that says if the house is in short sale the government will forgive any tax owed on the deficency you receive from the lender.
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I appreciate this article and the discussion it has generated. I might add that the advice to homeowners to seek legal counsel prior to a short sale is reasonable in the abstract, but quite impractical for a lot of strapped, overwhelmed homeowners facing foreclosure. Most homeowners will not be making that call.
Here at Seattle Short Sales, Inc. we work with over 200 local homeowners at a time, and we offer integrated, complimentary legal counsel as part of our service, which costs nothing to the homeowner at any time. Our job, in service of distressed homeowners, is to make it as easy as possible for all homeowner’s to get the help they need, in a timely manner, at no charge.
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