Short Sales
WHAT IS A SHORT SALE?
Simply put, Short Sales occur when borrowers sell their property for a sales price less than the amount owed to their lender. They also have to be in a financial hardship where they cannot pay their mortgage. In this situation the bank will typically pay all servicing expenses with a few exceptions. The is no out-of-pocket cost for the homeowner, and if the property was the primary residence (homestead) the lender will typically forgive balance of the mortgage (deficiency). A short sale is not a ‘get out of my mortgage free card’ . A seller that is not in financial hardship may still short sale their property, but they may have to bring cash to closing or sign a personal note for part of the remaining deficiency.
As the real estate market remains troubled, the government has kept in place an initiative program to help homeowners complete a short sale. This program is called Home Affordable Foreclosure Alternatives (HAFA) and is in effect until December 2012. HAFA directs lenders to assist eligible homeowners in quickly implementing short sales or deeds-in-lieu by providing financial incentives to lenders that carry out foreclosure alternatives through the programs guidelines. Lenders pay all servicing fees – homeowners have no out-of-pocket expenses. They will also give the homeowner $3,000 in Borrower Relocation Assistance after sale has been completed. Read more at http://www.makinghomeaffordable.gov/programs/exit-gracefully/Pages/hafa.aspx
Some banks are even offering more incentives to the borrower. In Florida, Bank of America has recently announced the Florida Enhanced Short Sale Relocation Assistance program. This program allows eligible homeowners to receive $5000 to $20,000 in relocation assistance. If you have a Bank of America mortgage and are considering selling your home, please contact me for more information.
A Short Sale is a win-win solution for the homeowner and the lender. The lender saves by not having the added expense and trouble a foreclosure brings and the homeowner benefits as shown below:
WHAT ARE THE BENEFITS OF A SHORT SALE vs FORECLOSURE?
| ISSUE | FORECLOSURE | SHORT SALE |
| Future Fannie Mae Loan |
Borrower is ineligible for a Fannie Mae backed mortgage for 5 years on a primary residence, or 7 years for an investment. |
Eligible for Fannie Mae backed mortgage after 2 years for primary or investment property. |
|
Future Loan with any Mortgage Company |
On a 1003 application, answering YES to the question, "Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?" will affect qualification and rates. | There is no similar declaration or question on the 1003 application regarding a short sale. |
| Credit Score | Credit score may be lowered anywhere from 250 to over 300 points. This will typically will affect score for over 3 years. | Only late payments will show and after sale, mortgage will be reported as paid or negotiated. Score will be lowered as little as 50 points, lasting as brief as 12-18 months. |
| Credit History | Foreclosure will remain as a public record on credit history for 10 or more years. | Short sale is not reported on a credit history. There is no specific reporting item for "short sale". The loan is typically reported as "paid in full, settled". |
| Employment | Many employers require credit checks on applicants and periodic credit checks on current employees who are in sensitive positions. In most cases a foreclosure will challenge employement and sometimes be grounds for reassignment or termination, especially with security clearance positions. | A short sale is not reported on a credit report and is therefore not a challenge to employment. |
| Deficiency Judgment | In 100% of foreclosures (except in those states where there is no deficiancy) the bank has the right to pursue a deficiency judgment. | In some successful short sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner. |
| Deficiency Judgment Amount | In a foreclosure, the home will have to go through an REO process if it does not sell at auction. In most cases, this results in a lower sales price and higher deficiency. | In a properly managed short sale the home is sold at a price close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency. |
If you or someone you know is facing foreclosure, please give me a call. There is absolutely no cost to the homeowner to short sale their property. I will work with the bank to negotiate a sale and administer the details. I will be there to help the homeowner every step of the way. For the homeowner, there is everything to gain and nothing to lose. Contact me today!
