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buying a short saleBuying a short sale – Are you a homebuyer looking to buy a short sale home at a great price in today’s real estate market? In a short sale, the current homeowner owes more to the bank than the home is currently worth, so he or she is underwater on their mortgage. For example, Joe Smith has a mortgage of $500,000 but his home is now only worth $300,000 in today’s housing market. So Joe can choose to Short Sale his house, and negotiate with the real estate specialist and his lender to allow the seller to sell his home for $300,000 and accept a “short payoff”, aka forgiveness, of the remaining $200,000. This allows the seller to walk away from his home without owing anything else to his bank, and also allows a buyer to get a rock bottom price in today’s market.

When you purchase a short sale, you, the buyer, have a lot of leverage. The bank who currently holds the mortgage on the home is afraid that the current home owner will just walk away, and let the property slide into a foreclosure, where it may take the bank an additional 6 months to evict any occupants, all while not receiving any payments. Further, if the home is foreclosed on, the bank also runs the risk of additional vandalism, break-ins, and additional legal expenses.

Hello again,

We wanted to share this audio report from an LPS asset manager who has some fantastic first hand knowledge of the REO market and the new REO inventory that's on it's way this year. LPS reports the national delinquency rate hit 8.15% as of last month. A few months ago, we reported to our members that foreclosures had been drying up due to default reviews, loan modification attempts, and new state and federal regulations, and that's precisely what this Asset Manager is reporting as wellin this audio report. The result was a backlog of pending foreclosure listings that were slowed down by these efforts, but as you'll find in this audio report, that's all about to change...

Listen to the Asset Manager Audio Report

According to the new report, the month to month Delinquency Drop that we experienced in 2011 has come to a halt, and inventories of troubled loans remain significantly higher than pre-crisis levels across the board. Stay tuned for more news on this topic later this week...

The foreclosure process on your home can prove a challenging and overwhelming experience. With the stress of the thought of potentially losing your home mounting, if you go at it alone, you miss out on taking critical actions that could have helped you navigate the situation. Unless you are well versed in the state laws involving foreclosures and your rights, an experienced foreclosure attorney, like those found at EZ Short Sales, can help you! Here are some of the essential advantages you can benefit from by hiring a foreclosure attorney to stop the process.

Hi Everyone! We wish you all a happy new year and a very successful 2012! So what will this year bring to the market, and how will it affect the REO inventory and industry as a whole? Find REO Specialist.

National Statistics

1,750,000 REOs still haven’t been listed

3,500,000 Mortgages are in default

15,000,000 Homes are under water

Asset Management companies are busier than ever and looking to new and creative solutions to help liquidate the assets on their books. Have you ever heard of REO Rental Management? (See Article) It’s coming. There’s also a good chance we’ll finally see Short Sale listings being assigned in the same way the REO Industry handles their troubled assets. REO properties are moving faster than ever, with “time-on market for a move-in ready REO at just 10.1 weeks” (See Article) As a friendly reminder, be sure to keep your REO Resumes and Profiles up to date with the new year.

Search Short Sale Professionals

Are you looking to sell your home through a short sale? If your home is underwater, this may be a great option for you. EZ short sales connects you with local short sale experts in your market area. Search our Short Sale specialist directory and compare specialist profiles, so you can make an educated decision, and maximize your chances of having success with your lender. If you’re selling your home, a qualified real estate specialist can help you negotiate a settlement with your lender, and even forgive your entire debt. This allows you to walk away from an upside down mortgage where you owe far more on the home than it’s worth in today’s market. A short sale has many benefits, and avoids a stinging foreclosure record on your credit report.

Search Short Sale Specialist near you, compare their information and experience, and choose wisely. You can always email us at helpdesk@ezshortsales.com if you’d like help selecting a qualified real estate specialist to work with you.

Buying a Short Sale has it’s unique differences as well. Did you know that when you buy a short sale, you first have to get the owner to approve your offer, and then the owner has to get his lender (the seller’s bank) to approve a short payoff. There are two steps here, and working with an experienced short sale professional will help your chances of success. A short sale cna be a great deal, but you also want to make sure you are protected from second lienholders, and mechanics liens which carry on with a short sale transaction. An experienced and training short sale expert will take your hand from start to finish. It’s what we do. Let’s get your home search going!

Pre-Screen Short Sale Listings: Before taking a short sale listing, carefully consider the likelihood that the transaction will close escrow successfully. Consider, for example, how much of a shortfall the lender must approve. Other considerations include, but are not limited to, the nature of the seller’s hardship, the time you have to sell before the homeowner potentially loses the property through foreclosure, the number of liens against the property, and market conditions.

Zillow reported last week that 15.7 million homeowners are underwater, about 31.4 percent of US mortgages. People say things are getting better, but clearly there is still a huge problem and the housing crisis has a ways to go before calming down. Some areas are much worse off. For example, 79% of homes are underwater in Las Vegas, and other major cities like Phoenix, Orlando, Riverside and Atlanta are all over 50% underwater. This information comes from Zillow’s Negative Equity Report.

What this means is more short sales and more people looking for short sale specialists. Homeowners nationwide use Ezshortsales.com to find local experts to help them sell their homes.

What Is a Short Sale?

Short sales can be beneficial to homeowners as well as lenders. Lenders often receive more money for short sales than foreclosures, and they do not need to be involved with property upkeep and disposal. Short sale houses are generally in better condition than foreclosures because the homeowners want to sell their properties as fast as possible.

How a Short Sale Works

The homeowner is unable to make mortgage payments, or it does not make any sense for them to do so because the loan balance is higher than the market value of the property. The homeowner contracts with a short sale real estate specialist to market the house. A buyer submits an offer to purchase the house. This offer is forwarded to the lender with a short sale package of documents. The lender evaluates the package and decides whether to accept the offer.

How to Qualify for a Short Sale

The depressed value of the house is the most obvious requirement for a lender to approve a short sale, but the homeowner has to meet other qualifications as well.

There must be a financial hardship. Lenders only recognize certain hardships when approving a short sale. These include chronic illness, job loss, death of a borrower, divorce, incarceration, military deployment or involuntary job relocation. Some lenders will consider approval if there is a new addition to the family such as a new baby or an elderly family member; other lenders will not recognize these situations.

Homeowners who find themselves in a situation where mortgage payments are just too expensive and cannot make their payments do have a couple of options to reconcile the situation. One option is foreclosure, but this can lead to many more issues down the road in terms of the homeowner’s creditworthiness. Another option is to do a short sale, which can give someone the control in selling their house to rectify the situation with the mortgage company. Both choices have pros and cons that should be discussed with real estate professionals who have experience dealing with short sale situations.

If a homeowner decides that they do want to try another solution before letting the house go into foreclosure, they can choose to try selling the house through a short sale. A short sale is just like selling a home when payments are up to date. The homeowner chooses the real estate specialists, makes a deal with an interested buyer and works together to get the house sold. The only difference is that if the homeowner is still behind on their payments, the mortgage company must agree to the short sale price before the deal is finalized.

For most homeowners in trouble with their payments, foreclosure is the last resort. A foreclosure has a significant impact on a person’s credit report vs a short sale, and it can take years to regain a good credit score. Foreclosure also puts restrictions on when a person can buy another home, since most lenders will not approve them for financing. This wait is anywhere from five to seven years. Those who choose a short sale may have trouble finding a lender if they were behind on their payments, but could possibly buy another house once the first one is sold. Short sales are also not required to be disclosed, but a foreclosure must be disclosed when looking for another mortgage.

The number of short sales in the US has risen dramatically in the past several years as home values have fallen below the amount of the mortgage on the property in many situations. This is especially true in markets where there was a tremendous escalation of real estate prices and banks created numerous mortgages based on these overinflated values. Now that prices have plummeted from these unsustainable highs, the lenders are trying to cut their losses and allow borrowers to payoff their mortgage for a lesser amount If they can arrange a sale of the property to another buyer. The lender still has to approve the price for the transaction to finalize.

The states with the most short sales are where speculators had driven up prices to unsustainable levels.

The 5 states with the highest number of short sales in the first quarter of 2012 were:

California 34,029

Florida 15,949

Arizona 9,454

Georgia 6,126

Nevada 5,282

If you have been following the news in recent years, then you aware that the most overblown real estate ‘boom and bust’ localities correspond with the metropolitan areas which now have the largest number of distressed property sales. Southern California, Southern Florida, Phoenix, Atlanta, and Las Vegas all topped the lists for greatest appreciation during the boom times and the largest percentage declines after the bubble had burst.

Short Sale: Is it a preferable option for the homeowners?

In the US, home prices have dropped as much as 50%, so people are keen to know what they can do in order to impede the bleeding. There are definitely various strategies available to lower the mortgage payments. However, when you’re underwater, refinancing with mobile home loans may not be a right option. In this situation, you may be desperate to come out from this distressful state. Therefore, short sale can be the only option you have in hand to come out of this trap.

Before opting for a short sale make sure whether short sale is a preferable option for you. Therefore, continue reading the article in order to get more information on it.

What is short sale?

A short sale is a sale of a property in which the proceeds of the sale are less than the balance of debts secured by liens against the property. When the property owner can’t afford to repay the liens’ amount completely, the lien holder may agree to release the lien on the property by accepting less than the amount owed on the debt. The remaining balance that is unpaid is called deficiency.

What is the effect of short sale on credit report?

…typically a short sale property is turned over 10 months faster than a foreclosure. Meaning the banks shave ten months off the time in which they are not receiving any payments from the distressed property owner. Some of the major changes that were included in this reform was that no longer will homeowners who are 90 plus days behind on their mortgage and have a FICO score under 620 be burdened with the task of producing hardship documents. Another nice change is that on any second lien on the property will be capped at $6000 in return. Many times the first mortgage was easily negotiated only for that to stall due to the fact that the second mortgage was with a different lender or could not be negotiated down enough to make the short sale possible. This is great news for homeowners who have a second or third mortgage or a line of credit tied to their home. The final change that was greatly needed was a set time frame for responses from the lender. In the new reform lenders will have 30 days to respond to the initial request from the homeowner and have to have a decision on the price within 60 days of the initial request. The bottom line to all these changes is that it will make it a lot easier for all parties to do a short sale. This is just another increase in the trend of doing a short sale rather than being foreclosed on.

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That’s because many people who are behind on payment are being allowed to stay in their homes for years at times, so this is pushing back the date when these coming short sales are flushed through the system. That’s good for real estate specialists because it means more short sale listings for you! We have seen a dramatic spike in seller activity on our website, as they look for real estate specialists near them to help them short sale their home.

Peggy Patschak has over twenty years of experience in the real estate and mortgage industry. Peggy has completed over fifty short sales and is currently serving the Frederick, Carroll, Washington, Howard and Montgomery Counties in Maryland. She is a proud member of the National Association of Realtors and several other associations. Peggy’s drive and compassion towards helping others has made her a successful short sale specialist!

Joan Kilbey has completed numerous short sales over the past 14 years of her experience. While residing in Arizona, Joan has specifically been serving the Metropolitan Phoenix area. Not to forget, Kilbey’s Next Home Professionals is a brokerage helping to move underwater homeowners to a new home where they can fulfill and once again enjoy the American dream of homeownership.

Karen Kerpen is busy living the life in Boca Raton, Florida while serving the area as a successful short sale specialist. Karen and her team have successfully completed over 100 short sales. Karen is a proud member of the Regional MLS, Miami MLS and Broward MLS.

Lisa Aguilera has been a licensed realtor for the past six years. Throughout her experience she has help several people overcome the process of short selling their home including 35 short sales. The Aguilera Real Estate Team continues serving the counties of San Joaquin, Alameda, Contra Costa and Stanislaus by providing a professional experience in real estate and short sales.

According to Lender Processer Services, 60% of borrowers who are behind on their mortgages in judicial states haven’t made a mortgage payment in over 2 years! In non-judicial states, it’s 30%. Both are incredibly high numbers. One of the main reasons for this is the banks are advising their clients to modify their loans or attempt a short sale. We have seen a dramatic spike in seller activity on our website, as they look for real estate specialists near them to help them short sale their home.

Lender Processing Services (LPS) reported a spike in delinquency rates in the month of September, compared to August, which means even more foreclosures are likely to stack up on top of the shadow inventory. For those who think the REO bubble has burst, this should be a wake up call. It’s not even close to being over. In fact, some banks are holding back up to 90% of their REO inventory. These foreclosed homes don’t just disappear. They need to be sold!

…Even though housing prices have come down, so too have incomes across the country, and in many areas, it’s still been difficult getting an offer accepted. With so many cash investors stepping into the market again, they have squeezed out many other buyers, and are getting properties for less than market value since sellers tend to prefer to work with a quick closing cash buyer than a buyer with a loan.

This is an issue the Center for Housing Policy (CHP) has been trying to warn the industry about. Jeffrey Lubell, the executive director for CHP states “In many communities, there is a major disconnect between the income families have and the costs of buying a home… If you can’t afford a home right now, it’s not going to get better.” This will lead to further slides in the housing market, and more REOs.

HAMP has officially stopped 1 million loan modifications in the works. 23% of those cancelled loan mods have already re-defaulted and started heading right back into foreclosure. These numbers are expected to dramatically rise as banks continue to speed up the unloading of the shadow inventory backlog.

Additionally, CLS Asset Management points out that “the recent mandate by the administration that Fannie Mae and Freddie Mac discontinue writing down underwater mortgages has paved the way for the initiation of a record number of “strategic default” foreclosures. A documented 1.1 Million homeowners have simply walked away from their homes to avoid heavy IRS penalties scheduled to resume January 1, 2013.”

It is a fact universally acknowledged that housing has multiple problems and the solutions always remain elusive. Taking out a mortgage loan to purchase a house is perhaps the biggest responsibility on your shoulders as your home will be pledged as collateral to the loan. When it comes to repaying the mortgage loan in easy and affordable monthly payments, there are some who fail to do it on time and this gives rise to various financial and legal issues. The thumb rule that the lenders follow while lending a mortgage loan is to foreclose your house and sell it off in the event of a mortgage default. But who wishes to let go of his fond house? Loan modification, refinance, short sale can be a way to eliminate your mortgage responsibilities and get back on the payments. If you’re wondering how to do a mortgage loan modification, you need not worry as the entire process involves negotiating with the mortgage lender.

Which option should you choose- Loan modification or short sale?

When you’re not in sync with your monthly mortgage payments, your thoughts might be wondering among a loan modification and a short sale. But which option you would choose depends on your current financial situation, your desire to keep your home with you and the willingness of the bank to let you take resort to the options. The situation gets even more complicated when the bank doesn’t accept the present value of your home. When you actually want to stay in your home, loan modification is certainly a better option than short sale.

Ellie Mcintire is a full time realtor located in Central Maryland. Ellie’s ten years of experience has made her a excellent realtor. Ellie understands the hardship that brings a person to sell their home. Her compassion and desire to help others has granted her to complete over 32 shorts sales!

Cheryl Keller spends her time dedicated to helping serve the community of Roseville, California by helping underwater homeowners. Cheryl’s twelve years of experience in the industry has made her a prominent figure in the short sale arena. Most of all, Cheryl’s compassion and commitment continues to allow her to complete several successful short sales in the Placer, Sacramento and El Dorado Counties in California.

Enrique Vasquez Plaza has been serving the California communities of Covina, West Covina, Azuza and all San Gabriel Valley with short sale assistance. Enrique has several certifications including; certified distressed property expert (CDPE) and home affordable foreclosure alternatives (HAFA). Enrique is a proud member of the department of Real Estate and National Association of Realtors and continues to pursue his passion as a successful short sale specialist.

During the election campaigning, many of the nation’s serious housing issues were left unsaid. Foreclosures, tight credit availability and underwater homeowners continue to threaten the developing economic recovery. Those hit most by the housing crisis, including the homeowners in Florida, Nevada and Arizona, have been left particularly concerned. As President Obama gradually is sworn in for his second term, many are left questioning how the President will address the issues that has crippled household budgets and stunted economic recovery. What are your thoughts on the housing crisis as the President begins his second term?

Also, they are speeding up the process. If you’ve been selling short sales recently through our network or your own, you may have noticed some of the major lenders responding quicker than usual. The results has been that there have been nearly twice as many short sales completed as there were REOs in the last quarter.

In 1976 Bob Anarumo started his career in the real estate industry and has been actively involved in commercial and residential properties since. Bob has several years of experience in Short Sales within the Central Florida area. Bob has been recognized several times as the Top Sales specialist by the Coldwell Banker Team Reality. Currently Bob has been focused on new construction, REO’s, short sales, foreclosures and investment properties. His experience with working with international clients, and ambition to help others continues to make Bob a exceptional short sale specialist.

Eva Rainer has been specializing in short sales and assisting homeowners facing hardship for the past seven years. Eva is CDPE Certified and has experience and success with over 100 banks. Eva is currently serving the San Joaquin, Stanislaus, Sacrament, Alameda and Contra Costa counties.

With 9 years of experience, Oscar Montalvo is a experienced short sale specialist. Oscar is currently serving several counties in the Los Angeles area. Oscar is a hard working, honest and dependable short sale specialist who is CDPE and HAFA certified. Oscar is also bilingual and proud members of several realtor associations!

If this process is finalized by December 31st, 2012 about 1.5 million homeowners in foreclosure or considering a short sale need to understand the different tax implications.

Unfortunately the Mortgage Relief Act is going to expire soon. This act allows up to $2 million of forgiven debt to go untaxed. If you have your mortgage debt forgiven after December 31, 2012, your tax liability could substantially be increased.

In different cases, banks can choose to forgive some or all the outstanding loan balance. Most of the time, forgiven debt is taxable income. If certain requirements are met, those facing foreclosure or a short sale in which the lender agrees to accept less then the full amount owed on the mortgage, could get tax relief from the Mortgage Relief Act.

After this act is expired, many people foreclosing or short selling their home may have significant tax implications, resulting in taxpayers owing more in taxes when they file their next return.

Although foreclosure and debt canceling are two separate processes, if and when canceling debt comes about rests solely with the lender. This decision could take months or even years after the foreclosure occurs.

To everyone’s surprise, U.S. home resales unexpectedly rose in October. On Monday the National Association of Realtors announced that existing home sales climbed 2.1 percent last month to a seasonally adjusted annual rate of 4.79 million units.

Some speculate that super-storm Sandy, which slammed the U.S. East Coast on Oct. 29th had only a minuscule impact on home resales. The only region where the pace of sales slipped was the Northeast. Throughout the nation, the number of existing homes for sale have fell 1.4 percent. Currently about 2.4 million homes are for sale, which is the lowest amount ever since December 2002. At the rate sales are going, inventories would be exhausted in about 6 months.

With the gauge remaining below 50, the housing market is still in slow recovery. This means builders are viewing marketing conditions as poor rather than favorable. Since April 2006, the index has not been about 50. Still, the measure has made strong progress over the last year, helping to cement optimism in the sector. Still one of the biggest overhangs in the economic recovery is housing that led the financial crisis of 2008-09.

As inventories of foreclosed and distressed homes begin to shrink, builders are reporting increasing demand for new homes.

Over the 12-month period, prices increased in 90 percent of cities. Phoenix was amongst the highest, jumping approximately 20 percent. Even the hardest hit state, Las Vegas, saw a price increase of 1.4 percent, the biggest gain in a long time. Cleveland, was the largest decline where prices fell 0.9 percent.

Since monthly prices are not seasonally adjusted, some of the declines may signal the end of the summer buying period. Despite the seasons, housing continues to improve. These steady increases in home prices have helped drive a modest recovery in the housing market. These higher prices may be more encouraging to buyers. More people looking to sell their property could also be more likely to put their house on the market.

With about 70 percent of the U.S economy account for consumer spending, homeowners who see a increase in their property value might also be more likely to spend more.

At this time, more people are living with relatives or friends. As housing prices continue to gradually increase, these people may be more likely to move into a new place.

Builders can also be seen with a little more confidence during these times. During this month, their confidence rose to a new high after six and a half years. Builders broke grounds on new property at the fastest pace in more then four years this last month alone.

Are you one of the thousands of homeowners ready to sell your house, but owe more then your home is worth? Through a process called a short sale you can…

• Save your credit
• Possibly walk away with no debt or tax consequences
• Avoid foreclosure and bankruptcy
• Sell your home for less than what you owe your lender

Without going through foreclosure, or declaring bankruptcy we can help you sell your home quickly, easily and for top dollar.

Since short sales are time intensive transactions, the sooner you start the process, the more options you will have. Our short sale specialists have helped thousands of homeowners successfully sell their home and move on with their lives. Get in touch with one of our professional short sale specialists and let them help you understand your options.

According to CoreLogic, mortgage fraud is on the rise again, with over $12 billion in fraudulent originations this year. Corelogic attributes this to high levels of unemployment, combined with low mortgage rates, incentivizing homeowners to misrepresent their employment status on loan applications. It’s a sad truth, but a truth nonetheless and we wanted to share this because it’s a sign that employment is still the remaining issue, and the main reason why we are seeing an increase in properties that need be sold as a short sale. As long as unemployment remains high, we will need good specialists to sell short sales for us.

According to RealtyTrac, which tracks pre-foreclosure and short sale data nationwide, short sales are on the rise, and are being utilized more and more as an alternative to foreclosure. In fact, year over year, short sales have increased 17% according to their most recent report and on average, short sales were sold $95,000 below the loan amount!

Attention Short Sale Specialist. Starting February 1, 2013, the Home Affordable Foreclosure Alternatives program (HAFA) will undergo some major changes that will speed up the short sale approval process, which is welcome news to all specialists nationwide! One of the major changes is the requirement that servicers must make a decision on a borrower’s short sale request within 30 days. Another major update which is certain to speed up the process is the “pre-determined hardship”. Borrower’s who are 90 days delinquent and have a FICO score under 620 will have a pre-determined hardship. More changes are coming too and we’ll keep you posted

The somewhat long and frustrating process of short sales are sometimes a deterrent for specialists. However, the best part of short sale listings is that the process for sellers isn’t all that bad. Since the seller isn’t paying the real estate commission, they have less objection and can move forward with the process quickly.

Helping understand seller concerns can lead specialists to more listings. Short sale specialists should take these seller concerns into consideration:

• Financial benefits of a short sale
• Tax Implications of a short sale
• Impact of the short sale on the seller’s credit

Be prepared to deal with these concerns. Here are a few answers that can help you when the homeowner brings you these concerns:

“Will selling my home as a short sale benefit me?”

Lots of benefits of selling your home as a short sale exist. Some lenders may even offer relocation assistance money (sometimes up to $40,000) to certain short sellers. If you wait for your home to go into foreclosure, you may receive far less expenses for relocating.

“Will the short sale process impact my credit?”

Was 2012 the year of the short sale? Will short sales mitigate losses for mortgage lenders and servicing institutions in 2013, or will they be ignored in favor of fast-track foreclosures? For real estate and mortgage brokers in California, 2012 was definitely a breakthrough year for short sales, and this mini-boom could not have arrived at a better time.

The uptick in short sales was certainly good news for the Golden State, a housing market that experienced very hard times once the housing bonanza of the early 21st century deflated and the Great Recession set in. Outside of California, the short sale situation was not as pronounced –at least not according to Gary Thomas, President of the National Association of Realtors and owner of a real estate brokerage in Southern California. A different view, however, was recently issued by housing analytics firm RealtyTrac; on the Irvine-based company’s national real estate report for the third quarter, short sales were 20 percent of all housing transactions, down from a sizable 40 percent during the second quarter.

Short Sales Were Preferred Over Foreclosure Sales in 2012

They also indicated that short sales were more than 20 percent higher since last year. More than 193,000 homes that were slated for foreclosure were actually rescued from the court-ordered auction or sheriff’s sale during the third quarter by the short sale process. This was actually the third quarterly report in a row to show more short sales than foreclosure auctions.

Wow that was close!

At the very last minute, Congress passed legislation extending the Mortgage Debt Relief Act for homeowners who do a Short Sale through 2013. When a homeowner sells their home, the IRS won’t treat the debt forgiven by the bank as income, which means they won’t owe taxes on that amount, therefore allowed a seller to short sale their home without immense tax consequences.

This is amazing news for short sale specialists since many more homeowners will go down the short sale route as opposed to walking away and foreclosing on their homes

Your bank will require you to put together a big package of documents before they let you short sell your home. This will include lots of financial documentation showing your income along with an estimate of the “net to seller” amount (the total payment to the seller after fees). The numbers side of things is all very black and white. But there’s one piece of paperwork that’s a little more personal – the hardship letter for short sale.

This is the document that tells your story. It takes more than numbers on a spreadsheet to convince a bank that you should be approved for this process. You need to tell the truth simply and succinctly – touching on the points that matter to the financial institution that’s getting ready to take a loss on your loan. Here are a few tips for getting this letter right:

· Put your eligibility front and center. Your letter must include a clear explanation of the factor or factors that qualify you for short sale consideration. This might be involuntary job transfer, illness, loss of income, divorce/legal separation, or military transfer.

· Use a timeline that explains how you got into this mess. Start with the date you bought the property and outline how your position has changed since that time. Make it clear that you couldn’t have foreseen the events that led to your home loan woes.

Even big stars can get into trouble when they buy houses in a booming real estate market. For example, Chris Tucker listed his $6 million dollar mansion in Florida for short sale at just $2 million in 2010. In 2011, singer R. Kelly put his $3 million dollar home on the market for $1.595 million. Burt Reynolds, Carnie Wilson, Rihanna and many other celebs have gone down the same road over the past couple of years.

The fact is that anyone can get caught behind the 8 ball when it comes to falling housing prices. If a star with a bevy of legal and financial advisors can get stuck with a home they can’t pay for, you shouldn’t feel embarrassed about your own situation. The good news is that you don’t need a team of lawyers to assist you with short selling your own modest residence. It really just takes one experienced specialist who specializes in short sales to walk you through the process and get you out from under.

When you start negotiating a short sale, it can be tempting to do whatever it takes to get the deal to go through. The problem is, as a seller in duress who is underwater on your mortgage, you don’t have a lot of leverage. In fact, it’s your primary mortgage company that holds most of the power in these negotiations. They get to decide who gets a slice of the pie.

Junior lien holders are second in line when it comes to getting a chunk of the sale. This includes lenders holding a second mortgage or HELOC loan on your home. They may be small players; however, they do have veto power over the short sale. If they don’t agree to the terms, the sale cannot be completed. The primary lender will cut them in on the action, but there is a cap on the amount they will be paid.

Some unscrupulous secondary lien holders are bound to be unhappy with the suggested settlement amount. They may try to pressure you to give them a one-time payment under the table (outside of escrow and not disclosed on the settlement statement). This is fraud – and you are just as legally liable as they are if you agree to do this. Always have your reputable short sales specialist handle communication with lenders to make sure everything is above board with your deal.

That’s a question that any savvy buyer should ask before putting in an offer on a “deal that seems too good to be true”. In fact, the seller and the realtor brokering the sale both have a legal duty to disclose that the home they are trying to offload is a short sale. That’s the law in California ever since a prospective buyer had a deal fall through when they offered to buy a home for the asking price of $750k.

The fact was that there were loans in the amount of $1.141 million dollars outstanding on the property from 3 different lenders. These lien holders had no intention of cooperating with the short sale – and the seller and broker both knew it. There was no realistic chance that the seller could deliver free and clear title to the home. The courts determined that the seller and the broker both withheld critical information that would have allowed the buyer to make a more informed decision about the risks of making an offer.

Takeaway Points

· As a buyer, you should ask point blank if you are looking at a short sale house. If that’s the case, get your own experienced short sale real estate specialist to represent you. Always have a title search done before closing just in case.

If your home is worth less than the amount you owe on your mortgage and you are struggling to pay your bills, you may be tempted to short sell your home. That can actually be a viable option to foreclosure in many cases. It does less damage to your credit and often lets you walk away with no outstanding mortgage debt. Plenty of folks will express an interest in helping you with that process. But they don’t all have what it takes to get the job done.

Don’t Be Fooled by Debt Negotiators

There are lots of people out there claiming to get you debt forgiveness on your mortgage loan via a short sale. They go by many names such as “debt resolution experts”, “short sale coordinators”, and “foreclosure rescue negotiators”. These people will be happy to take your money, but they can’t lawfully represent parties to a short sale. The fact is that when liens on real property are involved, the California DRE regulations require that a professional with a valid real estate broker license do the negotiating. The only exceptions to the law are:

· If a licensed attorney takes on that role (which doesn’t make sense unless they specialize in residential real estate)

· If you short sell your home with no outside help (again, that’s only wise if you have LOTS of experience)

Did you know that the New Jersey housing market is starting to recover? That means if you are interested in buying short sales in NJ, you need to act fast. According to the Federal Reserve ‘Beige Book’ for March 2013: “While there remains a large overhang of foreclosed and distressed properties, many of these are expected to be snapped up by investors.” Since the region is just starting an upswing, prices are still good – and interest rates are outstanding. Real estate firms in the area are urging buyers to buy now. We agree; you won’t have this chance again for a long time. With so many investors sniffing around potential short sale properties, you need an specialist who can find you the best deals as fast as possible. Use our “specialist finder” feature to put you in touch with a local specialist.

Short sale debt cancellation is one of the most important aspects of getting out from under a home you can no longer afford to pay for. Without this “forgiveness”, all you have done is sell your home for less than you owe to pay off a portion of your loan. The bank can still come after you with a deficiency judgment for the balance of the mortgage. This doesn’t just happen with primary lenders. If you have refinanced your mortgage or taken out a home equity line of credit (HELOC), those lenders can do the same thing after you short sell. You might think you are free and clear then end up with creditors coming after you years after the sale is complete.

Be aware that releasing the title from liens is not the same as releasing you, the borrower, from your “promissory note”. This is the agreement you signed when you bought the house, stating that you were personally liable for paying back the loan. Even if the title is free of liens, you could still be on the hook to pay off the loan.

In the HAFA program, debt forgiveness is supposed to be structured into the deal. With a traditional short sale, this aspect has to be negotiated and agreed to by all the lenders. In either case, you should have your real estate specialist show you the portions of the contract that deal with debt cancellation. Then, you should make sure you get the appropriate forms from the bank and all secondary lenders at closing stating that your outstanding balances are cancelled or forgiven.

If you are a short sale specialist, you know that negotiating with the bank to set an acceptable sale price can be tricky. The bank may not want to reduce the price of the house enough to make it attractive to potential buyers. In that case, you may be stuck doing a lot of work and simply not being able to close a deal.

Occasionally, there may be a benefit to having a house inspected early on when you are trying to arrange a short sale. Texas is one state where this might be particularly beneficial. That’s because homes in locations like DFW often have lots of hidden damage that reduces the value of the property. Here are a few examples:

• · Foundation trouble from the constantly shifting clay soil
• · Hail damage to the roof
• · Water damage in the attic from a leaky roof
• · Termite or carpenter ant damage to wooden materials in the home
• · Mold in ducts, behind drywall or under carpet from high humidity

The homeowners may be unaware of these problems and therefore not able to disclose them as required by law. If they are aware of any issues that lower the value of the home, make sure they provide you with a complete list during your consultation.

The answer is yes and no. Because you don’t actually hand over the deed to your home to the bank until closing, you are the one receiving the sales money for the home. On paper (such as on the net sheet), you are the one paying all the closing costs, fees, taxes, real estate specialist commissions, etc. But you are immediately turning around and giving all the remaining money to the bank. Since you owe more than the home is selling for, it’s simplest to think about all the money from the sale belonging to the bank in the first place.

But what you probably really want to know is if it will cost you money out of pocket to short sell your house. The answer is – it depends. If you are doing a traditional short sale rather than a HAFA sale, the bank may ask you to agree to pay for a portion of the loss they are taking on the mortgage. This is sometimes delicately referred to as a “financial contribution”. The bank may want a lump sum up front, but they are usually willing to arrange a payment plan. Obviously, you want a real estate specialist who will negotiate aggressively to prevent you from having to pay the lender anything. That’s one reason to make sure you get an experienced short sales expert to handle your deal.

Did you know that the FTC has rules about what your short sales specialist needs to tell you when they offer to represent you? These disclosures are covered under the rules for providers of MARS (Mortgage Assistance Relief Services). They help protect consumers from misleading advertising. Here are 4 of the top things you should know.

The Bad News

· Your specialist can’t guarantee that your lender will let you short sell your home. In the end, it is up to the bank to decide.

· If you stop paying your mortgage in order to encourage the bank to let you short sell, your credit will be negatively impacted and you might end up in foreclosure anyway. (Of course, any short sale affects your credit, just not as badly as a foreclosure).

The Good News

· You can accept or reject any offer your lender and real estate specialist come up with. If you reject an offer, you still aren’t on the hook for the specialist’s fee. That is only paid when a deal closes.

· You can stop doing business with an specialist at any time if they aren’t fulfilling your needs. This means if you want to switch to an experienced short sale specialist who has a better shot at getting you a good deal, you can do it today.

It’s been almost a year since Las Vegas short sales first outstripped Real Estate Owned (REO) deals (sales that occur after a bank re-acquires a property in foreclosure). According to the LV Review Journal, the prohibition on “robo-signing” of foreclosure documents is just one factor that’s made it more attractive for banks to work with homeowners who are financially distressed. Now, with some experience under their belts, banks in the area have a well-established process for facilitating short sales. This helps streamline the complex process of approval.

Even better, home inventory is low right now. Houses are selling right and left. Buyers are bidding against each other to offer more and more favorable prices. All these factors combine to make this a good time to short sell if you can no longer afford your mortgage and you owe more than your home is worth. Your first step should be to contact a qualified short sale specialist who can help you negotiate with the bank to get your house on the market ASAP.

Short sale tax implications are pretty complex since there are several different aspects involved. Here’s an introductory overview that will help you ask the right questions when you weigh the pros and cons of short sale vs. foreclosure.

Tax Relief Continues for Insolvent Homeowners

Prior to 2007 when the Mortgage Forgiveness Debt Relief Act went into effect, you would owe income taxes on the balance of your unpaid mortgage that was forgiven (cancelled) by your bank. Since Congress extended the Act through the end of 2013, you can still sell a home for a loss and not get hit with a huge tax bill. This doesn’t mean you should ignore the 1099-C form your bank provides when they cancel your debt. They are sending a copy to the IRS as well. You do need to complete the appropriate sections in your tax forms showing this cancelled debt, even if you don’t have to pay taxes on it. The amount of forgiven mortgage debt you can exclude from income is $1 million ($2 million if married and filing jointly).

Additional Taxation Scenarios

There may also be other short sale tax implications if the value of your property increased since you bought it. Let’s say you took out a second mortgage. You might still owe more on your home than it is worth and be “upside down” because of that second loan. This means you could end up short selling your home for more than you bought it for but less than you owe. The IRS sees that as a tax gain. Fortunately, if the home you are selling is your primary residence, you may be able to exclude part or all of this gain. Learn more about tax consequences with easy to understand examples here.

If you qualify for a short sale under the HAFA program, you are eligible for a $3000 one-time “Borrower Relocation Assistance” payment from the government. Your primary lender may also sweeten the deal with an additional incentive to facilitate your ability to move out (leaving the property in good condition, of course). Relocation assistance isn’t just for covering rent on an apartment or hiring a moving van. Here are 3 other ways this sum could ease your transition:

· Satisfy the IRS. You may need to take care of unpaid property or income taxes. Otherwise, buyers may not want to purchase the home since the title isn’t clear.

· Resolve other “non-institutional” liens. If there is any lender or agency that may have a lien on your home, the outstanding balance needs to be paid. This includes back child support or even old credit card debt that has resulted in an “abstract of judgment”.

· Pay your outstanding utility bills. You probably won’t be able to get another home loan for a couple of years. But you will need to live somewhere. Odds are you high that will want electricity and running water. This means you need to have your utility payment record in good standing.

Setting the price on short sale properties is always a bit of a guessing game. It’s important to strike a balance between the loss the bank is willing to accept and the amount buyers will actually be willing to pay. There are two ways of evaluating a home during the sale process. The original lender typically uses a broker price opinion (BPO) to determine an appropriate selling price. This is a “fast and dirty” way for the bank to assess how much a house should be listed for. In some cases, the real estate broker hired to offer their opinion does no more than drive by the house. They simply take a look at the exterior and compare the approximate square footage to other, similar properties that are currently listed or have recently sold in the same neighborhood. The whole thing costs about $50 to $75. As you can imagine, the result is sometimes only a very rough estimate of the home’s value.

An Appraisal Goes Much Deeper

The bank lending money to the buyer of the short sale home is going to want an actual appraisal from a licensed property appraiser – not just a real estate specialist. This involves a walk-through to spot any obvious issues, measurements to verify the dimensions of the property, and a more detailed look at other factors that can impact the reasonable selling price of the home. The resulting dollar figure is considered a good estimate of the true value of the home (although the appraiser’s professional opinion also comes into play). The reason the buyer’s bank wants a more thorough and accurate estimate is because they are taking on the risk of a new mortgage when they lend money to the buyer. The bank that is allowing the current owner to short sell just wants to offload it without incurring too many extra costs. Since a formal appraisal can cost several hundred dollars, it’s easy to see why the seller’s bank isn’t interested in footing that bill for short sale properties that are already costing them big bucks.

Typically, investors and house flippers don’t care much about the little details of staging when they buy a house. They just want to take advantage of depressed property values to make a sweet profit. But if you are short selling your residence to someone who wants to actually live in your home and make it their own, it still pays to make everything look nice. This increases the perceived value of our home so it can be sold for a decent price. The better the price you can command for the house, the less likely the bank is to refuse a short sale offer or require you to help defray their loss on the mortgage.

Buyers looking for a new home to move into often make a decision based on how your home makes them feel. Of course, you’ll want to keep your costs for renovation as low as possible. Consider asking for painting supplies from your local freecycle group. Clean up, scrub, vacuum, declutter, repaint, add some potted plants, and generally make the home look livable and welcoming. Besides making your home easier to sell, this is a nice way to make peace with a difficult situation and “say goodbye” to a home you love.

How long do you need to wait before applying for a mortgage after short sale? According to a very informative Forbes.com piece by Gerri Detweiler, it all depends. You might qualify sooner than you think. Generally, it takes two to four years before a bank will be interested in loaning you the money for another home. That’s just about enough time to get your finances together, clear up outstanding debts, and find a home you can afford. Here are some factors that can help you qualify sooner rather than later:

Resolving substantial outstanding debts. These are a deal breaker for most conventional loans. This is one good reason to use some of your relocation assistance money to pay off creditors.

Requesting a loan that has a low LTV (loan-to-value) ratio. If you can scrape together a sizable down payment, you’re in the best shape.

The whole article is full of good advice for cleaning up after a short sale so you can start over with a new home once the smoke clears.

Reverse staging is the latest in a string of short sales scams. The tragic thing about this particular fraud is that innocent houses end up getting hurt. In this scam, the idea is to get the bank to accept a very low price for the short sale. An untrustworthy real estate specialist is typically in on the scam and plans to sell the house to someone they are in cahoots with who will pose as a buyer. The bank that holds the mortgage will typically get a BPO (broker price opinion) to help determine what price is reasonable for the house. If the interior of the residence is trashed prior to the broker’s visit, this obviously makes the home look like it is worth much less. The unethical real estate specialist’s cronies can then swoop in and snatch up the distressed property for a song. They fix up the damage (which is often largely cosmetic) and resell the house for much more, pocketing the difference.

An ethical short sales specialist has lots of ways to help set a fair selling price for a home. But these strategies never include asking you to take a sledgehammer to the drywall. If an specialist tries to involve you in reverse staging, something fishy is going on. Remember that you could be liable for defrauding the bank and for intentionally inflicted property damage if you go along! Find a reliable, trustworthy representative to help you short sell your house the right way here.

An SSLB or short sale leaseback program allows homeowners to remain in their house after a short sale. They simply rent it from the new owner rather than vacating when the sale closes. This may seem like an unusual way to structure a sale, and that’s certainly true. When short sales first became popular, all transactions had to be at “arm’s length”. But a 2011 amendment to the Making Home Affordable program opened up the possibility of the leaseback option. Here’s the specific language in the amendment (clarifying notes in italics):

“This Supplemental Directive amends this restriction (requiring arm’s length transactions) to allow servicers the discretion to approve sales to non-profit organizations with the stated purpose that the property will be rented or resold to the borrower, so long as all other HAFA program requirements are met.”

In this arrangement, you sell your home to a non-profit and they lease it back to you for a set period of time. When you have rebuilt your credit and can be approved for a new loan, you can buy back your house. Of course, there are some important questions you should ask before you agree to this arrangement (it’s also a good idea to get legal advice):

Your lender will want to compare your income stream to your expenses to see if you really can afford to pay your mortgage. Remember that all short sale forms you send to the bank are filled out under penalty of perjury (you can get in trouble in court if you don’t tell the truth on these forms). Here are the types of income you are typically required to disclose:

Wages (including overtime, holiday pay, etc.)

Tips, commissions or bonuses

Self-employed income (including from regular small jobs you do in addition to full time employment)

Social Security payments (including disability payments)

Unemployment, food stamps or other benefits from government programs

Rent paid to you by tenants on any property you own

“Passive” income which may be payments, dividends or royalties, from retirement plans, pensions, annuities or investments

You might not be required to disclose child support or similar types of income. Read the short sale forms from your lender carefully and be prepared to provide documentation for all the income you declare.

If you are a self-motivated person, it might seem like a good idea to get started on your short sale process by finding a willing buyer before you go to your bank to start the approval process. But with Bank of America, this might actually limit the benefits you receive. This major lender prefers that you get preapproval through one of their short sale programs first. For example, if you are counting on relocation assistance from BofA, you need to participate in either a HAFA short sale (a government program) or a “cooperative” short sale.

According to the BofA website, “If you have received an offer on your house, and you are not already participating in one of our short sale programs, you will follow the traditional short sale process.” That option does not provide you any protection against foreclosure or a guarantee of relocation assistance. Since an assistance payment can go as high as $30,000 (depending on the appraised value of your home), it makes a lot of sense to get preapproved. Otherwise, you may not have the funds you need to clear liens against your home and present clear title at closing. That could end up sinking your traditional short sale so you end up in foreclosure anyway. In addition, failing to get preapproval could lengthen the wait time for an eager buyer to actually close on your home. They may lose interest during that time and move on to other prospects.

Do you have an FHA insured loan that is serviced by Bank of America? This can make your short sale approval process a bit more complicated than usual. You have to get the FHA’s OK before the bank will even consider your eligibility to participate in one of their short sale programs. According to an excellent and informative article by realtor Elizabeth Weintraub at About.com, you can expect the process of approval to take a while. You will probably need to apply for loan modification before an FHA loan can even be considered for a short sale. You might know perfectly well that you won’t qualify for modification, but you still have to go through the motions. The good news is that much of the information you gather when you apply for modification is the same as the information you will submit with your short sales document package. So, be sure to keep copies of everything. You’ll be needing them again soon to submit to Bank of America when you get the ball rolling on your preapproval for a short sale!

Why Do Banks Prefer a Short Sale vs. Foreclosure?

We’ve blogged quite a bit about the benefits of a short sale vs. foreclosure for homeowners. Short selling does less damage to your credit, is less embarrassing than a foreclosure, and actually lets you walk away with a little cash for relocation expenses. But what makes this option appealing for banks? Why should they let you walk away from a home while they take a loss?

Banks Are Counting the Cost

Financial institutions are in business to make money. Barring that, they think the next best thing is to cut losses as much as possible. That’s what approving a short sale does for the bank in many cases. The lender was counting on a steady stream of revenue from your monthly mortgage payment (since most of what you pay during the first years is the interest).

Arranging for a short sale means getting a big chunk of change back on the balance of the mortgage right away. That’s more appealing than getting small installments over the coming years if they pursue you for the outstanding balance after foreclosing. The short sale price is also likely to be more than the bank could get for selling your bad debt to a collection agency for pennies on the dollar.

If you are in the process of buying a short sale and qualify for an FHA loan for the mortgage, you should act quickly to seal the deal. The loan application process itself may not take too long, but short sale negotiations may tend to drag on. That’s all the more reason to get started right away and make sure the seller has already gotten preapproval from their lender. If you wait until June to get your loan, you will be facing a dramatic increase in the cost of your FHA loan over the lifetime of the mortgage. This change has nothing to do with interest rates. Instead, you’ll be seeing the increase occur in the mortgage insurance premium (MIP) and the length of time the insurance remains in effect.

Times Are Hard for Mortgage Companies

Previously, buying a home with a substantial down payment and choosing a short loan term was enough to exempt you from having to pay mortgage insurance premiums on an FHA loan. Even if you did have to pay MIPs at first, these charges automatically stopped once your outstanding loan balance reached 78 percent of the value of the property. Going forward, many new borrowers are going to be stuck paying insurance for the entire life of their loan.

Do you have a rental or investment property that’s lost value rapidly in the last few years without generating sufficient income? Or, do you have a vacation home that you just can’t afford to keep? You may be wondering whether you can short sell this home and get out from under.

The answer is: “maybe”. As with any short sale, it’s up to your lender to determine whether they will accept less than the home is worth. It may still be a good deal for them vs. foreclosure, so don’t think the idea is completely off the table. However, you should be aware that you won’t be getting some of the benefits that are available to owners selling a primary residence:

· You won’t qualify to participate in HAFA (this means you will have no protection against foreclosure while the short sale is being negotiated)

· You likely won’t get a relocation assistance payment from the bank (although the actual resident may if you are selling a rental property)

· You will probably need to negotiate with any secondary lien holders yourself

· You may need to bring cash to the table to close the deal

· You are much less likely to receive debt forgiveness

· If you do have a portion of the debt forgiven, you will probably owe tax on that amount

If you are filling out the initial financial forms to start a GMAC short sale, pay special attention to the third party authorization form near the end. This is the document that gives your lender permission to speak to your real estate specialist or another party you designate on your behalf. It’s a critical piece of the puzzle if you want a professional to help you negotiate with the bank about your short sale. This form contains a few words of caution so you don’t get taken advantage of by shady “short sales consultants”.

Here are a couple of the tips they offer:

· Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan.

· Beware of anyone who says they can “save” your home if you sign or transfer over the deed to your house.

These are excellent precautions if you are planning to short sell your home. There are plenty of scams going on right now and you don’t want to make a bad financial situation worse by making a mistake with your short sale!

Luxury short sales attract a lot of attention in the media because American consumers like two things:

Getting a glimpse of the lifestyles of the rich and famous

Reading a good riches to rags story

It’s not a pretty habit, but a lot of people do like to point smugly at wealthy homeowners and ask, “How could they get in so far over their heads?” Of course, we know that real estate woes can happen to anyone. Property values can fluctuate for reasons that you couldn’t possibly foresee.

What to Do Now

If you have a “mansion” or other high value property that you need to short sell to avoid the cost and embarrassment of foreclosure, you need a real expert to do three things:

Find a high paying buyer fast

Negotiate a deal that will satisfy your lender when there are millions of dollars on the table

Market your property discretely to minimize press coverage

When you interview an specialist, you should definitely ask them how they usually accomplish these three goals. If you find someone who can answer your questions with confidence, that specialist is probably a winner! Start your search for the right specialist now!.

How do you begin the process of a short sale? By asking and answering a few critical questions. Here are the first things you need to figure out:

What’s Your Ideal (or Acceptable) Outcome?

If you don’t know what you actually want to accomplish with your short sale, it’s unlikely you will achieve it. So, you need to start with the end goal in mind. Here are some questions that can help you clarify your objectives:

· Are you on the road to foreclosure with no way out but selling short?

· Do you think you won’t qualify for loan modification, or have you actually applied to make sure?

· Do you want to preserve your credit rating as much as possible?

· Are you trying to move because you lost your job and the only opportunity for a decent paying career is in another city?

· Would you really prefer to stay in the house if that’s an option?

· Are you and your spouse (if any) on the same page with the decision to short sell?

· Do you want to maximize your relocation assistance payment?

· Are you willing to accept some financial responsibility for paying back the difference between your outstanding loan balance and the short sale price, or do you need the debt to be forgiven?

As you prepare your short sale package, you want to include all the information that might convince the person reviewing it to say “Yes” to your application. This means being open and honest about your money situation, job status, divorce, and much more. Having a big stack of medical bills is one of those financial catastrophes that might qualify you for a short sale. Unmanageable, unexpected medical costs are definitely something to mention in general terms in your hardship letter.

However, you should never send any medical documents with your package. You might think that “proving” you or a family member have a serious health condition means you need to send along a doctor’s note or other documentation of the illness. That isn’t the case. Personal medical information is carefully protected by HIPAA to limit discrimination based on health status. Lenders are prohibited by law from asking for or using such information in any way to determine your eligibility for any type of credit, loan modification, or short sale approval. They will simply discard any private medical documents you send without taking them into account.

Do you know the origins of the short sale? HUD (Department of Housing and Urban Development) is the organization that really kicked off this option in a big way in the United States. While some banks already approved short sale deals from time to time as a loss-mitigation measure, this wasn’t a particularly well-established alternative to foreclosure just a few decades ago. It took the federal government to bring this practice into the mainstream. The Department started experimenting with short sales back in the early 1990s to help reduce its losses on FHA backed loans. This new program was started because:

“The Department believes that a significant number of mortgagors who enter into a “defaulted” status on their mortgages would take advantage of the opportunity to sell their properties at current fair market value to a third party, to free themselves of the financial obligation that their mortgage represents, and also to avoid foreclosure.” A demonstration program was rolled out in Milwaukee, Atlanta, Denver, Houston and Phoenix to test the idea in both soft and stable markets. The program obviously worked, but HUD probably didn’t envision how popular this option would become in just a few short years!

One of the most frustrating things about trying to close a short sale is that there are so many different parties involved. As a real estate specialist, you have to interact with:

· The homeowner (who is likely dealing with their first short sale and needs a lot of help along the way)

· The bank servicing the loan (an entity that may be dealing with thousands of short sales and that isn’t particularly interested in your particular transaction)

· Any secondary lien holders (who are likely to squawk about not receiving a big enough slice of the pie)

· The broker valuing the home (who is probably most interested in getting their job done as fast as possible so they can collect their fee and move on to the next house)

· The buyers interested in purchasing the property (who probably want to close sooner rather than later – especially if they are selling their own home to move into this one)

· The mortgage owner (who is operating at one level removed from the whole deal but still gets a big say in what offers are accepted)

It’s not surprising that there are things that get lost in translation (or literally just lost). Homeowners trying to get their house sold before being foreclosed on and short sales specialist who are trying to assist them can be stuck in limbo when things go wrong.

In 2012, Representative Joe Heck from Nevada introduced a bill to Congress that was designed to give his constituents a second shot at homeownership. The Las Vegas short sale and foreclosure numbers have been off the charts in the past few years compared to other parts of the country. This housing crash has destroyed the equity and the credit scores tens of thousands of hard-working people in Nevada.

Foreclosures are Down but Short Sales Are Still High

Even the strict foreclosure regulations passed in 2011 haven’t stemmed the tide that much. According to RealtyTrac.com, although the number of foreclosures was cut in half, Nevada homeowners are still in big trouble: “After five consecutive years with the highest state foreclosure rate, Nevada dropped to No. 2 on the list in 2012 thanks to a 57 percent drop in foreclosure activity from 2011. A total of 31,658 Nevada properties had a foreclosure filing during the year…”

At the same time, one out of three home sales in the state for 2012 was a short sale. This means the number of former homeowners with a troubled credit history is still at record highs. The bill sponsored by Heck (Second Chance at Homeownership Act of 2012) was introduced to give borrowers another shot at buying a home. It would have created a new program within the FHA to offer government-insured loans to qualifying buyers who had been burnt by the housing crisis. The loans in this program would have a 30 year term and monthly payments would not be permitted to exceed the borrowers monthly rent payments from the preceding 12 month period.

Buyers, sellers and specialists will be happy to know that major players in the short sale process are taking steps to make their systems more efficient. For example, PennyMac Financial Servicers announced in June that their home loan division has implemented an automated program to shorten the timeline for pre-foreclosure sales. According to the company’s director, a short sale really shouldn’t take any longer than a traditional home sale. Now that these transactions are so common, lenders do need to make them part of “business as usual”.

Software Comes to the Rescue

The solution PMAC chose is provided by Quandis. This platform facilitates communication between the borrower, the servicer and the real estate specialist. It provides step-by-step instructions to build and submit the required short sale package. It can handle a variety of workflows including those deigned for compliance with government programs such as HAFA. Because the system is automated, there’s less likelihood of paperwork or communication falling through the cracks. It even saves time on phone calls since the servicer can generate and email status reports to the listing specialist and borrower. A risk analysis tool is included to help financial institutions make smarter choices about their short sale policies and processes.

Last year, Utah legislators decided to take action to make it less risky for homeowners to short sell their home. S.B. 42 is designed for traditional Utah short sales that fall outside the HAFA regulations. In this type of transaction, the lender releases the mortgage (deed) against the property in exchange for receiving the net proceeds from the sale. Unlike with HAFA, the homeowner still has an outstanding unsecured loan balance they are liable to repay.

In many case, the homeowner and the lender will agree to a repayment plan for this unsecured debt. However, in the event that no such agreement is in place, the lender’s other recourse is to file a lawsuit against the borrower to collect the balance. Prior to 2012, banks had a six month window from the date they release the deed to file such a suit. Now, that window has been narrowed to just three months. This may bring relief to borrowers who are waiting anxiously to see if their bank is going to come after them to collect the outstanding balance of their mortgage after a short sale.

We’ve written on this blog before about various scams that homeowners can get caught up in if they aren’t wary. Often, unscrupulous real estate specialists, property investors, and self-styled “short sale negotiators” are the instigators. But sometimes, sellers know exactly what they are getting into and have no one to blame but themselves. One couple is facing up to three decades in prison and a $1 million dollar fine for an allegedly fraudulent short sale in Nevada.

Why Are They in Trouble?

The husband and wife are accused of making false statements to their bank to gain approval for the short sale of their house. The authorities claim that the Hosbrooks committed bank fraud when they signed and submitted paperwork stating that the prospective buyer for their home was an unrelated party. Apparently, the buyer was actually a relative. They were buying the house but had no intention of living in it (although they allegedly signed paperwork stating that they planned to take up residence there). Such an arrangement would violate:

· Full disclosure of any relationship between the parties in a short sale

· The general requirement that short sales be “arms-length” transactions

A well-researched short sale wiki can be a good starting place to learn the basics about pre-foreclosure home sales. Different wikis are aimed at different audiences. For example, some cater to investors who want to buy and flip homes. Others are targeted at the average homeowner. If you are a real estate specialist, you may find it helpful to have a list of wiki links on hand that you can use to educate buyers and sellers about the short sale process. People will read a wiki when they won’t wade through a whole Wikipedia entry.

Unfortunately, many of the wikis on this topic are outdated, incomplete, or inaccurate. Here are a couple of the better wiki entries from around the web that you could find useful:

The Motley Fool

This wiki offers a broad overview including a compressed history of how the short sale trend got its start and basic rules about HAFA. There are also a couple of tidbits that could be beneficial for homeowners. For example, it points out that homeowners don’t get to keep a real estate specialist commission if they try to handle the transaction themselves. So, there’s no upside to forgoing the services of an experienced realtor.

Don’t Starve

Are you a homeowner who has an FHA backed mortgage? Are you trying to arrange a short sale? HUD has its own set of rules for how low the price can go on your home. Knowing the limitations can help you assess the likelihood that your home will actually sell in the four month allotted time period. Don’t blame your real estate specialist if they can’t negotiate with the lender to agree to a lower price. For mortgages that fall under HUD oversight, lenders aren’t permitted to approve offers that would cause the Net Sale Proceeds to fall below the allowable threshold of 88 percent of the appraised Fair Market Value (FMV). You may need to simply be patient and wait for the price to become more attractive to buyers. After the first 30 days the house is on the market, the permissible price drops to 86 percent. For the final 60 days, the price can go as low as 84 percent of FMV. Of course, you can’t just wait to market the property until later in the game. Borrowers are required to actively market the property starting upon approval of their “pre-foreclosure sale” application when the clock starts ticking. Learn more facts about HUD short sales here.

Many real estate specialists are discovering that short sales tend to mean lots of extra work – especially tedious paperwork and phone work. Instead of the exciting ability to get homeowners a great price or home sellers a fantastic place to live, realtors can get stuck in a quagmire of back and forth negotiations with the bank.

In the end, no one is necessarily happy. The seller is just relieved to get out from under. The buyer is exhausted from being on pins and needles about their deal going through. The bank is begrudgingly taking the net proceeds and writing off the rest of the bad debt. The real estate specialist may even have to accept a lower than normal commission.

What Steps Get Outsourced?

It’s not really surprising that some specialists want to wash their hands of the process entirely. Others seek to outsource the tasks they find particularly odious. Here’s a look at the various steps that could be foisted onto third parties:

Lead Generation – Many specialists who want to get into short selling try to buy leads. However, the quality and value of lead lists tends to be low since the person selling the list typically has not established any relationship or trust with the homeowner. It’s just a list of people to cold-call.

We’ve talked on this blog before about the effect of a foreclosure vs. short sale on a consumer’s credit history. Unfortunately, a lot of homeowners have been getting punished for short selling by having an ambiguous black mark on their credit report. According to Ken Harney at inman.com, the way loans are closed out in a pre-foreclosure sale can look pretty much the same as an actual foreclosure.

Why the Confusion?

The “settled for less than the full amount” terminology makes it sound like the seller had their house seized by the bank. Lenders and underwriters would have to actually sit down with a prospective borrower and get the whole story to know the difference. With so much automation in the mortgage industry these days, that doesn’t always happen.

If you’ve ever tried to fill out an online form where your information doesn’t fit in all the neat little check boxes, you can imagine how difficult it is to get approved for a new loan after a short sale. Previous homeowners who have rebuilt their credit record for a few years may still be turned down because they are lumped in with borrowers who have a foreclosure on their record. They should be able to get a loan in about three years after a short sale if they are current on all their financial obligations. Instead, they could keep getting rejected for as long as seven years.

Banks have added far more inventory to their REO listings over the past few years than they had bargained for. Yes, they were foreclosing right and left with all the robo-signing nonsense. But they ended up having to follow through and actually take possession too often. Ideally, a bank that forecloses on a home wants to offload it right away at an auction. However, the standard approach to selling at auction is to set the minimum bid at or above the amount of the outstanding mortgage balance. In an upside down loan to value situation (with a mortgage that is greater than the market value of the home), this simply isn’t going to happen. That means the bank has to actually repossess the home. At that point, the house becomes an REO property.

Why Is This a Problem?

First, a typical bank is not in the business of maintaining and selling real estate. This means they may have to pay an outside service provider (such as an asset manager) to handle the process. If they do handle sales in-house, they still have to hire a property preservation company to maintain the property so it doesn’t get cited for code violations.

Then, there’s the issue of repairs. An REO property may be in worse condition than a similar home that is in pre-foreclosure. If the bank wants to get a sale price close to the current market value for the home, they may have to be willing to sink money into repairs or renovation.

Short sales used to represent a fairly small percentage of home sales. But these days, they’re all over the place – on every street corner in every town where housing prices are down and unemployment is up. This means the entire real estate industry is getting a crash course in short sale negotiation and processing. It turns out, not everyone is really enthralled with this new educational opportunity. Several major stakeholder groups are looking to outsource so they don’t have to deal with the hassles and uncertainty that may come along with the typical short selling scenario.

Lenders/Mortgage Services

Bank of America made headlines earlier this year for reportedly deciding to outsource its short sale processing to third-party vendors. Agencies like “Dignified Transition Solutions” are relieving BofA of the burden of dealing with distressed homeowners who are trying to avoid foreclosure. This may add another layer of complexity for sellers (since introducing a middle man rarely makes things simpler). Will these vendors have the same rules and requirements for short sale packages? Will they all have different negotiation strategies? Will they be faster or slower than the banks at getting sales pushed through?

A short sale is the sale of a home for less than what is owed the lender. The bank (or other financial institution holding the loan) agrees to let the home be sold to a third party for less than the balance due on the note, and forgives the remainder of the debt.

A short sale candidate typically has little or no equity in their home. In many cases, the home may be “upside down”, meaning it is no longer considered worth what it once was, and the amount owed on it actually exceeds the home’s current value.

There will often be additional financial hardship involved in a short sale situation. Illness, loss of a job, divorce or other reasons for reduced income may prevent the homeowner from keeping up with payments. If the home is “upside down”, they cannot sell their home and pay off all of the outstanding debt against it.

People who qualify for a short sale typically fall into one (or more) of the following categories:

• The homeowner is behind on mortgage payments and sees no way to catch up due to changes in circumstances.
• The homeowner is not behind on mortgage payments, but will soon be and sees no way to avert the coming disaster.
• The homeowner is not behind on mortgage payments but must move due to job transfer, health reasons, divorce, retirement, military deployment, etc.

While there are no guarantees, a short sale is generally better than a foreclosure when it comes to how lenders will view your credit in the future. The real pivotal factor is in how you handle matters before, during and after the short sale.

Lenders, including banks or other financial institutions that hold mortgages, have the right to report to credit bureaus as soon as a debtor goes 30+ days behind on a mortgage payment. When late payments are reported to any or all of the three major bureaus, credit is adversely affected.

The more late payments are reported, the worse the effect is. Most people who end up in foreclosure have multiple 30, 60, and 90+ day late payments due on their reports. This is what causes a lot of the lasting damage, as each payment missed adds another ding to the credit report.

If you know that you are going to be unable to make your payments soon, moving quickly to achieve a short sale can help minimize the damage. If you can keep making payments right up until the short sale goes through, you will likely have one of two reports on your credit: “paid in full for less than the full amount” or “settled.”

If you don’t have the separate dings of late payments in addition to the notification settled amount, your credit score may not be as hard hit as you would expect and you may be able to start rebuilding your credit fairly quickly.

Completing a short sale can be a lengthy process. You can facilitate your short sale by having a short sale specialist who will walk you through the steps, and by having all of your own paperwork and information in order.

Stage One: Documentation

The first stage of the process involves the homeowner gathering all documentation about the home and the mortgage(s) and any other info to give to the specialist. How long this takes depends on how organized the homeowner is! The specialist should be able to supply a list of all the documents needed.

Stage Two: Preparation

The second stage involves both the specialist and the homeowner. Listing paperwork will be prepared, the home will be prepared for listing, and pictures may be taken for the listing.

Stage Three: Marketing

The third stage involves the marketing of the home for sale. This could result I an acceptable offer within days, or it could take several months. As a short sale, the likelihood of selling the home is greater in a down market because the home is being sold at a better value. This helps the buyer get a great deal and helps the seller get out from under an upside-down mortgage.

Stage Four: Negotiation / Approval

Are short sales still a viable option? Many may think that reports of the market “improving” would mean that shorts sales are on their way out – but in reality, there’s never been a better time to short sell your home.

It all comes down to semantics. The real estate industry and the government are desperate to be able to report that the housing market is recovering, but the way stats are reported can be tweaked. For example:

The phrase “New home sales are up” could be based off of reports that a higher percentage of new homes on the market are selling, even though with slowed construction the total number of new homes being built and sold is actually down.

The phrase “All home sales are up” could be taking into account the short sales and the sales at auction of foreclosed homes, as well as the bulk purchase of homes by fly by night businesses that purchase homes and flip them, resulting in the same listing counting for several “sales” per year.

The phrase “Real estate market recovering” could be taking into account the boom in certain parts of the country for commercial real estate, which affects the home real estate market not at all and skews the numbers.

A short sale is often the best choice for a first-time homebuyer who has plenty of patience for the process. Prices on short sales are better than ever, allowing first time homebuyers to get more house for their money. Even if the home has devalued at the moment, buying when the market is down means the home is more likely to increase in value over time, making it a great investment.

Short sale information is readily available to those hoping to get out from under an upside-down mortgage – the benefits include avoiding foreclosure or auction of the home, and although a short sale isn’t the best thing to have on a credit report, it beats a foreclosure by a mile.

However, many homebuyers don’t know about short sales, or don’t have the time to wait through a process that could take six to nine months as the homeowner’s lender and the homebuyer’s lender hammer out an acceptable agreement. The amount of paperwork involved is staggering, and it only takes one missing page to stall the works, so having a pro by your side to help you navigate the process is a must.

Benefits of a short sale include a smaller down payment, the chance to work with professional lenders who will ensure your mortgage is pre-approved, and the fact that many homes up for short sale are in very good condition, with little or no need for repairs. Short sales are an excellent choice for first timers, who usually aren’t in a situation where they have to move instantly and who are willing to be patient in order to get the perfect home at a rock bottom price.

Most people looking for short sale information don’t get the whole picture. They know about the seller, that they are probably upside down on their dream house, financially in difficulty and willing to lose all equity in their home just to be out from under the debt.

What they don’t realize is just how desperate lenders are to unload homes without having to foreclose. Lenders know exactly how bad the current foreclosure crisis is, accept the cold reality that a large number of their borrowers may end up losing their homes, and are looking for ways to cut their losses.

Why are lenders looking more favorably on short sales? Primarily because foreclosure is a painful process! It’s not only expensive for the lender; it is time consuming and entails a lot of extra steps. By approving a short sale, the bank can minimize expenses. Having a house off the market means having to maintain, insure and pay taxes on it until another buyer is found, and with the housing market in the toilet the chance of selling at a price that will recoup the money lost in the foreclosure is slim.

Overall, it’s more attractive to the lender to take the hit of a short sale, let the property transfer from one owner to the next, and stay clear of foreclosure proceedings. When more than one lender is involved, the process becomes more tangled, but a short sale is still an option.

Are you considering a short sale, as either a seller or a buyer? You need a short sale negotiator. That’s not because you aren’t smart, or competent. It’s simply because short sales are complex and one misstep can throw a wrench in the works!

It’s just like a host of other areas which require special training. You probably wouldn’t try to teach college level chemistry if you weren‘t fully qualified, or to operate on your own brain, or to take the controls of the airliner on your vacation to France.

Short sale negotiators are trained for they job they do, and know all of the little details that come together to make a successful transaction. Without help, you could end up in a pile of trouble, seeing your hoped for purchase or sale fall through simply because of a lack of understanding of the process.

There are a few things you should know about short sale specialists. They can represent only you in a transaction, not the other party or a bank. They should be focused on making sure you have an approved loan (if you are a buyer) and getting the best price possible. If you are a seller, they should be advocating for you with your bank for maximum forgiveness and securing the best deal possible

There’s a lot of misinformation floating around about short sales. Whether you are buying or selling, you should know the truth about each topic. This short sale information helps debunk some of the most common and persistent short sale myths!

Short Sale Myth One:

Banks do not wish to do short sales. FALSE! While short sales are not ideal for the original lender, banks would much rather do a short than a foreclosure. Foreclosures are lengthy, expensive processes and often require nastiness such as eviction and added costs for repairs and maintenance and before the tedious business of putting the house on the market and trying to get anywhere near the original price for the home.

Short Sale Myth Two:

Short sales are extremely rare and hard to qualify for. FALSE! Between 2000 and 2011, short sales jumped from 10% to nearly 40% of real estate sales being made, and the numbers have only kept increasing over the past few years. Government incentives have helped this happen, by offering programs that actually benefit consumers to participate in short sales.

Short Sale Myth Three:

You can do a short sale by yourself. MOSTLY FALSE! You could probably fly an airplane, too, if you decided to – for about two minutes and very badly, ending in disaster. The short sale process is complex and time consuming, and most that fall through do so because of a misunderstanding of the process. An experienced short sale specialist has a special skill set that greatly increases your chances of success.

Usually, before a bank will approve your short sale request, they will ask to see your hardship letter. For many, the hardship is purely financial, but this is not always the case. There are many situations that can qualify as a hardship. If your situation has significantly changed in any way since you first signed the loan on your home, you may be able to qualify for a hardship.

Here are some of the most common reasons accepted as hardship:

Unemployment (loss of income)

Reduced income (new job, partner’s loss of job, furlough or pay cuts)

• Illness or medical emergency (causing lack of work and pay)
• Job transfer (voluntary or involuntary)
• Divorce, separation or marital difficulties (leading to reduced income)
• Abusive mortgage terms (such an adjustable-rate loan)
• Military service (often requiring changes in living situation)
• Death in the family (particularly an income bringing person)
• Incarceration
• Increased expenses and excessive debt
• Unexpected repairs or home maintenance

In your short sale hardship letter, three things must be included.

How you got into your present situation (divorce, job loss, etc)

If you are doing a short sale in California, you may have gotten an extension on tax debt forgiveness. California law, passed in 2011, protects homeowners from lenders attempting to collect additional assets in the case of a short sale. This was in expectation that Mortgage Forgiveness Debt Relief Act, signed by congress in 2007 and renewed in 2008 to expire in 2012, would in fact expire. The Act was extended through 2013, but there is currently no word on whether it will continue past Jan 1, 2014.

U.S. Sen. Barbara Boxer petitioned the Internal Revenue Service in August for California home sellers to remain exempt in accordance with the 2011 state law, and the IRS affirmed that California families who sold their homes in a short sale will not have to pay a tax penalty for debt forgiven even after the federal law banning those penalties expires.

Boxer said: “California homeowners have struggled through years of economic hardships during the Great Recession. I am relieved that these families will not face a burdensome tax penalty just as they are trying to rebuild their lives with a short sale.”

This ruling from the IRS means that Californian home sellers can conduct short sales without fear of a heavy tax burden (the amount forgiven by the bank in a short sale had hitherto been considered income, making a debt forgiveness turn into taxes owed of thousands of dollars.) An average of $60,000 in debt is forgiven in short sale transactions, according to the real estate trade association. This can mean close to $20,000 in tax debt!

Short sales in Florida are still booming, thanks to ever changing shifts in the real estate market. Thinking about short selling? Now is a good time!

A large number of cash buyers flooded into the real estate market in Florida in late 2012, and some thought that the lessened inventory meant short sales would become a thing of the past. However, according to Equator, the lender online processing service, in the 1st quarter of 2013, Miami Dade County, Florida had the highest initiation of short sales of any county in the United States. Since then, a whopping 33% of the 2013 Florida real etsate market has remained short sales.

In June 2013, HAFA (the Home Affordable Foreclosure Alternatives program) was extended to until 2015, giving primary homeowners more time to take advantage of the mortgage assistance in conjunction with the eased foreclosure regulations.

At this point, short sales in the state of Florida are expected to remain strong, motivating primary homeowners to list properties for sale with short sale specialists and continued profitable short selling well into 2014 with the HAFA benefits.

Florida law can make it very hard for homeowners who go into foreclosure. Lenders can go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure, after which the property is sold as part of a publicly noticed sale.

Have you reached the point at which you KNOW you aren’t going to be able to keep your current home, and the only question now is how can you get out with a minimum of lasting harm? Moving fast is probably your best bet!

If you complete your short sale in 2013, you won’t owe federal taxes on the transaction, thanks to Congress, which extended mortgage cancellation relief through the end of 2013. So home owners who have a portion of their mortgage forgiven as part of a workout plan, short sale, or foreclosure before Jan. 1, 2014, won’t have to pay income tax on the forgiven amount.

What is a short sale? It beats a foreclosure by a mile. In a short sale, the lender agrees to let you sell your house for less than what you owe on the mortgage.

One of the most common reasons for a short sale is an upside down mortgage combined with financial difficulty.

If you have $200,000 left on your mortgage, but the real estate market is depressed and you can only sell your house for $150,000, your lender can agree to let you sell the house and take $150,000 instead of the $200,000 you owe. They forgive the $50,000 difference between the $200,000 you owe them and the $150,000 you sold your house for.

According to federal financial regulators, approximately $30 billion in home equity lines dating back to 2004 are about to be reset – thanks to a ten year mandate that means borrowers will have to start paying principal as well as interest on what amounts to second mortgages on their homes.

The credit lines were in large part started before the housing bubble burst, and were based on current equity values. Now, with so many homes “upside down” when it comes to actual value versus amount owed, homeowners are facing adding up to another $500-$600 a month to their already heavy mortgage payments.

If borrowers don’t make the fully amortizing payments to reduce the principal debt, the bank that owns the note can demand full payment and foreclose on the house. Amy Crews Cutts, chief economist for Equifax, one of the three national credit bureaus, calls this a looming “wave of disaster” anticipating that many borrowers will be unable to handle the higher payments – forcing banks to foreclose, refinance the borrower or modify their loans.

However, if the first and second mortgage can be satisfied, there is still hope for homeowners about to be caught in the trap between their original financing and their floating equity loan. As banks like Citigroup increase reserves on billions in home equity loan lines, the time might never be better for homeowners to look into ways to unload property before late and missed payments begin to pile up.

Climbing mortgage rates in 2013 corresponded with declines in home buying, and many experts believe that this a trend could continue in the coming year as interest rates adjust due to recent to shifts in the Federal Reserve’s stimulus effort.

A lot depends on interest rates, with the standard 30 year fixed rate being the base off of which analysts go when predicting real estate futures. When interest rates go up, even just a few tenths of a percentage point, demand goes down and the market becomes even direr.

Ellen Haberle, an economist at Redfin, the popular online real-estate firm, says ““Particularly if we see a pretty quick rise – maybe a half a percentage point to percentage point rise — it’ll make for some bumpy demand in 2014.”

Mortgage rates are still at historical lows, and the interest rate on U.S. Treasury 10 year notes is also going up, which could signal higher interest rates ahead (historically, the interest rate on such notes is a good forecaster for national trends in other markets such as real estate.)

These rising interest rates could continue to drag on the housing market, but could also encourage those people waiting on the fence to make a decision to buy, especially if a short sale can sweeten the deal with the bank, seller and buyer.

The past few years have been a veritable roller coaster ride for the US housing market, and more and more homeowners have been turning to short sales as an alternative to avoiding foreclosure. However, unless you have an experienced short sale specialist to walk you through the process, you may find yourself the recipient of a startling surprise just when you think you are done with everything.

Free and clear? Not so fast.

You see, a common misconception is that a short sale will automatically leave the seller free and clear from further financial liability after their short sale is completed. Sadly, they could still be liable for thousands of dollars owed on the balance if their short sale doesn’t implicitly include loan forgiveness!

Not all short sales are the same.

A quick refresh on what a short sale is; basically, the bank signs off on a sale that is for a lesser amount than the seller still owes on the home. This is typically done when the market has changed, and the value of the house has fallen, making the loan “upside down”.

For example, a home valued at $300,000 is purchased for that amount, with the buyer putting down $20,000 and the remaining $280,000 being financed. The market shifts, and the house is now valued at $180,000, meaning the owner now owes $100,000 more than the home is worth, and cannot hope to sell the house for enough to cover the original mortgage.

When discussing a short sale, many homeowners don’t realize that the state they live in may have a lot to do with how successful they are discharging their debt. Many assume a short sale automatically wipes the slate clean, but this has to be explicitly spelled out in the short sale agreement. There are some states that make it easier than others.

Some states are called deficiency judgment states, and these allow lenders to pursue the full deficiency amount after a short sale has been completed. So, if you short sale your home for $83,000 less than you owed, the bank could, in theory, still come after you for that balance that is not satisfied by the sale. This is why it is so important to have an experienced short sale specialist on your side to make sure the bank agrees to forgive the debt!

Even if the debt is forgiven, the IRS can claim the debt forgiveness as a line in the credit column and force you to pay taxes on the forgiven amount. However, there is recourse to this if you live in a “non-recourse” state. These states have passed laws that expressly prohibit lenders from pursuing deficiency judgments against former homeowners.

Currently, there are 12 non-resource states, including California, Arizona, Alaska, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah, and Washington. In these states, short sale home sellers are also exempt from paying taxes on the forgiven debt. So, if you live in a non-resource state, a short sale is even more attractive!

When a property is sold for less than the balance remaining on the mortgage loan, that is called a short sale. A short sale can benefit homeowners in many ways, by helping them get out of an upside-down loan, avoid foreclosure and eliminate their mortgage debt. Short sales today are also, on average, taking less time to process than before – thanks to tighter regulations and better practices in the industry. However, there are still a lot of misconceptions about short sales floating around out there, and we are tackling eight of them to help homeowners in the market to short sell know what the real deal is!

Myth Number One: I will still be responsible for paying off the total amount of the mortgage after a short sale.

Wrong! If your short sale is handled correctly, and you only hold one mortgage on the home, your specialist should be able to negotiate a short sale that leaves you free and clear of the debt as far as the lien-holder is concerned. The whole goal of the short sale process is to get the bank to agree to accepting a lesser amount than the total mortgage due and calling it a day!

Myth Number Two: I can’t qualify an investment property or second home for a short sale.

Last week we started looking at the myths that discourage many people from seeking the relief a short sale can afford. Today we finish up our list!

Myth Number Five: A short sale will prevent me from qualifying for a new mortgage.

Wrong! You could qualify for a new home loan within just 2-4 years of a short sale; even less if you never fell behind on payments! Comparatively, a foreclosure can ruin your chances of getting a home loan for many more years.

Myth Number Six: It’s hopeless – short sales take months, even up to a year to complete, so the bank will probably foreclose on me first.

Wrong! New guidelines ensure the short sale process works swiftly. If you have a short sale specialist to help streamline the process, you could have your short sale completed in as little as 60-90 days.

Myth Number Seven: Since I have a second mortgage on my home, I am automatically disqualified from a short sale.

Wrong! As long as you meet all of the other eligibility requirements, you still may be able to obtain a short sale even though you have a second mortgage. The trick is to have an experienced short sale specialist who can help bargain with the subordinate lien holders and get them to release the subordinate lien, forgive the debt and waive the right to pursue deficiency.

Rumors keep circulating about stiffer mortgage lending requirements. They simply aren’t true, according to real estate expert Fabian Calvo, who says,

“If you can fog up a mirror or you have a pulse, they will give you a home loan. That’s what they have done with the car loans, and that’s what they are doing with housing loans.”

Easier home lending requirements means the housing market isn’t in that great of shape, still – despite those who claim everything is on the rise. A closer look at the nitty-gritty shows that the market for short sales is still very much alive – lenders being so lenient with new buyers means we are still in a still depressed market, and plenty of homeowners are still staggering under upside down loans.

According to Calvo, “After the mid-term election, you’re going to see no-money-down loans just really roar back. It’s all part of the pump and dump I’ve been telling you about for well over a year.” Calvo, whose company buys and sells $100 million in distressed real estate debt annually, says, “Bottom line is we are still in a situation where half of every mortgaged home in America is completely underwater.”

Bad news for the real estate market means short sales are still a viable option for homeowners! Any time the real estate market is in crisis, as Calvo says it still is, lenders have to make accommodations for homeowners to avoid a mass of foreclosures. Since the banking and real estate industries are so intertwined, the only hope for a more stable economy is to provide outs for people in over their heads. Short sales provide that out.

A “rebounding housing market” isn’t exactly in the future, says Peter Wallison, author of the much-commented-upon opinion piece in the New York Times entitled “The Bubble is Back.” A dissenting member of the 2011 Fiscal Crisis Inquiry Commission, Wallison blames government housing policy for the last bubble and warns that another is soon to burst.

This is good news for the short sale market, as well as homeowners who simply don’t see any way they’ll be able to spend another decade paying on a home that’s worth half what it was when they bought it. Another housing bubble cycle means more loans made that will ultimately cause a secondary crisis, and it may not take as long as you’d think.

Wallison, who is also a senior fellow at the American Enterprise Institute, appeared on Here and Now for an interview, and said that the lenders buying and selling mortgages right now are following the same pattern that was evident before the last housing bubble burst.

Wallison pointed to the rental market, showing how the housing and rental markets track each other almost side by side as far as affordability. Typically, if the cost of owning a home is higher, more people will rent, and if it is lower, more people will buy houses.

Forget underwater mortgages; worry about higher rates

(Source: Housingwire) According to Housingwire “the U.S. mortgage market is about to be blindsided by a real doozy of a problem.” And while home values may be increasing somewhat, their studies show that “Rising rates will swamp households faster than rising home prices can save others.”

The big problem

While many homeowners were hoping they could now refinance out of their problems, they’re facing higher and higher interest rates, which means far fewer people than expected will be able to get out of the hole they are in. And worst yet, the housing market is already showing signs of slowing after a nationwide 12% run up in home values in 2013. There are 6.5 Million homeowners underwater at risk of losing their homes. They can’t refinance into negative equity, and now, it’s becoming increasingly difficult to refinance into even positive equity since rates are growing faster than home values.

What does this all mean?

More short sales and a potentially devastating new wave of REOs.

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