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Short Sale and

Pre-Foreclosure Guide

 

Sell Your Home at Today's Current Market Price and Let the Bank Pay for ALL Your Selling Fees!!

YES - You can sell your home at today's current market price and have your current mortgage lender pay for ALL the fees associated with the sale of your home - real estate commissions, title, escrow, and others!!

Please take some time to read through the Short Sale Guide I've prepared to help you understand exactly what the short sale & pre-foreclosure is all about and to get your home SOLD!!

 

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Introduction

Today's real estate market is very different than of past years.  The real estate market has improved significantly throughout 2013 but the short sale is still an option for a homeowner that's in a distressed situation.

I'm a Certified Distressed Property Expert and have sold many short sale properties in Stanislaus County.  "I understand the short sale process and I can short sale your home...place my expertise at work for you."

A distressed situation can be a tough time for a homeowner.  With so much conflicting information either from TV, newspapers, conversations with friends, family or even co-workers, it's confusing and it's frustrating.  Maybe you've already missed 2 or 3 mortgage payments, you're struggling and just don't know what to do.  You've heard that you should just "walk away" from your home...others say work it out with the bank...and others say for you to sell.

That's why I prepared this Short Sale Guide to help you understand exactly what the short sale & pre-foreclosure sale is all about and to help you get your home SOLD!! 

Call me at 209-602-0299 at your first opportunity...let's set up a time to sit down and answer your important questions.

 


What is a Short Sale?

A short sale is a win-win solution for the homeowner and the lender where the homeowner sells the property and the lender gets the highest market price for the property!  Also, the homeowner does not pay for any title, escrow or real estate commission fees!  This means that the homeowner's LENDER will pay for ALL expenses connected with the short sale.

A SHORT SALE CAN BE DONE WHEN YOUR LOAN IS CURRENT!!!  Many people believe a short sale can only be performed when the loan is delinquent or in default.  That is not true.  A short sale can be done when your loan is completely current!

A short sale happens when a homeowner enters to sell their property for a sales price less than the amount owed to their lender after all sales expenses, including brokerage fees, title, escrow, and all related fee connected with the sale of the property.  In order for this to take place the lender must accept a discounted loan payoff - this means the bank gets paid less on their loan than the full loan amount owed to the bank.  Here's the key - in a short sale, the homeowners get complete relief from all of their mortgage debt.

The final win-win result is that homeowner property is sold, the mortgage is paid off, and homeowner avoids a foreclosure or a bankruptcy in the event of hardship.  Perhaps even better, the homeowner's credit rating will almost immediately improve because the credit report will show that the mortgage was paid.

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What is a Pre-Foreclosure?

A pre-foreclosure is also a win-win solution for the homeowner and the lender where the homeowner sells the property and the lender gets the highest market price for the property.  A short sale and a pre-foreclosure sale are basically the same in that the lender accepts a discounted loan payoff.  The difference is that a pre-foreclosure is a short sale after a Notice of Default has been recorded against the homeowner.  The property is then considered to be in a "pre-foreclosure" status with the homeowner's lender.

When property sells, the same benefits are conferred to the owner of a pre-foreclosure sale.

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What are the Benefits of a Short Sale?

When a short sale is achieved, there will not be a foreclosure.  A foreclosure damages credit up to 7 years and bankruptcy up to 10 years.  Also, a foreclosure will damage credit score by at least 150 points, whereas a short sale/pre-foreclosure may only damage credit by about 100 points - pre-foreclosure in particular.  Additionally, when credit report shows that the homeowner's mortgage was paid, the credit rating will most likely increase.  Upon the close of escrow of a short sale, the Seller's lender will report to the credit bureau something to the effect of "agreed settlement short of full payment."  The actual phrase may vary, but the same basic intent would be reported to credit agencies.

YES...investment property can also qualify for a short sale!

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What is a Hardship?

Proving hardship is the key element in a short sale and pre-foreclosure sale!

If a homeowner wants to have the bank “absorb” the deficiency in a short sale, the homeowner's lender must “approve” the short sale.  The approval is based on the homeowner's ability to show hardship in that the homeowner is financially unable to maintain scheduled monthly payments and associated fees.  The homeowner's lender will look at numerous factors in their evaluation of the homeowner's overall hardship, but the primary hardship factor the homeowner's lender will closely look at is the homeowner's monthly CASH FLOW

Click here is download a Short Sale Financial Worksheet (click to download PDF) to help gather your home expenditures!

The evaluation of hardship is one area where the homeowner's lender takes some time to review and process the short sale documents.  The homeowner has to provide their lender a financial statement, hardship letter, two months of recent bank statements, two years tax returns, as well as a few other items (see Needed Documents) to evaluate hardship.

Examples of hardship are:
   
l Reduced Income or Unemployment.
   
l Inability to work due to health reasons.
   
l Separation or Divorce.
   
l Medical Bills.
   
l Business Failure.
   
l Death of a Spouse.
   
l
Adjustment in mortgage payment or unforeseen increase in your monthly expenses.
   
l Any other circumstance that cripples your ability to repay your mortgage.

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How long does it take for a short sale?

A short sale to close of escrow can take from as less as 2 months to as much as 6-months on average.  Good news though, the time length to close escrow has been reducing!

After there's an accepted offer, the first step in the short sale process is that the lender must approve the homeowner's hardship, which can take up the first 2-months.  Homeowners that are proactive in the short sale or pre-foreclosure sale may initiate contact with their lender and begin the approval process even before their home is listed for sale.  This is typically performed when the homeowner wants to "modify" their home loan and is required to submit all the necessary financial information to their lender during the modification approval period.  However, if the short sale if first communicated to the homeowner's lender right after the homeowner placed his/her home for sale and all documents are thereafter submitted to the lender, then the approval process may take 6-10 weeks.

Then, the lender must present the short sale for acceptance to any third party who has a financial interest in the loan.  The third party interest is typically Fanny Mae or Freddie Mac, third party investors who buy loans from the banks who initiated the loan.

Additionally, if the Seller has Property Mortgage Insurance (PMI) on their loan and since the insurance will help cover the some of the bank’s losses, the PMI company must also agree to terms regarding the short sale.

Once ALL these parties agree to the short sale, typically 2-4 months after the offer was first placed, the lender provides their "approval" for Short Sale and will request an escrow close date which will be about 6-weeks after the approval date.  It is at the approval date that the property actually enters escrow.  Prior to this the property was simply stated as a sale "contingent" upon lender approval.  Once it enters escrow, then the Buyer can finalize their loan process, get the necessary inspections, and perform their due diligence just like a regular sale.

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What Happens If I Don’t Do a Short Sale or my Short Sale is Unsuccessful?

The result is the same in that the property will become a foreclosure.

The goal is for homeowner to avoid foreclosure because a foreclosure will affect credit more than a short sale.  Generally a foreclosure is one of the most damaging occurrences in a credit history, especially in today's real estate market.

The reason is that in a foreclosure, the impression is that a homeowner simply "walked" from their loan obligation.  In a short sale, however, it will show the homeowner exercised due diligence and persistence in working with their lender as to an available avenue to work with the lender to payoff their home loan. That is the reason why the lender upon close of escrow on a short sale will report to credit bureau the there was an "agreed settlement" between the homeowner and lender! 

Most likely a homeowner will miss mortgage payments through the course of a short sale and this will show on credit history.  But at the end of the day, when the short sale is complete, the credit report will show that the mortgage has been completely “satisfied” and typically the credit score should almost immediately rise accordingly.

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Needed Documents for Your Short Sale

The home seller will typically need the following items ready to submit to the mortgage lender:

  • Short Sale Financial Worksheet - (click to downloan PDF) completed and signed and dated by all borrowers with the last 60-days; include all income and all expenses - current house payment, car payment and insurance, car gas, health insurance, groceries, doctor bills, toiletries, telephone (land and cell), electricity, gas, garbage, cable, and any other regularly recurring expense that you are required to pay.

  • Tax info - (W2 or 1040) most recent.

  • Hardship Letter - explain the current circumstance that has forced you to consider the short sale of your home, such as significant increase in mortgage payments, death of spouse, illness, divorce, lack of job, and any other contributing factor to your current financial hardship.  The letter must completed and signed and dated by all borrowers within the last 60-days.

  • Proof of income - two recent pay stubs from all borrowers or bank statements, award letter, of letters from family /friends (if assisting in payments of bills).  If borrower(s) is self-employed, they will need profit & loss statement of at least the last 3-months.

  • Authorization Letter – The homeowner provides a statement (with the assistance of the Seller’s Real Estate Agent) authorizing their agent to communicate and receive documents directly from the Seller’s lender.

Click Short Sale Documents Check List to download a PDF form

check list of all necessary documents needed in the short Sale.

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Who Pays for All Expenses Connected with the Short Sale?

In an approved short sale, the homeowner's lender will restrict the homeowner from any financial contribution to the short sale.  This means that the homeowner's LENDER will pay for ALL expenses connected with the short sale.  The general reasoning behind this is that if the homeowner is to pay for any of the sales transaction costs, then it is not truly a short sale.  Typical real estate transaction expenses are:

  • Title and Escrow Fees

  • Real Estate Commissions

  • Seller credit concession to the Buyer

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Buyers...

If you're a home buyer, I'm certain you have heard that buying a short sale property has been quite difficult in 2007 through early 2009 - but now it's different because banks are authorizing more and more short sales!

Banks are realizing that it actually helps them financially to allow a short sale to sell than to wait and go through the foreclosure process because for a bank...time is money!  A foreclosure take much more time in the long haul than the short sale.

Also, it's no secret that Banks are very slow in releasing on to market Bank owned properties, and with so few homes it is very difficult to find a reasonable Bank owned home that doesn't have multiple, multiple offers.

So, as a buyer, here's where your can gain an edge in the purchase of a home that you want to purchase and without the necessary competitive bidding that has been connected with the bank owned sale.  With a very low inventory of Bank owned homes and because there are more and more short sale properties on market, your chance in getting the winning bid on a short sale property is better than a Bank owned property.

 

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Short Sale Deficiency Chart     (Short Sale Deficiency Chart Website)

Home sellers are rightfully concerned if they'll need to "pay back" to their lender any amount of their loan that the short sale of their home didn't cover. 

California Association of Realtor(R) has developed a SHORT SALE specific website to help consumers and real estate professional with various aspects of the short sale.  Visit the website at Short Sale Deficiency Chart Website This legal chart is intended to provide a quick and easy guide to determine when a borrower may be liable for a deficiency judgment after foreclosure.  There are other factors and conditions which may change the result such as fraud by the borrower and bad faith waste.  For information on deficiencies after a short sale, please see our "Short Sale Deficiencies Fact Sheet".

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Your Next Step...

What's your next step?  Remember, if you're in default on your mortgage...time is running!  Please don't let your home foreclose - there is a better way that will save your credit now and help you in the future in your next home purchase.

First, should you have any questions, feel open to contact Certified Distressed Property Expert Daniel Akulow.  I understand the short sale process and am ready to help.  Call at your first opportunity - I'll sit down with you and answer your important questions.

Second, if you have made the decision to proceed with either the pre-foreclosure or short sale of your home, call me at (209)602-0299 to get started in the right way to get your home sold!

 

Call Dan at (209) 602-0299 for a short sale consultation!

There's absolutely no charge and no obligation!

 


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