Are you and your family facing financial challenges and thinking about the possibility of foreclosure or a short sale? Before you head down that route, make sure you contact your lender to discuss a loan modification! Remember, they do not want to own your home.
Watch out for offers to help you save your house and avoid foreclosure!
If you decide that a short sale is right for your family, give me a call, and I can help you navigate the process, making it as easy as possible!
In addition to the common short sale questions, below are a few key points that most home owners may find useful.
1. 1/3 of all short sales will never close. Why? Some homeowners have too many assets, are not willing to contribute or they are unwilling to cooperate with the lender. If there is a junior lien-holder, they often times require a financial contribution in the form of cash at close or a note in the amount of 10% to 20%. (I recently got one of my short sales approved in which the lender asked the homeowner to hold a note for a small percentage of the deficiency amount. They offered her a 60 month note at 0%.) In addition, there may be H.O.A. liens, child support liens or tax liens that stand in the way of accomplishing a short sale. Most lenders will NOT pay delinquent H.O.A. dues. Therefore, I advise all of my sellers to reach a settlement with the home owner’s association BEFORE proceeding with a short sale. If you are attempting to obtain short sale approval, make sure you continue to pay your H.O.A. dues even if you can not afford your mortgage payment.
2. Often times you will receive a 1099-C which is a cancellation of debt. When filing your taxes, the deficiency amount on the 1099-C form must be claimed as income. Because you never paid the debt back, it is considered money that you gained. However, sometimes we can negotiate with the lender to settle the debt and consider it paid in full, even if you haven’t fully repaid them. If the lender agrees to settle the debt, we can also attempt to make sure that the lender doesn’t report the remaining amount you owe to the IRS. Unfortunately, I can not negotiate these terms until I have an approval which usually takes a few months. Once I receive the first approval letter, I will go back and attempt to negotiate credit reporting and IRS reporting with the lender. Once I have the final approval letter from the lender, I always always always advise my clients to consult his or her attorney AND tax professional before moving forward.
3. You do not always have to be delinquent on your mortgage payments in order to pursue a short sale. I just received an approval on a short sale I was processing for a client who had never been late on a payment. At this moment in time, it is difficult to obtain a short sale approval when the home owner is current on mortgage payments. However, short sale guidelines and regulations are shifting towards allowing short sale approvals in which the home owner is current. In the near future, you will start to see more and more short sale approvals where the home owner is current on payments.
4. Fannie Mae guidelines are strict when it comes to purchasing your next home. If you are planning on purchasing a new home in the next couple years, I would strongly advise you to pursue a short sale if you are facing foreclosure and a loan modification is not possible. Fannie Mae will give you access to every one of their loan products after 24 months if you pursue a short sale. If you experience a foreclosure, you will NOT be eligible for any Fannie Mae product for 5 years. Even after the 5 years, they will require you to have at least a 680 credit score and 10% down.
Commonly asked short sale questions:
· Can I still pursue a short sale if I pulled a Home Equity Line of Credit? Yes, but be prepared to pay cash at close or hold a note for at least 10%. H.E.L.O.C. lenders will usually always hold tight to a minimum of ten to twenty cents on the dollar.
· Does working a short sale stop the foreclosure process? Absolutely NOT! Lenders will not always postpone foreclosure proceedings.
· Does the Lender pay seller concessions? Most of the time, YES. However, if they refuse for some reason, the buyer must pay his or her own closing costs, pro-rations and prepaid items.
· Can I still pursue a short sale if I already worked out a loan mod with my lender? Of course, many loan modifications fail anyway. Mortgage servicers are highly motivated to avoid foreclosure.
· Once a short sale is approved, can the lender pursue me in the future? Possibly. Watch for recourse debt statements in the approval letter. If your realtor knows what they are doing, they will recommend that you have your attorney review the approval letter. This is critical. Many lenders will wait 3 or 4 years before they attempt to pursue you. They know that you will most likely be back on your feet and collectible by then. Take my advice, have your attorney and tax professional review the approval letter before proceeding with a short sale. DO NOT close until your attorney has reviewed your approval letter and you have consulted your tax professional.
