Today's real estate market is very
different than of recent
years. The two prevalent for sale homes
are the
bank-owned REO and the Short Sale.
Short sales allow the distressed homeowner to repay the mortgage at the
price that the home sells for, even if it is lower than what is owed on
the property. With plummeting property values, this can save many people
from foreclosure and even bankruptcy. More and more lenders are willing
to consider short sales because they are much less costly than
foreclosures.
Today, more than 13 percent of homeowners are delinquent on their
mortgage or in the foreclosure process. This is occurring across all
price ranges, from starter 1000 SF home
s to the luxury home market, and
is affecting people from all walks of life...the blue collar worker to
the professional.
"Realtors that hold the CDPE designation has been invaluable to work
with homeowners and lenders on complicated short sales,”
said Daniel
Akulow, Realtor-Broker of Access Real Estate. “It is so rewarding to
be able to help families save their homes from foreclosure and provide
for them a viable way of selling their home even in this troubling real
estate market!”
Access Real Estate realizes these are
tough time for homeowners. 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.
Access Real Estate knows there's hope for
frustrated and discouraged homeowners. That is why we placed
together this Short Sale and Pre-Foreclosure Guide to help quiet the
myths and simply bring some help and understanding to home owners. In these few paragraphs, you'll find out as much as you
would like to know about the short sale and pre-foreclosure process as
well as how to get the relief you need.
Should you have any questions, please feel
open to contact Certified Distressed Property Experts
Daniel Akulow or
Michael McClanahan. We
understand the short sale process and we're ready to help. Call us
at your first opportunity...either of us will sit down with you and
answer your important questions.
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.
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.
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!
Click here
to download a 2009 Los Angeles Time article about credit score changes
due to mortgage delinquency.
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.
The evaluation of hardship is one area where the
homeowner's lender takes somed 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.
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.
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.
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.
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:
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.
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, again
please feel open to contact Certified Distressed Property Experts
Daniel Akulow or
Michael McClanahan. We
understand the short sale process and we're ready to help. Call us
at your first opportunity...either of us will 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
either Daniel Akulow or Michael McClanahan and we'll start you in the
right way to get your home sold!
2010 Access Real
Estate, Inc. |
1165 Scenic Drive, Suite C3,
Modesto, CA 95350 | Voice:
209.577.6077 |
Fax: 209.579.2351
