Short Short Basics


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This presentation outlines the major process, qualifications and requirements for a short sale.

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Short Short Basics

  1. 1. Helping You To Preserve Your Credit<br /><br />A Guide To Understanding The Process<br />
  2. 2. Helping You To Preserve Your Credit<br /> <br />What Is A Short Sale?<br /> <br />It’s a Real Estate transaction where two unique events MUST occur together.<br />1. Sale of your home results in a net loss<br /> <br />A short sale occurs when the net proceeds from the sale of your home is not enough to cover your mortgage note balance.<br /> <br />2. Lender Agreement<br /> <br />The lender (or lenders) agrees to release its mortgage lien and note obligations on the home in exchange for payment less than the full loan balance.<br /> <br /><br />
  3. 3. Helping You To Preserve Your Credit<br /> <br />Why Would A Lender Agree To A Short Sale?<br /> <br />1. Lender loses less through Short Sale compared to Foreclosure<br /> <br />The discounted payoff of the short sale must be less than the lender’s cost to foreclose.<br /> <br /><ul><li>Legal fees paid by lender to carry out foreclosure
  4. 4. Title fees associated with closing of property
  5. 5. Holding the property until a successful resale (toxic asset for Banks)
  6. 6. Maintain property, pay property taxes, winterize, pay utilities
  7. 7. Commissions & marketing costs of resale, if it sales</li></ul> <br /> <br /> <br /><br />
  8. 8. Helping You To Preserve Your Credit<br /> <br />Why Would A Lender Agree To A Short Sale?<br /> <br />  2. Seller Financial Hardship<br /> <br />The lender may agree to a short sale if the seller can prove hardship.<br /> <br /><ul><li>Seller is in default on mortgage
  9. 9. Seller can document financial hardship
  10. 10. Seller has a firm sale which generates insufficient proceeds
  11. 11. Seller receives no cash or other benefits from sale of property
  12. 12. Seller proves current market comparables support sale price</li></ul> <br /> <br /><br />
  13. 13. Helping You To Preserve Your Credit<br /> <br />Why Would A Seller Want To Do A Short Sale?<br /> <br />Potential Seller Benefits<br />The Government recently passed HAFA (Home Affordable Foreclosure Alternatives) to facilitate the short sale process for homeowners underwater.<br />With HAFA, the Government requires that homeowners are released from their debt, and any future liability from their Lender.<br />Financial Incentives are provided: $3000 for you, $1000 for the Lenders, and up to $3000 for any additional lien holders.<br />The process has been streamlined, and is MUCH faster now than ever before.<br /> <br /><br />
  14. 14. Helping You To Preserve Your Credit<br /> <br />Why Would A Seller Agree To A Short Sale?<br /> <br />Continued…..<br />5. A Short Sales has less impact on your credit rating than a Foreclosure or Deed-In-Lieu of Foreclosure. <br />6. Your lender may stop reporting missed payments to credit agencies.<br />7. Provides more time for you to act are prepare in this difficult situation.<br />8. You may buy another home sooner as compared to a foreclosure.<br /> <br /> <br /><br />
  15. 15. Helping You To Preserve Your Credit<br /> <br />What Must A Seller Do To Prepare For A Short Sale?<br /> <br />The following is a checklist of what you need to gather to begin the process of a Short Sale. <br /><ul><li>Hardship letter
  16. 16. Financial information worksheet
  17. 17. Statement of Assets & Liabilities
  18. 18. Net worth summary
  19. 19. Copy of property tax bill
  20. 20. Copy of 2 recent bank statements
  21. 21. Copy of 2 recent pay stubs
  22. 22. Copy of 2 recent IRS tax returns</li></ul> <br /><ul><li>Late bills summary
  23. 23. Medical bills
  24. 24. Divorce decree
  25. 25. Child support payments
  26. 26. Unemployment benefits
  27. 27. SSI income
  28. 28. Authorization to sell
  29. 29. Homeowner association information
  30. 30. Other to be determined by lender</li></ul> <br /> <br /><br />
  31. 31. Helping You To Preserve Your Credit<br /> <br />What Is The Short Sale Selling Process?<br /> <br />Homeowner signs listing agreement with real estate agent.<br />Agent finds buyer who offers less than note owing.<br />Homeowner accepts buyer’s offer.<br />Offer is submitted to Lender along with the Short Sale package.<br />Homeowner’s lender accepts buyer’s offer.<br />Transaction closes when the buyer delivers the funds, the lender releases the lien, and the Homeowner delivers the deed.<br /> <br /><br />
  32. 32. Helping You To Preserve Your Credit<br /> <br />What Are The Qualifications For A Short Sale?<br />Can you answer YES to these 4 questions?<br />1. Has the market value of your home decreased?<br />2. Have you missed a mortgage payment or do you anticipate missing one?<br />3. Are you experiencing a documentable financial hardship?<br />4. Is your debt (including your current mortgage) more than your assets?<br />5. Are you ineligible for a Loan Modification?<br /><br />
  33. 33. Helping You To Preserve Your Credit<br />What Are Some Acceptable Causes of Financial Hardship?<br /> <br />Unemployment<br />Divorce<br />Medical emergency<br />Sudden illness<br />Death<br />Bankruptcy<br />Increase in mortgage payment due to of ARM (adjustable rate mortgage)<br /> <br /><br />
  34. 34. Helping You To Preserve Your Credit<br />What Does Not Constitute a Financial Hardship?<br /> 1. Bad Purchase Decisions<br />2. Unhappy With The Neighbors<br />3. Buying Another Home<br />4. Pregnancy<br />5. Moving Into An Apartment<br />6. In-Laws Coming To Live With You<br /><br />
  35. 35. Helping You To Preserve Your Credit<br />How Is A Short Sale Different From A Normal Sale?<br />1. Marketing<br />There is no difference. I utilize the same extensive marketing program.<br />2. Buyers<br />There is a big difference. Short sale buyers are price sensitive & driven.<br />3. Home Pricing<br />There is a big difference. Appraisal is based upon other short sales comparing apples to apples.<br /> <br /><br />
  36. 36. Helping You To Preserve Your Credit<br />What Are The Consequences of a Short Sale?<br /> <br />1. Potential IRS Tax Consequences<br />If the lender agrees to the short sale, the lender may possess the right to issue you a 1099 for the shorted difference due to a provision in the IRS code about debt forgiveness. <br /><ul><li>Many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007.</li></ul><br /> <br />
  37. 37. Helping You To Preserve Your Credit<br />What Are The Consequences of a Short Sale?<br /> <br />2. Deficiency Judgment<br />The lender may have the right to pursue a summary judgment for the deficiency.<br />Example<br />The bank was owed $300,000 and sold short for $210,000. The deficiency is $90,000. The lender sues the seller for the deficiency. <br />Under HAFA regulations, Lenders must agree not to pursue this option. <br />3. Blemished Credit Record<br />Short sales will show up on credit reports as a pre-foreclosure in redemption status. The typical short sale will affect credit up to 2 years and 40-60 points, while a foreclosure 5-7 years and 250-300 points.<br />
  38. 38. Helping You To Preserve Your Credit<br />Which Is Better, Foreclosure or Short Sale?<br /> <br />Fannie Mae: August 2008<br />Due to the increased incidence of pre-foreclosure [short] sales, Fannie Mae is establishing a 2-year elapsed time period for reestablishing credit following completion of the action. <br />A foreclosure client must wait 5 to 7 years, maintain at least a 680 credit score in the sixth and seventh year, and pay a minimum 10 percent down on future home purchase.<br />
  39. 39. Helping You To Preserve Your Credit<br />What Are The First Steps To A Short Sale?<br /> <br />1. My Role<br />As a Realtor I cannot give you legal or financial advice as both fall outside the scope of my license. It is for this reason I strongly recommend also consulting with an attorney and CPA before you make a final selling decision. The 3 keys to successful short sale are: disclose-disclose-disclose!<br />2. Lender Requirement<br />You must prepare and submit a Short Sale Approval Application Kit with your lender before you can begin selling as a short sale.<br />