Blog :: 10-2013

What to do if You're Facing a Short Sale

If you're considering selling your home and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale.

A short sale is one where the net proceeds from the sale are less than the total of the mortgage obligation and closing costs, and there are no other sources of funds to cover the deficiency. A short sale is different from a foreclosure, which is when a lender takes the title of a home through a lengthy legal process and then sells it.

1. Consider Loan Modification First. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if there are programs available that will help you stay in your home. Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; Providing a different payment plan to help you catch up or Providing a forebearance period if your situation is temporary. When a loan modification still isn't enough to relieve your financial stress, a short sale could be your best option. The following are signals that a short sale may be a good choice for you:

  • Your property is worth less than the total mortgage you owe on it.
  • You have a financial hardship, such as a job loss or medical bills making mortgage payments difficult or impossible.
  • You have contacted your lender and they are willing to entertain a short sale.

2. Hire A Qualified Team. The first step in the short sale process is hiring a qualified real estate professional and a real estate attorney. Finding an agent who has worked through short sales in the past will be a huge benefit to you. You will want to work with someone who demonstrates a thorough working knowledge of the process and will not pressure you to take actions that are not in your best interest. A qualified real estate professional will:

  • Provide you with a comparative market analysis (CMA) or broker price option (BPO).
  • Help you set an appropriate listing price for your home, market and sell your home.
  • Put special language in the MLS that indicates your home is a short sale and that lender approval is needed. (All MLS's permit, and some now require, that the short-sale status be disclosed to potential buyers).
  • Ease the process of working with your lenders and buyers.
  • Negotiate the contract with the buyers or buyers' agent.
  • Help you put together the short-sale package to send to your lender (or lenders if you have more than one mortgage) for approval. You can't sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that buyers will have a clear title.

3. Begin Gathering Documentation Before Any Offers Come In. Your lender will give you a list of documents it requires to consider a short sale. The short sale package that accompanies any offer typically must include:

  • A hardship letter detailing your financial situation and why you need a short sale
  • A copy of the Purchase and Sale Contract and Listing Agreement
  • Proof of your income and assets
  • Copies of your federal income tax returns for the past two years

4. Prepare Buyers For a Lengthy Waiting Period. Even if you're well organized and have all the documents in place, be prepared for a long process. Waiting for your lender's review of the short sale package can take several weeks to months. Some experts say:

  • If you have only one mortgage, the review can take up to two months.
  • With a first and second mortgage with the same lender, the review can take up to three months.
  • With two or more mortgages with different lenders, expect up to 4 months of waiting.

When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back to square one. (Your real estate attorney and agent, with your authorization, can work your lender's loss mitigation department on your behalf to prepare the proper documentation and speed the process along).

5. Don't Expect a Short Sale to Solve Your Financial Problems. Selling your home through a short sale may ease your financial stress, but it may not solve all of your woes. Here are some things to keep in mind:

  • You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you cannot repay the balance, speak with your real estate attorney to discuss your options.
  • Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount.
  • Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.

Further Questions? Please bring any questions and concerns to a Signature Agent. We are always willing to discuss your individual situation and help you decide which avenue is best for you and your home.

 

Comments

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    Lender Checklist: Documents You Need and Questions To Ask

        Lender Checklist: What You Need for a Mortgage

    1. W-2 Forms - or, if you are self-employed, you will need to provide copies of business tax return forms- for the last 2-3 years for every person included in the loan.
    2. Copies of at least one pay stub for each person signing the loan.
    3. Account numbers associated with all of your credit cards and the amounts of any outstanding balances.
    4. Copies of 2-4 months of bank or credit union statements for both checking and savings accounts.
    5. Lender, loan number and amount owed on other installment loans, such as student loans and car loans.
    6. Addresses where you've lived for the last five to seven years, with the names of landlords if applicable.
    7. Copies of brokerage account statements for 2-4 months, as well as a list of any other major assets of value-such as a boat, RV or stocks and bonds not held in a brokerage account.
    8. Copies of your most recent 401 (k), or other retirement account statement.
    9. Documentation to verify additional income, such as child support or a pension.
    10. Copies of personal tax forms for the last 2-3 years.

     

        10 Questions to Ask Your Lender                                              

    1. What are the most popular mortgages you offer? Why are they so popular?
    2. Given my financial circumstances, which type of mortgage do suggest for me? Why?
    3. Are your rates, terms, fees and closing costs negotiable?
    4. Will I have to buy private mortgage insurance? If so, how much will it cost and how long will it be required? (Note: Private mortgage insurance can be required if your down payment is less than 20%. However, many lenders will allow you to discontinue PMI when you've acquired a certain amount of equity by paying down the loan).
    5. Who will service the loan--your institution or another company?
    6. What are your escrow requirements?
    7. How long will this loan be in a lock-in period (in other words, the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if it becomes possible during this period?
    8. How long will the loan approval process take, and how long will it take to close the loan?
    9. Are the underwriters who will be approving my mortgage loan in-house, or are they outsourced? (Note: The approval process is generally faster and more efficient if underwriters are in-house as opposed to several states away).
    10. Are there any charges or penalties for prepaying the loan?

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    What to Expect On Closing Day

    smaller roysClosing Day: The highly anticipated, most exciting day of a real estate transaction. After all of the preparation over the weeks and months of a transaction, both buyers and sellers can breathe a sigh of relief when the closing comes around.

    What to expect:

    Prior to closing, the buyers and their agent will do a final walk-through of the home to make sure everything is in order. This typically takes place the day before or morning of the closing.

    Keep in mind that the closing date set forth in your Purchase and Sale Contract is a goal that all parties strive to meet. Unfortunately, sometimes circumstances arise which delay the closing. Generally these involve loan processing issues and can be due to anything from missing documents to an influx of other contracts slowing down the lender's queue. While this can be frustrating and is certainly not ideal, it is a fairly common occurrence which any experienced Realtor has worked through many times. Remember that all parties are working toward the common goal of closing on time, so if roadblocks pop up, the necessary steps will be taken to resolve those issues and press on. Delays can cause scheduling problems but very rarely result in the termination of a contract.

    In Vermont, real estate transactions close 'at the table,' meaning the buyer and seller come together with their agents and attorneys to sign their respective documents. The closing generally takes place in a conference room at the buyer's attorney's office.

    All of the title work is done prior to closing. The buyer's attorney will determine rightful ownership of the property and find out if there are any liens or open permits to be resolved before closing. The seller's agent will have the final water bill drawn up and sent to the buyer's attorney for pro-ration--it is the seller's responsibility to pay their final water usage. If oil is used for heat, the buyer's attorney will need to know the amount left in the tank and the price paid for it--it is the buyer's responsibility to re-reimburse the seller for the leftover oil as they cannot take it with them.

    What do those stacks of documents consist of, you ask? The buyer's paperwork mostly deals with their mortgage-that they are aware of the amount of the monthly payments they will be making and that they agree to pay them in a timely fashion. The seller has a much smaller pile of documents before them--they have to report to the IRS how much they are receiving for the home and will need to sign over the deed to the buyer. If a buyer or seller cannot be at the closing, they can appoint another representative, known as a Power of Attorney, to sign their paperwork for them.

    Typically closings take about an hour during which time the buyers and sellers will complete their paperwork, hand over house keys and checks and go over any pertinent information.

     

     

    5 Home Hazards To Be Aware Of

    Home. A word that likely brings feelings of comfort and pleasant memories to mind. Proper updating and maintenance is required to keep your home functioning correctly and serving you well over the years. There are several concerns, which left unattended could cause serious damage both to your home and to your health. Below are the 5 most dangerous hazards to be aware of.

     

    1.  Radon is a colorless, odorless gas that can seep into a home from the surrounding soil. It is such a powerful force that it is thought to be the second most common cause of lung cancer.

     

    What to look for: Basements and any other spaces that protrude into the ground offer entry points for radon. The Environmental Protection Agency  provides a map of high prevalence areas for radon to use as a guideline. This map should not be used in lieu of a radon test, however. A test performed by a home inspector will accurately determine whether the levels of radon in a home are healthy.

    2.

      Asbestos       Asbestos was once a popular building material because of the insulation and fire resistance it provides. The use of asbestos was banned in 1985 after it was discovered to cause serious illness if released into the air. If breathed in, asbestos is now known to cause various severe lung problems from cancer to mesothelioma. It may still be found in older home's insulation, floor tiles, roof coverings and siding and must be removed with extreme caution.

     

    What to look for: Homes built prior to 1985 are at risk of containing asbestos. Owners of such homes should be especially cautious if                            remodeling as disturbing older building materials could cause the asbestos to become airborne making it a serious health threat.

     

    3. 

         Lead is a toxic metal which for many years was used in home products from paint to pipes. It can also be found in dust or soil surrounding                homes. Lead is especially different for unborn and young children as they are more susceptible to absorbing the metal into their bodies. Once          inside, lead damages red blood cells and interferes with bones' ability to absorb calcium.

     

    What to look for: Homes built prior to 1978 may contain lead paint or leaded pipes. To get a HUD-insured loan, buyers must show a                         certificate that the home built before 1978 is lead safe.

     

    4.

     Hazardous Productssuch as paint solvents, pesticides, fertilizers or motor oils can create dangerous situations if not stored correctly or disposed of entirely. They can cause fires, illness or even death if accidentally ingested.

     

    What to look for: Make sure that these items are stored and sealed properly. Do not stack together in corners, crawl spaces, garages or garden sheds. Home owners often forget that they have these items on hand, and if you're selling your home, the new buyers will not want to be responsible for disposal. When it comes time to remove the products, make sure to research how to properly dispose of them; chemicals can be dangerous and should never be dumped onto the ground where they could seep into water sources and wreak havoc. Be sure to take the proper measures.

     

     

    5.

     Groundwater Contamination occurs as a result of hazardous chemicals seeping through soil and entering water supplies. A leaking underground oil tank or faulty septic system can contribute to this. Both should be inspected prior to purchasing a home.

     

    What to look for: Be on the lookout for any conditions that may be conducive to leakage. Homes near light industrial areas or facilities may be at risk. Also use caution in industrial turned residential areas as there may have been leaking or spilling in years past. Your Realtor and Home Inspector will be able to help you determine whether your area of interest was, or is, at risk for any contamination.