Q. What are my options as a home seller when my property is in or heading toward default (foreclosure)?
A. In the event that you have been delinquent in paying your mortgage or anticipate that you will not be able to make payments moving forward, your options will vary based upon several factors or variables that are specific to you and your property. Always remember that each possible resolution will be evaluated on a case-by-case basis by all parties involved. When considering your options, you should take into account:
- the amount of equity you have in your property compared to the outstanding loan balance
- the additional financial resources you may be able to bring to bear
- whether or not you live in a homestead state, and the nature and amount of the homestead exemption
- and/or the amount of private mortgage insurance you have.
All of these factors should be taken into account along with many other variables and special conditions. The most important decision you need to make is to “make a decision.” Typically, when homeowners avoid confronting the serious lifestyle and financial consequences of defaulting on their mortgage, they end up with a significantly more deleterious outcome than they would have, had they taken charge of their own destiny while they could. Homeowners need to understand that there is free help out there and all they need do is make a simple phone call!
Once you decide to take action, we recommend that you contact a counselor and a real estate agent qualified to assist with your special real estate needs (you may also want to contact an attorney if you have the resources to do so). We at The Opland Group are not just committed to helping you pursue the potential option of a short sale, but to encouraging you to fully consider all other options that may be available.
Early on in the potential foreclosure process, homeowners should contact an attorney if at all possible, but also research all potential guidance and assistance available from the government, including the U.S. Department of Housing and Urban Development (HUD). HUD’s Guide to Avoiding Foreclosure may be particularly helpful. HUD’s toll-free telephone number is (800) 569-4287. Not all homeowners, however, can qualify for certain HUD programs. Whatever guidance you seek as a homeowner, we recommend, at a minimum, that you also carefully consider each of the following questions and answers:
Questions What is a better or more likely outcome for me and why?
- A short sale or a foreclosure?
- A short sale or a repayment plan?
- A short sale or a forbearance plan?
- A short sale or a loan modification?
- In the case of an FHA loan, a short sale or a partial claim?
- A short sale or a short sale/assumption agreement?
- A short sale or a deed-in-lieu of foreclosure?
- A short sale or a bankruptcy?
Answers: Any and all of the above-mentioned options pursued by homeowners should take into account their:
- individual present and projected future financial circumstances
- short- and long-range lifestyle goals
- concerns over credit rating
- desire to remain living in their present home
- a complete understanding of the impact each available option might have in comparison to all other options being considered
In order to best contextualize or prioritize one’s various opportunities or limitations with all other options, it is advisable that an attorney or other suitable counsel be engaged. Such counsel is vital in order to properly weigh all legal, financial, tax and lifestyle implications surrounding each option. Since this article principally focuses upon the subject of short sales as just one alternative, it is important to note that short sales usually benefit home sellers because they not only stop mortgage foreclosure, but typically prevent the lender from suing for deficiency. Deficiency refers to the difference between the outstanding loan amount and what the net proceeds are from the sale of the home, or in some cases, simply what the proceeds are that the lender receives from the sale of the home. During their short sale negotiating process, it is vital that homeowners have their Realtor and/or attorney ensure that the lender agrees to forego suing for any monies that are written off due to the short sale.
Q. Within the short sale packet presented to the lender, there is a hardship letter that homeowners must provide. How important is this component in causing the lender to approve the short sale?
A. It is absolutely critical that the homeowner be able to document that they do not have the income or necessary assets to continue making payments on their home. Homeowners must be meticulously honest in documenting and presenting their “hardship letter” so they do not implicate themselves in mortgage fraud; mortgage fraud results from inconsistencies between what the homeowner is now representing compared to the information provided at the time of the original mortgage application.
Q. What types of hardships would a lender generally consider conducive to a short sale agreement?
A. In the context of consideration for short sale approval, “hardship” is not defined by law. As such, there is no one definitive definition upon which you can rely. One would, however, anticipate that a lender would expect a hardship to result from the loss of job or salary reduction, divorce or separation, debilitating illness, medical bills, business failure, excessive debt, mortgage payment increase or the recent loss of a close family member, such as a child or spouse. Consult with an individual lender to determine the duration of the hardship, as lenders are unique in this regard.
Q. What are the tax consequences of a short sale?
A. The tax consequences for individual homeowners regarding short sales are different depending upon your financial situation. For that reason, it is suggested that you consult with a Certified Public Accountant.
Q. What is the Mortgage Forgiveness Debt Relief Act of 2007?
A. Prior to the implementation of this act, the law required taxpayers to include discharges of mortgage indebtedness as income for the calculation of income tax. In December, 2007, Congress acted to protect many debtors from income tax liability associated with foreclosure avoidance. The Mortgage Forgiveness Debt Relief Act of 2007 states that homeowners will not be subject to income tax from release from mortgage liability if and to the extent the mortgage proceeds were used to buy or improve their primary residence. The act does not provide income tax shelter from foregiveness of mortgage debts for investment property, vacation homes, or mortgages used for businesses or to pay off credit card balances. The protection expires in December, 2012. You should speak with an attorney or CPA familiar with the new law to see if you qualify for income tax protection.
For those borrowers who do not qualify for protection of the new Act there is an insolvency exception to imputed income from the cancellation of mortgage debt. If a borrower is financially insolvent when he surrenders the mortgaged property to the lender voluntarily or through foreclosure there will be no imputed income. A borrower who files bankruptcy is presumed to be insolvent, so that a bankruptcy debtor cannot suffer imputed income tax liability because the bankruptcy discharges personal liability under a mortgage note.
Q: What effect will each alternative have on my immediate, mid-range, and long-term credit?
A: There is significant confusion regarding the precise and relative proportionality surrounding how various pre-foreclosure(short sales)/foreclosure and bankruptcy options affect one’s credit score. It is therefore advisable that all property owners first check with their lender(s)’, credit bureaus, future lenders, government agencies, and an attorney in order to best gauge how each prospective resolution may potentially affect their future credit rating.
Credit rating impact should also be evaluated contextually by considering the role of your credit rating regarding future financial and purchasing plans.
Q. How do I know if my property and I may be considered for a short sale?
A. Eligibility for a short sale resolution is determined by your lender’s short sale policy. Your lender will also direct you as to what you must do to comply with their process and procedure. You can either contact your lender directly or authorize an attorney, real estate agent or other representative to contact them on your behalf.
Q. If a lender agrees to the short sale option on my property, can the bank still proceed with a foreclosure?
A. The foreclosure could be considered as a separate and distinct action taking place, even though the lender has agreed to the short sale proposal. This can easily occur when different departments of the same lending institution are seeking different outcomes, or simply because the bank, after agreeing to a proposed short sale outcome, but before signing a contract, believes that foreclosure would represent a more favorable outcome for the lender.
The submission of a short sale package/kit to the lender does not automatically stop a foreclosure action. Once a lender initiates a foreclosure action, the homeowner should consider that the lender will most likely retain this position until the lender has a signed contract in hand, has agreed to the short sale proposal, and has closed on the sale of the property.
At the time the lender agrees to the short sale proposal, the lender may or may not choose to terminate or postpone the foreclosure. A foreclosure may also proceed in the case of subordinate lien holders not having agreed to waive their lien on the property.
Because of the multiple stakeholders involved, and the complex nature of the regulatory environment, qualified, licensed counsel can be critical in taking steps to prevent a lender from not following through with the short sale process, especially in the case of a lender who has the intention of opting for a foreclosure-based resolution.
Q. How would I initiate the short sale process?
A. To initiate the short sale process, you may contact your lender(s) directly however, homeowners are strongly encouraged to contact a Real Estate Agent who specializes in short sales and allow this individual to handle this for them. Typically, the department to contact is your lender’s Loss Mitigation Department.
Either you or your authorized representative (Realtor) needs to ask the lender for a short sale package or kit. Most lenders will make their particular processing forms and procedures pertaining to their required short sale documentation available to homeowners.
Unlike what many people believe, SOME LENDERS will also allow you to apply and get approval for a short sale even when the homeowner has never been late or missed a mortgage payment. Please note however, that MOST LENDERS will typically only consider a short sale after the borrower has: missed two mortgage payments; has no means to continue paying the mortgage; provided all the necessary financial and hardship documentation to the lender; agrees that they will not derive any proceeds from the sale.
Q. Should I contact a real estate agent?
A. Absolutely. But before selecting a real estate agent to represent you, determine whether or not they are knowledgeable about pre-foreclosure (short sale), foreclosure and bankruptcy options. Your agent should not be giving you advice regarding your personal financial situation.
Any real estate agent who asserts that he or she is prepared to assist you as a homeowner in a potential short sale outcome must also be willing to follow the specific administrative procedures of the particular lender involved. In addition, the real estate agent should also acknowledge that they essentially confine their guidance to determining the property’s value and how to best market the property, versus advising the homeowner on the best pre-foreclosure (short sale)/foreclosure resolution.
Q. Should I contact an attorney?
A. Absolutely. We recommend that you contact an attorney with the understanding that the attorney needs to not only be well versed in real estate law and foreclosure law in your particular state or province, but also needs to be a proven negotiator on behalf of their clients. Not all short sales or other pre-foreclosure or foreclosure options are structured alike. Therefore, the role of a highly competent attorney in such matters-one who can skillfully negotiate on your behalf-can make a world of difference.
Q. How would multiple liens on my property impact short sale approval?
A. Each lender must recognize how it is in their best interest to approve a short sale resolution versus a more costly and protracted alternative. Here again, an attorney/lawyer or real estate agent who possesses experiential knowledge in this particular multiple-lien scenario can be instrumental in developing a multi-party resolution strategy satisfactory to all.
Q. Am I responsible to continue to make mortgage payments if I have intentions of applying for a short sale on my property?
A. Unless you have received information to the contrary from the lender in writing, you are responsible to continue to make mortgage payments.
Q. As a homeowner, what incentive do I have to assist in the sale of my property if I am not going to receive any proceeds from the sale?
A. We believe that homeowners first and foremost have an ethical responsibility to expend the necessary effort to support as high a sales price as possible-even though they will not experience a financial gain-when expecting the lender(s) to forgive any and all of the homeowner’s outstanding mortgage debt.
We also believe that the higher the realized sales price, the more likely the lender will be in granting a short sale outcome for the homeowner. Moreover, we also advise homeowners to be wary of any real estate agent who, for the sake of facilitating a guaranteed sale in order to collect a commission before a property is foreclosed (ruling out any possibility of a commission), demonstrates a less-than-professional marketing commitment. Such real estate agents will often justifies this lackluster attitude by saying to a homeowner, “No matter what the home sells for, it really doesn’t affect your pocketbook-only the lenders.” This disregard for marketing on behalf of some real estate agents seeking to facilitate a short sale at all costs (but not to them) is one that lenders readily recognize.
We find that this unprofessional approach to real estate marketing, notwithstanding the special circumstances surrounding a proposed short sale outcome, is to the detriment of well-intentioned homeowners who are hopeful of gaining lender cooperation. Lender cooperation is, without question, influenced by how honorable they believe both the homeowner and the real estate agent are, despite the difficult circumstances facing the homeowner and the challenging marketplace facing the agent.
Q. Does a “Listing Agent” represent me (as the homeowner) or the bank if I have intentions of gaining short sale approval from the lender?
A. The Listing Agent represents you the homeowner and does not represent the bank.
Q. Is there a real estate commission paid in a short sale and, if so, who pays it?
A. In the case of short sales, the home seller does not pay the commission. This is another incentive for a home seller to pursue a short sale remedy and use a qualified real estate agent. Moreover, many lawyers, although representing home sellers, are able to have the lender pay their fees. This makes it even more imperative that every homeowner considering any pre-foreclosure/foreclosure possibility-but especially where a short sale is the desired outcome-contact an attorney immediately. Homeowners should also encourage their attorney and their real state agent to meet as a group for the purpose of creating an effective overall short sale and marketing strategy.
Q. On average, how long does a short sale process take?
A. The time period will vary based upon circumstances, although the approval process and time to closing, in many/most cases, is longer than that associated with the sale of a property in a non “short sale” situation. That said, the average time frame once a buyer has been located is 60-90 days.
Q. Which process has a more adverse affect on my credit rating: short sale: foreclosure; bankruptcy; or deed-in-lieu of foreclosure?
A. It is critical that homeowners, either personally or through a representative, research their individual situation with the various agencies that determine credit ratings. Be careful of categorical representations and sweeping generalizations regarding the credit rating consequences of short sales, foreclosures or other homeowner options. There exists wide-spread confusion, oversimplification, and inadequate guidance presently being offered, especially by individuals purporting to be experts.
Q. How important is the short sale package or kit when applying for a short sale to a lender?
A. Indispensible!
Q. On my own, can I prepare a short sale package/kit, and if so, how would I go about doing it?
A. The short answer is yes, you can prepare your own short sale proposal and submit it to your lender. Some lenders may even assist you in the process. Just like preparing your own taxes, however, you might need help in this critical process. Real estate agents experienced in short sales understand that the bank will want to find out what efforts have been made or could be made to market the property for the highest price and best use of the property. In addition, most lenders will require Broker Price Opinions and or Competitive/Comparative Market Analysis to determine benchmark pricing. Furthermore your lender will compensate a Realtor for their services and it is advisable to have a real estate agent assume this very time-consuming and administratively complex responsibility. Lenders, are very vigilant regarding the information they require pertaining to marketplace pricing and related real estate information, and rely heavily upon the expertise of high-caliber real estate professionals.
Q. In selecting a real estate agent, when the prospects of a short sale are desirable, is it more important to choose a real estate agent who is very competent in overall real estate sales and marketing, and not as knowledgeable in the short sale process, or is it better to select a real estate agent knowledgeable in the short sale process, but very inexperienced or ineffective in real estate sales and marketing?
A. Obviously, home sellers should want a real estate agent who possesses significant expertise in short sales and in real estate sales/marketing. The greatest emphasis, should be placed upon selecting a real estate agent who is highly competent in the areas of short sale marketing, merchandising (staging), negotiating, networking and information technology. The lender-required processes and information, are highly critical. The aforementioned skills are also indispensible in putting forth the best and most credible effort regarding the sale of the property.
Lenders can discern the difference between real estate agents who only represent pre-foreclosure strategic advice and assistance, the performing of the required administrative tasks-from leading real estate agents who can perform the required administrative tasks and who possess short sale acumen while representing world class real estate marketing-related skills.
Lenders . . . Recoup . . . To recover all or part of a loss
Q. When a real estate agent deems it necessary to alert cooperating real estate agents that their listed property is a potential short sale, so that the buyer does not unknowingly enter into a conditional negotiating process, how does this announcement prior to a lender’s consent impact the marketing, property value, and ultimately the negotiating position of the lender?
A. This practice of announcing a potential short sale “Sale,” before a lender agrees to the short sale conditions is considered by many real estate practitioners who represent home sellers as a method of undermining the integrity and market value of that particular property.
Clearly, one can argue that by not providing this potential status to prospective buyer agents and thus, their clients, deprives them of a form of disclosure; this is why great debate exists surrounding the handling of a short sale situation.
Q. Should a lender do business with a so-called Short Sales Specialist who strategically advertises “Stop Foreclosures” to homeowners, when their intended approach is either most likely or solely a short sale outcome? Does the practice of labeling properties as possible short sales before they officially enjoy short sale status undermine the value of all homes within that marketplace?
A. We leave it to lenders to determine how they respond to the growing practice of homes for sale being labeled as members of either the troubled or the distressed property category, even though the property itself, and thus both the homeowner’s and the bank’s potential proceeds, is not troubled or distressed, but rather the homeowner and the lender. By categorizing properties as being distressed or troubled, it essentially undermines the underlying loan that supports the market value of the property.
Q. How can a lender best identify evidence within a short sale package/kit that the listing agent has placed much greater emphasis on supporting a lower short sale agreed-upon price than they have upon marketing for a greater selling price?
A. Lenders should respectfully challenge any real estate agent who supports any proposed sales price or offer as to the appraisal method they employ along with the specific and customized off- and online marketing methods they have designed for the subject property. In other words, evidence-based marketing versus merely evidence-based pricing.
Q. How can a lender best determine how dedicated a listing agent truly is to not just “Selling” a home but selling a home for more, in a climate where almost all low offers can be justified or rationalized as representing the best or the only possible offer that could be brought to the lender?
A. Simply ask the real estate agent what methods they employ to market homes for more. Otherwise, attention might be diverted to how they sell more homes versus how they sell homes for more. This is a powerful distinction that lenders must demand real estate agents respond to in order to best determine if the offer, which is part of the short sale kit, represents either optimum marketing or instead a convenient rationale for a significantly lower price.
Q. What can lenders do to prevent the real estate industry from becoming a “foreclosure-prevention” industry instead of an industry of world-class marketers dedicated to bringing back property values for both presently challenged and future home sellers?
A. Again, by communicating to the entire local real estate marketplace that any short sale packet being presented for short sale consideration must include an evidence-based marketing overview of the property, and not just a dazzling display of pricing data supporting a self-fulfilling prophecy of lower prices.
Q. When should a lender who holds a subordinate lien on the property being considered for short sale agree to or choose to resist a short sale resolution?
A. It would be presumptuous to suggest that lenders, given what is financially at stake for them, have not carefully considered the bottom-line implications of each and any lien position they hold as it relates to short-sale resolution and all other options available to the lender(s).
Q. Since a home seller does not stand to receive any money from the short sale, how can they best be motivated to enthusiastically support a marketing effort designed to realize an optimum sales price of their property?
A. As we responded to this question in the section for homeowners, we believe that homeowners first and foremost have an ethical responsibility when expecting the lender(s) to forgive any and all of the homeowner’s outstanding mortgage debt to, in return, expend the necessary effort to support as high a sales price as possible (even though there is not a financial gain to the homeowner). We also believe that the higher the realized sales price, the more likely the lender will be in granting a short sale outcome for the homeowner and possibly either fully or partially waiving a deficiency judgment. Moreover, we also advise homeowners to be wary of any real estate agent who-for the sake of facilitating a guaranteed sale in the hopes of generating a commission before a property is foreclosed (where they might not gain a commission)-demonstrates a less-than-professionalor lackluster marketing posture or commitment. Such agents justify this attitude by saying to a homeowner, “No matter what the home sells for, it really doesn’t affect your pocketbook, only the lender’s.”
This less-than-professional marketing commitment on behalf of some real estate agents seeking to facilitate a short sale at all costs (but not to them) is one that lenders readily recognize. We find that this unprofessional approach to real estate marketing, notwithstanding the special circumstances surrounding a proposed short sale outcome, is to the detriment of well-intentioned homeowners who are hopeful of gaining lender cooperation. Lender cooperation, without question, is influenced by how honorable they believe both homeowners and real estate agents are in spite of the difficult circumstances facing the homeowner and the challenging marketplace facing the agent.
If you’re facing foreclosure you’re facing some very important decisions. We want you know you’re not alone and we are here to help with any questions you may have to assist you in making the best decisions for your situation. There is no charge for this service and we are happy to help! We offer confidential and professional real estate advice.
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235
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