Guide to Understanding Short Sales

What is a Short Sale?

What are the Benefits of a Short Sale?

What are the Cash Back Incentives for a Short Sale?

What are the Alternatives to a Short Sale?

Short Sale vs Foreclosure?

What is the HAFA Program?

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What is a Short Sale? - Back to Top

Short Sale Defined

A Short Sale occurs when a homes market value is less then the loan balances owed, plus any selling costs (This unfortunate position is often called being “upside down” or “under water”). In order for any Short Sale to close, the lender(s) must in writing, approve to sell the home for less than the balances owed to them.

Example of a typical Short Sale

If a home sells for $550,000 less $38,000 in commissions and closing costs, and the loan balance owed to the lender(s) is $585,000, the lender(s) would have to accept a payoff of approximately $512,000 for the short sale escrow to close. This results in clean Short Sale transactions, you as the homeowner can become debt free at no cost to you, and we negotiate our fees to be paid by the lender(s).

Why does the bank allow a short sale?

This is quite simple, first they typically receive anywhere from 8% to 15% more of their money back compared to Foreclosure. In addition, in a Foreclosure, the lender or bank takes significant risk of the home being damaged, and these often cause additional delays, which result in higher expenses and legal fees.

It is important to note that lenders / banks won’t approve a Short Sale unless they are confident of a legitimate offer in hand from a fully qualified buyer, and a knowledgeable agent listing and negotiating the deal.  A certified, experienced, trained short sale agent is critical to the successful outcome of any short sale. They are well prepared to guide you confidently through the winding road of a short sale transaction.

How does the bank negotiate a price for short sales?

Short Sales are typically a more complicated sale transaction for many reasons. As compared to a traditional equity sale, they require additional paperwork, and they also require an agent /negotiator with highly trained skills when it comes to talking with your bank or lender. In addition, a professional short sale agent will carefully guide you in the  preparation of the overall process so you do not make the mistakes most homeowners make. For reference purposes, a complete Short Sale package includes the following:

• Valid, signed offer to purchase contract
• Buyers loan approval
• Buyers proof of cash or assets
• Copy of Listing Agreement
• Market comparable sales analysis
• Sellers current financial information
• Seller hardship letter
• And more

The first step in negotiations is to prove to the bank/lender the home has no real equity based on current market conditions. There has to be a genuine signed offer with proof of the buyers’ ability to obtain a loan for the new purchase, and you must also demonstrate the homeowners’ current financial hardship and their inability to maintain the current mortgage payments. Hardships can range from loss of job, significant change in mortgage payments, medical related issues, divorce or anything that results in the inability to make and / or keep up with the current payments.

Why so many short sales in the Southern California?

Southern California has been one of the hardest hit markets, largely due to the significant numbers of high-risk loans granted over the last several years. Often times buyers were purchasing homes with little or no money down, which contributed to the high risk to the lenders. This coupled with little or no proof of income to qualify for the loan(s). In addition, many of these loans were short-term adjustable rates or even reverse equity loans where the payments are low, but the equity is swallowed by the lack of real payment, in this case the loan balance goes up each month rather then down like traditional loans should.

Southern California home prices have decreased by as much as 32% to 46% in many cities. This is certainly why many homeowners’ have considered a short sale in order to weave their way out of the under water financial crisis they face. The bottom line is thousands of Southern California homeowners’ are upside down on their homes and struggle every day to keep up with their payments.

Why should I work with a HAFA certified Real Estate Professional on my short sale?

Like many things in life, you always have the option to take the do-it-yourself approach. However, most people do not fix their own car or represent themselves in a legal matter, so why take a huge risk with a potentially disastrous financial outcome. Just say NO! Here is why you should hire The Priority Group, a certified HAFA short sale specialist to help guide you through the process if you choose the short sell your home.

• No costs to you. The bank, not you, pays our services!
• No up-front fees. – Again the bank pays these fees to us upon successful completion
• HAFA certified. This means we have the experience, knowledge, training and skills necessary to navigate the entire process. HAFA is the government program to help homeowners’ short sale with NO financial obligation to you. The agent MUST be HAFA certified to allow you to qualify for this program.
• Up to $5,000 in cash incentives at closing – Our programs via HAFA will provide a GUARANTEED $3,000 at closing if approved for a HAFA short sale.  Some of our programs provide as much as $5,000.

Why work with The Priority Group?

I’m glad you asked that question….

In recent data provided by C.A.R. (California Association of Realtors), less than 20% of all short sales attempted ever actually end in a successfully closed transition. This is a staggering figure when you consider all of the homeowners trying anything to avoid foreclosure in California. The reasons so many of these fail is very simple. agents, homeowners trying to do it themselves, non-certified short sale agents and the list go on and on.

Our highly successful team of certified specialists has over 36 years of trained experience, all team members are HAFA certified short sale specialists, we provide dedicated negotiators, experience with nearly all banks and lenders, and a dedication to a successful outcome for you is why you cannot afford to choose any other team if you desire a successful short sale transaction.

In addition, The Priority Group first schedules a phone or in person consultation to determine if you may qualify for the new government sponsored HAMP loan modification program. Although we receive no compensation for these, we believe it is best to pay it forward first. These are often successful and result in you keeping your home with a lower monthly payment.

Call The Priority Group for a FREE no obligation phone consultation to discuss the options you have available to you. You may email us at info@PriorityRealtor.com or Call (949) 900-3800 for further information.

Ask us about the HAFA Short Sale Cash Incentives!

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What are the Benefits of a Short Sale? - Back to Top

There are some important actual benefits as a result of a short sale.  I know it’s hard to believe selling a house below the balances owed can actually end with some real benefit, but it can, and does!

Less impact on Credit

The fact is a short sale will have less impact on your credit score today than going through a foreclosure!  Your credit score is important, however the ability to obtain credit is more than just a credit score. After a short sale you can be eligible for Fannie Mae & Freddie Mac loans after only 2 years. Compared to going through foreclosure, this will likely take 5 years or more to qualify for a Fannie Mae or Freddie Mac loan.  That 3 years is a big deal, and it means you have to wait 3 years for the best interest rates to buy a home, and anything else you finance will likely be impacted by higher rates as well after a foreclosure. The bottom line is a short sale is just better for your credit than a foreclosure.

No Out Of Pocket Expenses

Since short sales are typically sold “as-is, you do not have to spend time or money on requested repairs.  The best part is the lender or the buyer will pay for all inspections, closing costs and commissions on both sides of the transaction.

Start New

Think of it as a clean break from all of the financial hardship. This allows you the freedom to control your financial future again, by wiping the slate clean. Although a loan modification sounds great, more than half of all homeowners end up defaulting on the loan again.  Loan modifications typically provided short-term band-aid solutions for homeowners, not the permanent solution they really need.

Avoid Embarrassment

Although you may not feel like this, most people go through tremendous guilt and embarrassment when the home is foreclosed. A short sale allows you to stay in the home during the short sale process, and then leave at the end like a traditional equity based sale.  You will not have to contend with a foreclosures lenders property inspections and the posting of a trustee sale notices right on your front door, ouch!.  As if the notice was not bad enough, the final part of a foreclosure is the local Sherriff showing up to evict you and your family from your home, and then it si too late and nothing you can do about it, except leave!

Lower Tax Liability

Since the advent of The Mortgage Forgiveness Debt Relief Act of 2007, this protects sellers of a short sale from being taxed on the difference between their balance owed and the final short sale price.  In a foreclosure you will receive a 1099 for the difference between the final contract sales price and  the amount you owed the bank!

Delay the Trustee Sale Date

Nearly ALL lenders will delay a foreclosure trustee sale date once a legitimate short sale offer has been submitted and is pending negotiations. Once again, the lender benefits by as much as 8% to 15% more in a short sale then a foreclosure.

Relocation to new home is easier

Just try renting when a foreclosure or eviction notice has been posted on your credit history. These are serious red flags to prospective landlords who may decide not to accept you unless they increase the security deposit. This just means more expense when you need it least! In a short sale, you have the luxury of time to properly choose a new place to live. In addtion prospective landlords look more favorably on short sales  as compared to those who have been through foreclosed.  It is quite simple, after a short sale, they can see you made a conscious effort to work with the creditor, rather than just walking away. If they see foreclosure, they will automatically think you will do the same to them, it makes sense!

Call The Priority Group for a FREE no obligation phone consultation to discuss the options you have available to you. You may email us at info@PriorityRealtor.com or Call (949) 900-3800 for further information.

Ask us about the HAFA Short Sale Cash Incentives!

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What are the Cash Back Incentives at Closing of a Short Sale? - Back to Top

HAFA Program Cash Back Incentives Available

With so many notices of default (NOD) being recorded each month in California, we desperately needed an alternative to the foreclosure crisis, so the Government sponsored programs have become a critical step to improving the housing market

The Obama Administration announced incentives and uniform procedures for short sales under its new Foreclosure Alternatives Program (FAP).

Responding to the desperate calls from the National Association of REALTORS (NAR), The Foreclosure Alternative Program (FAP) offers financial incentives to banks, investors, loan servicing companies, and even homeowners to stimulate the prevention of foreclosures, and to assist homeowners with an incentive to help to make new living arrangements.

Below is an outline of the incentives offered by the government through the HAFA program:

• Up to $3,000 for homeowners to help with relocation expenses.
• $1,500 paid to the bank, investors or servicers for the successful completion of a short sale or Deed-In-Lieu (DIL). This is to cover administrative and processing costs.
• Up to 6% allowed to be paid toward junior lien holders to release their liens
• First lien holder can receive up to $2,000 as incentive to allow payoffs to junior lien holders.

The HAFA programs also requires the following terms and conditions are to be met by the Banks, Investors, Servicers and the Homeowners:

• Service companies or Banks must first determine if the homeowner and the property are eligible for a short sale prior to consideration of a Foreclosure.
• Banks or Servicers may not charge fees to borrowers/homeowners for participating in the FAP.
• In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property.
• Property must be listed with a licensed real estate professional and no foreclosure may take place during the marketing period (at least 90 days) specified in the Short Sale Agreement.
• Property value must be determined by an approved Appraiser or using a Broker Price Opinion (BPO).
• Banks or Servicers will independently establish both property value and minimum net return to the bank, in accordance with investor requirements.
• The price may be determined based on an appraisal or one or more broker price opinions (BPOs)

In addition to the federal government incentives listed above, many banks and services have developed additional incentives to homeowners to help them avoid foreclosure.  Many of our successful short sales have included up to a 1% incentive paid to homeowners just for cooperating with the short sale. These incentives are usually paid by the bank/lender at the close of the short sale transaction.

Negotiating short sales requires the experience, negotiating skills, persistence, and an outstanding knowledge of the short sale process. In addition, we are certified HAFA program specialists so can feel confident of the best possible outcome at close of escrow. The Priority Group reviews all client short sale files very carefully to insure we have all the necessary items fro a successful short sale. We only submit the short sale package when all the lenders requirements are complete, and we feel confident in our chances for a successful short sale.

Our experience, results, knowledge and professionalism is key to our successful short sale negotiations.

Call The Priority Group for a FREE no obligation phone consultation to discuss the options you have available. We CAN help!

You may email us at info@PriorityRealtor.com or Call (949) 900-3800 for further information.

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What are the Alternatives to a Short Sale? - Back to Top

Making Home Affordable Program Options

Here are the alternatives to a Short Sale, Deed-In-Lieu of Foreclosure, and Foreclosure.

Eligibility for the Home Affordable Government sponsored programs:

The Making Home Affordable Modification Program (HAMP)

The Home Affordable Modification Program (HAMP) will likely assist up to 3 to 4 million homeowners to avoid foreclosure by reducing monthly mortgage payments.  Working with the banking and credit regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications.  This program will work in conjunction with the Hope for Homeowners program.

The Home Affordable Modification Program (HAMP)

• Program ends December 31, 2012
• Mortgage including taxes & insurance must be over 31% of borrower monthly gross income
• Must occupy the property as primary residence (1-4 units)
• Balance owed less than $729,000 on 1st mortgage only/2nd loans okay
• Loan originated before Jan. 1st, 2009
• Current or late mortgages okay (Pending NOD “Notice of Default”/No NOS “Notice of Sale”, MUST be 60 days or more from trustee sale date)
• Must have a genuine financial hardship (i.e. job loss, reduced income, divorce, illness etc.)

The Home Affordable Refinance Program (HARP) will be available to 4 to 5 million homeowners who have a proven mortgage payment history on an existing mortgage owned by Fannie Mae or Freddie Mac.  Typically, these borrowers are unable to refinance because of lost home values above 80% of market value.  Under the Home Affordable Refinance Program (HARP), many homeowners may now be eligible to refinance their loan up to 125% of the homes current market value to take advantage of lower mortgage rates or to refinance into a long term fixed rate mortgage, such as a 30-year fixed loan.

The Home Affordable Refinance Program (HARP) ends June 2011.

• Program ends June 2011
• 125% LTV Max (i.e. $350,000 Loan/$280,000 Property Value)
• FICO Score 640 Minimum (Freddie)/700 Minimum (Fannie)
• DTI (Debt To Income Ratio 50% Max)
• Must be current on payments

The Home Affordable Foreclosure ALTERNATIVE Program (HAFA) ends December 2012.

The Home Affordable Foreclosure Alternative Program (HAFA) is sponsored by the federal government and helps homeowners who are experiencing difficulty keeping up with mortgage payments, and that desire to avoid a foreclosure. In conjunction with the Home Affordable Modification Program (HAMP), HAFA was created on November 30, 2009 by the U.S. Treasury Department under the Obama Administration. The goal is to stimulate and revitalize the U.S. housing market.

• Must be your primary residence
• Less than $729,000 on 1st mortgage only/2nd loans okay
• Must have a financial hardship (i.e. job loss, reduced income, divorce, etc.)
• Loan originated before Jan. 1st, 2009
• Current mortgage payment including taxes & insurance must at least 31% of borrowers monthly gross income.

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Short Sale vs. Foreclosure? - Back to Top

Benefits of a Short Sale

• Less impact on your credit
• Ability to qualify for the purchase of another home sooner than going through a foreclosure. Often 3 to 5 years sooner than in a foreclosure.
• You have the ability to control the sale instead of the lender.
• Rest easier knowing who is actually buying your home.
• Avoid the embarrassment of a foreclosure.
• You can be current on your mortgage payments and still complete a short sale.
• Instead of being forced from your home, you can treat it more like a traditional sale
• Better preparation time for moving once the home is sold
• Less likely than foreclosure to be pursued for a Deficiency Judgment
• No need to check a box marked “Have you ever been through foreclosure or bankruptcy” on an application

Can I Purchase A Home After a Short Sale or Foreclosure?

• Short Sale: If your payments are behind, and your lender approves a short sale, you may actually qualify to buy another home with a Fannie-Mae mortgage within two years, regardless of whether the home is your primary residence. In the case of the FHA, the wait is 3 years.
• Foreclosure: You will be eligible to buy another home in 5 years, only if the home was your primary residence. If not, the wait is at least 7 years.

Investors or Non-Owner occupied owners must wait 7 years to buy again with a Fannie Mae loan.

Will A Short Sale or Foreclosure Impact My Credit?

• Short Sale: A short sale is typically going to appear as a derogatory mark on your credit. This is true even though credit bureaus are not likely to display the words “short sale” on your credit report. It will generally be listed as “Paid for less than agreed” or “Settled fro less than agreed”. This simply depends on the credit bureau.
• Foreclosure: After going through a foreclosure, you can expect your credit score, or FICO as it is commonly know to fall anywhere from 150 to 450 points. The reporting of a foreclosure will remain on your credit report up to 7 to 10 years.

What happens to my Credit Report after a Short Sale or Foreclosure?

• Short Sale: All lenders report short sales to your credit report in different ways, in fact, some do not report them to the credit bureaus at all.
• Foreclosure: After a foreclosure, the negative credit will stay on your report for 7 to 10 years. A foreclosure may also impact your ability to apply for the best jobs. You could face an application denial if you have a foreclosure on your record.

Will I have to pay a Deficiency Judgment After a Short Sale or Foreclosure?

• Short Sale: Any potential deficiency judgment is typically negotiated between the seller and the bank/lender. Ultimately this is a decision to be made by the bank/lender as to whether or not to pursue you for any deficiency. In California, if the home is your primary personal residence, and the loan is also the original loan to purchase the home, the law states the lender is not entitled to pursue you for a deficiency judgment.
• Foreclosure: Banks are generally not willing to negotiate deficiency judgments with you after a foreclosure. Why?, Simple, you chose not to cooperate so they see no need to allow you to walk away scott free. They will almost always pursue you for a deficiency after a foreclosure.

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What is the HAFA Program? - Back to Top

HAFA – (Home Affordable Foreclosure Alternative)

How Does HAFA help me?

How does a Short Sale and Deed-In-Lieu work?

HAFA Short Sale guidelines?

Recent HAFA Changes

The Home Affordable Foreclosure Alternatives (HAFA) program was designed by the U.S. Treasury Department to assist struggling homeowners to avoid foreclosure by short selling their home. The HAFA short sale program also provides cash at closing to the homeowner (seller – 3,000.00 at closing). The program has a specific timeframe to sell the home, and the required sale price is determined up front by the mortgage bank or lender.  This program does not work for all homeowners or all properties.   See if you qualify for the HAFA Short Sale program. Click Here.

Am I Eligible For a HAFA Short Sale?

Does My Lender Participate In HAFA?

How does HAFA help homeowners?

1. Establishes a standard set of processes, guidelines and timeframes.
2. Lenders are required to respond to all HAFA short sale offers within 10 days on a HAFA qualified property.
3. Financial cash incentives ($3,000 – Paid at closing) payable to homeowners, servicers and investors. This provides a significant financial motivation for the banks, lenders and services, and allows some financial assistance for the homeowner to help them relocate to a new home.  Some Lenders also offer cash incentives in addition to what the government is offering.  Call to find out what programs your lender offers specifically.
4. Homeowner is automatically relieved of all future debt responsibility for all loans. The lender has to agree to forgive the entire amount of debt in all HAFA short sale transactions.
5. Pre-approved short sale terms before the home is actually listed for sale in the local MLS.
6. Streamline HAFA short sale eligibility by using information previously gathered from a HAMP evaluation (Home Affordable Modification Program). Saves the homeowner additional work gathering paperwork a second time.

Home Affordable Foreclosure Alternative Program (HAFA)

The Home Affordable Foreclosure Alternatives program came as a result of the Government’s Making Home Affordable programs put in place. The HAFA program as it is widely known, even allows for a cash-back incentive at closing when you are approved for a HAFA short sale of your home. Short sale incentives for homeowner’s also include formal timeframes to list and sell your home.

Because of the serious nature of selling your home involved in a Short Sale, it is imperative you select a real estate agent that is HAFA certified, has the short sale experience and has a successful track record of proven results. The last thing you would want is to work with someone unfamiliar with HAFA. This leaves you with fewer options to choose from, and could result in a significant financial cost to you.  Priority Real Estate is HAFA certified, has a proven track record of successful Short Sales, and is 100% dedicated to obtaining the best resolution for our clients.

Recent Changes to the Making Home Affordable Programs

If you are unable to qualify for a Home Affordable Modification, there are incentives to you, loan servicers and investors to encourage short sales and deeds-in-lieu of foreclosure. This allows you as the homeowner as well as the lender to avoid the costly foreclosure process.

How The Home Affordable Short Sale / DIL Programs Work:

Short sales and a DIL (Deed-In-Lieu of Foreclosure) provide an opportunity for homeowners to avoid the negative impact of a foreclosure.  In a short sale, a lender or servicer allows the borrower to sell the property at the current appraised value. This allows for the home to sell for less than the total amount owed on the mortgage. All short sale approvals require the borrower to list the home for sale, and actively market the home. For the lender to approve a short sale offer from any prospective buyer, the sale requires the final net amount (after closing costs) applied to the mortgage balance payoff.

In the event, the borrower is unable to sell the home within the agreed upon time frame, the lender or servicer may then consider a DIL.  A DIL allows the homeowner to voluntarily transfer ownership of the property to the lender or servicer.

Borrower (Homeowner) Eligibility:

Borrowers are eligible for the (HAFA) Home Affordable Foreclosure Alternative Program provided they have met the eligibility criteria for a Home Affordable Modification but for whatever reason did not qualify for a modification. In some cases the borrowers were unable to keep up with a trial period payment plan or payments after a full loan modification.

HAFA participating servicers must determine if each borrower is eligible rather than going to the foreclosure process. Considerations in the determination include property condition and value, average marketing time in the community where the property is located, the condition of the title including the presence of junior liens and a determination that the net sales proceeds are expected to exceed the investor’s recovery through foreclosure.

Cash-Back Incentive Payments:

Borrowers may receive incentive compensation of up to $3,000.00 to assist with relocation expenses. These are paid at closing once approved for a HAFA short sale.

Standard Documentation Requirements:

The program offers a standard set of documentation, including a Short Sale Agreement and an Offer Acceptance Letter.  These documents outline marketing terms, describe the rights and responsibilities of everyone involved, and specifies a timeframe to complete the transaction.  The standards were designed to minimize confusion and to increase use of the short sale as a key option.

Short Sale Property Valuation:

The lender or servicer will determine the current property value as well as the minimum net amount an investor will find acceptable to close a short sale. The servicers will provide specific instruction to the agent regarding the minimum-listing price of the home as well as any reductions in price if necessary. An appraisal and/or a Broker Price Opinion (BPO similar to an appraisal) typically to determine the price.

Minimum and Maximum Duration:

Lenders or servicers will allow at least 90 days to market and sell the property. Depending on market conditions, the lenders or servicers may allow more time to market the home when necessary. These programs require the property to be listed with a licensed agent, experienced in selling short sale properties in the area. Even though the home is listed for sale, the foreclosure process will likely continue at the same time behind the scenes with the lender. A foreclosure sale will not occur as long as the borrower is making every effort in good faith to sell the property.  There is typically an absolute maximum of 1 year to market the property.

Fees and Charges:

Servicers may not charge borrowers fees for participation in the Foreclosure Alternative Program.

Property Eligibility:

Any junior liens, mortgages or other debts against the property must be cleared for the property to be sold as a short sale or deeded to the servicer. The servicer can proceed with a short sale or deed-in-lieu if there is a reasonable belief that all liens on the property can be cleared.

HAFA Program Expiration:

The Home Affordable guidelines state the program expires on December 31, 2012.

Deed-in-Lieu of Foreclosure (DIL):

The Short Sale approval will often include a clause allowing the borrower to deed the property to the lender or servicer in exchange for a total release from the debt obligation should the property not sell within the specified time. Typically the borrower / homeowner have 30 days to vacate the property and would be entitled up to $3,000.00 to assist with moving expenses. In some instances, a lender or servicer may provide additional money to the borrower at their discretion

Please contact our certified, experienced, professional team at Priority Real Estate for questions about a HAFA short sale program. If you are considering a short sale of your home, Please call Priority Real Estate at (949) 900-3800 or submit a request or a free consultation here.