Everything you

Should know about A Short Sale

Courtesy of Anne Brooks

Working hard to be Your Realtor® of Choice

Bank Foreclosure - VERSUS - Short Sale

Just recently, I had a gentleman approached me at our office. He mentioned he was 2 months behind on his mortgage. His wife recently moved out and he has been raising his teenage boys on his own. He had very high credit scores and was told he could qualify for a loan with no money down in June 2006. His mortgage was more than his in-come, once his loan adjusted, so he took out a personal loan to continue to make his payments. Once the money on his personal loan was gone he sought out Real Estate advise from a Real Estate Professional. The lender and the Agent he previously purchased the property from would not return his calls. Within 45 days after he contacted me, this is what I had done to help: 1. We contacted the bank and stopped the awful phone calls, they began calling me directly. 2. We ordered a short sale packet to notify the bank that we listed the property under the value he purchased it

at, as the market has decreased. 3. His home is currently listed. The bank is aware that payments will no longer be made and that the value of

the property is less than what is owed on the property. 4. We were successful in securing his family into a rental property. This is an opportunity to sell the property prior to a foreclosure As foreclosures have become more common in the area, I have been working hard to get this story out there. I feel it is important for the public to be aware that there may be options available, in most cases, prior to foreclo-sure. If it is inevitable that payments have become too much, be proactive and try to help not only yourself, but the bank. They eventually determine the fate of your credit reporting. A short sale in most cases is better than a fore-closure or bankruptcy. *Disclaimer: Consult an attorney, who is qualified to consult in this matter. I have been in the Real Estate industry for over 12 years and it is disheartening to hear about people in the com-munity who are trapped in the adjustable mortgage nightmare or the equity lines that are overwhelming to pay. If I can help, please contact me. We can work through some possible scenarios. It is no cost to you and I will work out my fee directly with the bank. If you feel there is no end in sight, at least contact your bank to talk to them about a Short Sale option or to find out if other options may be available. Best Wishes,

Anne Brooks

Anne Brooks

Avoiding Foreclosure The best advice: Don't ignore your situation. Most people who sign a mortgage don't intend to walk away from it. Still, unfore-seen circumstances -- huge medical bills, lost jobs, divorce or eroding property values -- can overwhelm even the best-intentioned borrower. A simple twist of fate can leave you facing a homeowner's worst nightmare: foreclosure. Communicate with your lender. Rest assured, where foreclosure is concerned, you and your lender are on the same side. Lenders want your money and the interest that comes with it, not your house. If you seem to be a good risk, the lender will offer to help keep your mortgage afloat. But be forewarned: If you seem like a bad risk, the lender may cut its losses by taking steps to foreclose and evict you as quickly as possible. The key is to contact the lender before your debt gets the better of you. The sooner your lender knows of your problem, the more help it can provide. The foreclosure spiral. The foreclosure spiral begins when your loan payment becomes 16 days overdue. At that point, your mort-gage servicer will try to contact you to work out a repayment schedule to bring your loan current. If your first payment becomes 30 days delinquent and the next month's payment looks doubtful, collection attempts begin in ear-nest. If your payments fall 90 days behind, the servicer will likely refer your mortgage to an attorney or other entity that will initiate formal foreclosure proceedings. Ways to avoid foreclosure. Here are some options your lender may offer or other ways to consider to avoid foreclosure: Option 1, Pay Down/Sell: This is an option if you have th money to spare. You can sell your home and pay the difference between what your house sells for and what you owe to you lender. The positive to this is you can keep your credit intact. The negative is that you need disposable dollars to do this.

Option 2, Short sale: A short sale is when the lender allows you to sell the house for less than the outstanding loan amount, takes the proceeds and forgives any remaining debt. We will need to negotiate with your lender(s) to accept less than you owe. The posi-tive is you pay your loan(s) without any money out of your pocket. The negative depends on how many payments you missed. It can reduce your credit score by 50-150 points.

Option 3, Repayment plan: If you suffer a short-term financial setback (expensive car repairs, a medical emergency), your lender may provide some breathing room by agreeing to let you pay off your missed payment in two installments over the next two months. Option 4, Loan modification: Mortgage servicers can adjust the terms of your loan. Most often by lengthening the amortization schedule, lowering the interest rate or rolling the delinquent amount into the loan and re-amortizing the new balance to help you bring the loan current.

Option 5, Deed in Lieu: This is a situation where you basically hand over the keys to your lender. In most cases, the last thing your lender wants is the property back, and if they do, it is normally prior to foreclosure. At this point, your credit is probably already negatively affected. If you were current with your payments, why would your lender take the property back? Option 6, Short refinance: The lender forgives some of your debt and refinances the rest into a new loan.

Option 7, Refinance with a "hard money" loan: You won't like the high rates and fees of a hard money loan -- one from a private lender -- but it may buy you time to sell your home and avoid foreclosure.

Option 8, bankruptcy: Sometimes you will be advised to file bankruptcy. In a lot of cases, people will suggest this because they do not know other options as mentioned above. This should be a last resort. Bankruptcy stays on your credit report for up to 10 years.

Option 9, Rent: You can rent your property out until the market turns upward. In most cases, there will be a negative between the rent and your loan payments. You should be prepared to rent out your property for a couple of years or more.

Option 10, Walk-away/Foreclosure: This is the situation where you just walk away from your house. You can still have negative tax consequences and it can affect your credit by up to 250 points. In most cases, a short sale is a better option.

Tips for Navigating the Short Sale Process With homeowners defaulting on their mortgages at a record pace, many people are practically begging their lenders for some form of relief or assistance in order to prevent themselves from ending up on the street. While it is certainly disconcerting to receive collection letters and threats of impending foreclosure from a lender, those who are falling deeper into debt and enduring difficulty making their monthly mortgage payments need not des-pair. The “short sale” is one alternative worth considering as a viable means for resolving your debt with the lend-er and dealing with a home that is no longer affordable. Here are some basics you need to know before starting the short sale process.

What is a Short Sale?

A “short sale” occurs when the net proceeds from the sale of property is not sufficient to satisfy the outstanding mortgages on the property, and the seller does not have the financial ability to make up the difference. The lender is asked to take less than the full amount owed in order for the sale to be completed What Causes A Short Sale?

Sometimes a short sale is brought about because the homeowner borrowed more than he/she could afford to pay back and miscalculated his/her financial status. Often, the short sale arises because of an unforeseen change in the homeowner’s life, such as a long-term illness, disability, divorce or loss of employment, which has dramatical-ly affected the person’s income such that the mortgage payments are no longer affordable. Why is the short sale a viable option for the seller?

A foreclosure can have a devastating impact on someone’s credit report that has a lasting effect for years to come. A short sale is typically reported on a credit report as a debt that is “settled for an amount less than what is due”. While this will cause a dip in credit score, it will be nowhere near as harsh as the reporting of a foreclosure. Why would a lender agree to a short sale?

The answer is very simple: Lenders do not want to own houses. Lenders are in the business of loaning money, not in the business of stockpiling real estate. There have been numerous reports that banks can face fees of up to $50,000.00-$60,000.00 in actually foreclosing on a property. From a business standpoint, the lender will make out better if the property is put on the market and given an opportunity to attract a buyer through private sale. How does the short sale process work?

Most lenders have a short sale package containing documents that the seller must submit in order to have the short sale approved. Such documents include: hardship letter from seller/borrower explaining why the short sale is necessary, seller’s financial statement, two most recent pay stubs, two most recent bank statements, two most recent tax returns, copy of an Agreement of Sale with buyer, copy of proposed settlement statement (HUD-1) demonstrating net monies to the lender. Once the package is submitted to the lender, a negotiator is assigned to the file who handles the short sale on behalf of the lender through closing.

New California Law that will help CA Short Sale Homeowners - NEW! SB 458 Anti-Deficiency Law! Effective NOW! California homeowners this is most important and the most exciting news that could have been announced! Cali-fornia homeowners that find themselves having to do a short sale due to their mortgage problems will now get a huge break. Thanks to the New Law SB 458 - No Recovery No Recourse - Anti-Deficiency Law. Signed on July 15, 2011 and effective immediately. A brief description of this new law: This NEW LAW expands the provisions of SB 931 and to prohibit a deficiency judgment upon a note secured solely by a deed of trust or mortgage for a dwelling of not more than 4 units in any case in which the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness outstanding at the time of sale, in accordance with the written consent of the holder of the deed of trust or mortgage if the title has been voluntarily transferred to a buyer by grant deed or by other document that has been recorded and the proceeds of the sale are tendered as agreed. This NEW LAW also provides that, in other circumstances, when the note is not secured solely by a deed of trust or mortgage for a dwelling of not more than 4 units, no judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage for a dwelling of not more than 4 units, if the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness, in accordance with the written consent of the holder of the deed of trust or mortgage. This NEW LAW provides, following the sale, in accordance with the written consent, the voluntary transfer of title to a buyer, as specified, and the tender of the sale proceeds, the rights, remedies, and obligations of any hold-er, beneficiary, mortgagee, trustor, mortgagor, obligor, obligee, or guarantor of the note, deed of trust, or mort-gage, and with respect to any other property that secures the note, shall be treated and determined as if the dwelling had been sold through foreclosure under a power of sale, as specified. This NEW LAW prohibits the holder of a note from requiring the trustor, mortgagor, or maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale. This NEW LAW provides that these provisions are inapplicable if the trustor or mortgagor is a corporation, lim-ited liability company, limited partnership, or political subdivision of the state. The provisions would also be in-applicable to any deed of trust, mortgage, or other lien given to secure the payment of bonds or other evidence of indebtedness authorized, or permitted to be issued, by the Commissioner of Corporations, or that is made by a public utility subject to the Public Utilities Act. This NEW LAW provides that any purported waiver of these provisions shall be void and against public policy. This NEW LAW declares that it is to take effect immediately as an urgency statute.

Ten Facts for Mortgage Debt Forgiveness IRS Tax Tip 2011-44, March 3, 2011 If you are a homeowner whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness. 1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence. 2. The limit is $1 million for a married person filing a separate return. 3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a fore-closure. 4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. 5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qual-ify for the exclusion. 6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not quali-fy for the exclusion. 7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Dis-charge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven. 8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be ap-plicable. IRS Form 982 provides more details about these provisions. 9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancel-lation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. 10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incor-rect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7. For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit http://www.irs.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.

The CA Foreclosure Process (CA Civil Code 2924 et. seq.) Trustee’s Timeline: *The following timeline and description of the foreclosure process here within are intended for educational purposes and are not to be construed as legal advice 1. Notice of Default / Reinstatement Period Foreclosure proceedings are initiated by recording a Notice of Default (NOD) in the county in which the property is located. This recording of the Notice of Default gives "Constructive Notice" to the public. After the recording of the Notice of Default, in the state of California, the borrower and junior lien holders are given proper notifi-cation and the borrower has 90 days to bring their account current. This period is referred to as the Reinstatement Period. Many foreclosure proceedings are reinstated during this 3-month default period. The borrower or anyone with a subsequent interest in the property may pay the beneficiary or his authorized agent the amount necessary to cure the default. This amount will include delinquent payments, and advances and the fees and costs associated with filing the notice of default and other necessary docu-ments. When the default is cured, a Notice of Rescission will be prepared so that it can be signed by the beneficiary. When the No-tice of Rescission is recorded it cancels the Notice of Default. 2. Notice of Trustee’s Sale If after 90 days the borrower has not remitted the arrearages, the lender may authorize and instruct the Trustee to record the No-tice of Trustee Sale (NOS). After 21 days of the recording of the NOS, a foreclosure sale can take place at public auction. The property may be sold to a third party bidder or revert back to the lender for a specified amount. Bidders are required to bring cashier's checks or money orders to the sale in an amount equal to or higher than the lenders opening bid. The auctioneer will qualify each bidder and the successful bidder will have to tender full payment at the sale. The Notice of Trustee's Sale is recorded at the County Recorder's office in the County where the property is located. It contains the date, time and place where the auction will take place. This notice has to be published in an adjudicated newspaper in the city where the property is located. The NOS is also posted on the property as a requirement of law. 3. Disbursement of Funds After the sale auction is completed and if the property sells to an outside third party bidder, all funds owed to the lender/beneficiary will be prepared for immediate payout. If the property reverts to the lender/beneficiary at the sale, a Trustee's Deed will be issued and the lender will have ownership to the property securing the debt.

TheCompleteShortSaleProcessHowaShortSaleisHandledfromListingtoBankApprovalBy Elizabeth Weintraub, About.com Guide

The short sale process is s ll a mystery to many people, even a er all these years. Lots of buyer's agents are confused; puzzled buy-ers are looking for direc on, and not every short sale lis ng agent knows how to do a short sale1. TheBasicsofaShortSaleBanks grant short sales for 2 reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth.

A few examples of a hardship are:

• Unemployment / reduced income • Divorce • Medical emergency • Job transfer out of town • Bankruptcy • Death

The seller will need to prepare a financial package for submission to the short sale bank. Each bank has its own guidelines but -- with the excep on of Wachovia, which is the best short sale bank in the world -- the basic procedure is similar from bank to bank. The seller's short sale package will most likely consist of:

• Le er of authoriza on, which lets your agent speak to the bank. • HUD-1 or preliminary net sheet • Completed financial statement • Seller's hardship le er • 2 years of tax returns • 2 years of W-2s • Recent payroll stubs • Last 2 months of bank statements • Compara ve market analysis or list of recent comparable sales WritingtheShortSaleOfferandSubmittingtotheBankBefore a buyer writes a short sale offer2, a buyer should ask his or her agent for a list of comparable sales. Banks are not in the busi-ness of giving away a home at rock-bo om pricing. The bank will want to receive somewhat close to market value. The short sale price3 may have li le bearing on market value and may, in fact, be priced below the comparable sales to encourage mul ple offers4.

A er the seller accepts the offer, the lis ng agent will send the following items to the bank: • Lis ng agreement5 • Executed purchase offer6 • Buyer's preapproval le er7 and copy of earnest money8 check • Seller's short sale package If the package is incomplete, the short sale process will be delayed. In this event, the bank might even shred the package. TheShortSaleProcessattheBankBuyers may wait a very long me to get a response from the bank. It is impera ve for the lis ng agent to regularly call the bank and keep careful notes of the short sale process. Buyers may get so red of wai ng for short sale approval9 that they may feel the need to threaten to cancel if they don't get an answer within a specified me period. That type of a tude is self-defea ng and will not speed up the short sale process. If buyers are the type with li le pa ence, perhaps a short sale is not for them. Following is a typical short sale process at the bank: • Bank acknowledges receipt of the file. This can take 10 days to a month. • A nego ator is assigned. This can take 30 to 60 days. • A BPO10 is ordered. The bank probably will refuse to share the results of the BPO. • A second nego ator may be assigned. This can take another 30 days. • The file is sent for review or to the PSA11. This can take 2 weeks to 30 days. • The bank may then request that all par es sign an Arm's-Length12 Affidavit. • The bank issues a short sale approval le er. • The buyer cancels. I threw in that last line because some mes I have to sell my Sacramento short sales 3 or 4 mes before a buyer s cks with the transac on. Buyers get angry and annoyed because the short sale process can be so lengthy that they some mes cancel without telling anybody. Some short sales get approval in 6 to 8 weeks. Others take 90 to 120 days, on average.

Tip: Generally the lis ng agent has some idea of when approval will come when the file is sent for final review. At that point, buy-ers may want to start the loan process so they've got a head start in case the bank gives 2 weeks to close.

At the me of wri ng, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

©2011 About.com, Inc., a part of The New York Times Company. All rights reserved.

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Qualifications for a Short Sale Before you eagerly climb aboard the short sale bandwagon, consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not qualify for a short sale. • The Home's Market Value Has Dropped. Hard comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. This unpaid balance may include a prepayment penalty. • The Mortgage is in or Near Default Status. It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are eager to head off future problems at the pass. • The Seller Has Fallen on Hard Times. The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has or will stop making the monthly payments. A few examples that do NOT constitute a hardship are: 1. Bad purchase decisions. Blowing your paycheck on a home theater system with surround sound does not

qualify as a hardship. 2. Unhappy with the neighbors. Even if every home on your block has turned into pot growing houses, that

will not qualify as a hardship. 3. Buying another home. The lender will not care if you have decided the home is no longer suitable for you or

your family. 4. Pregnancy. Increasing the size of your family or starting a family is not considered a hardship. 5. Moving into an apartment. If you decide to move out of your home, that is a lifestyle decision and not a very

good reason to abandon your home.

Examples of hardship are: 1. Unemployment 2. Divorce 3. Medical emergency / sudden illness 4. Bankruptcy 5. Death

Qualifications for a Short Sale (continued)

• The Seller Has No Assets

The lender will probably want to see a copy of the seller's tax returns and / or a financial statement. If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall.

For example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even I RA accounts, the lender will most likely determine that the seller has assets. However, the lender might discount the amount the seller is required to pay back.

Many entities profit from short sales, but there is no seller short sale profit.

Short Sale Consequences

A short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer's offer. If the lender rejects the offer, a short sale will not take place.

• Tax Consequences 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. Many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007. You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes, if any.

• Blemished Credit Report While a short sale will not show up on your credit report, the loan status will. For those in default, it's a pre-foreclosure that has been redeemed, which is often reported as Paid in Full for Less Than Agreed. Short sales affect credit ratings. While the damage to your credit report may not seem as significantly bad as a foreclosure to you, creditors may not make the distinction.

Always seek legal counsel before attempting to pursue a short sale. A real estate agent cannot give you legal advice.

The Hardship Letter The central document in the Short Sale package that will be submitted to the mortgage lender that will be taking a loss is the Hardship Letter. The Hardship Letter provides the homeowner with an opportunity to state their case as to why they can no longer afford to make their mortgage payment. The Hardship Letter should be an honest, heartfelt statement outlining the circumstances that have created the problem. It should include these components: • A brief apology for having to ask the lender to take a loss. • A description of the steps the homeowner has taken (used credit cards, borrowed from family, borrowed

from retirement accounts) to stay current on the mortgage. • A clear statement that the homeowner has extended all available options to stay current on the mortgage and

that a Short Sale is the only remaining option, other than foreclosure. While it is important for the homeowner to provide a complete picture of their hardship, it is also important to avoid a letter that is excessively long. In order to get a loss mitigation negotiator to understand the hardship, the loss mitigation negotiator needs to read the letter and connect with the writer. Limit the letter to a manageable length. If possible, attach to the Hardship Letter any documents, receipts or notices that supports the homeowner’s hardship. Examples: 1. Layoff notice 2. Letter from employer outlining a reduction in pay or a reduction in hours 3. Cancellation notices for medical insurance or auto insurance due to non payment 4. Delinquency notices from creditors and/or services and utility providers 5. Letters from doctors regarding injury or illness 6. Disability benefits letter 7. Divorce or separation papers 8. Receipt for excessive payments for medications or emergency payments 9. Any documents supporting a family crisis hardship

The Hardship Letter (continued) Borrower Hardship Letter Example #1 I am unable to keep current with my mortgage due to divorce. I am receiving no financial support from my husband and I have been a homemaker for the past 12 years. I am employed, but because of my lack of skills, I am unable to earn much more than min-imum wage. I have two children at home ages 7 and 9. with the cost of daycare and my other obligations, there is just no way to make the mort-gage payment. I have used up all available credit just to keep food on the table. I cannot keep up my home and must sell it. The real estate market is such that I owe more than my home is worth. My only other option would be to file bankruptcy. I am an honest, hardworking person and it is devastating for me to find myself in this awful position. I would deeply appreciate any help you can offer. Sincerely, Borrower Hardship Letter Example #2 My wife has recently suffered a devastating illness. She is unable to continue working and it may be years before she is well enough to work. She has been the primary wage earner in our family for the past 10 years. My income cannot come close to covering our monthly expenses. We find ourselves deeper in debt every month with no relief in the foreseeable future. I have sold our second car and anything else we do not absolutely need. Our home is large and the minimum monthly expenses for the upkeep, electricity, gas, etc. are very high. Our only hope at this time is to sell our home. Unfortunately, if we sell our home in the present slow real estate market, we will be upside down about $30,000. Our only other alternative is bankruptcy. We would appreciate any help you are able to provide. Sincerely, Borrower Hardship Letter Example #3 As a result of upward adjustments to our monthly mortgage payment, my wife and I are unable to afford our mortgage. As I sit here today it’s not clear to me how I ever thought that we could afford the mortgage once payments started adjusting. I wish my loan officer would have explained to us where our monthly payments were going to be when they adjusted. We have borrowed money from family and we have taken cash advances on credit cards, but we are falling further and further be-hind with no real hope of affording the payment. At this point, we can’t do it any longer. Both my wife and I are very sorry that this has happened. We are losing our dream house, and we know you are losing too. We just don’t have any other options. Please work with us on a Short Sale. We don’t want to go through foreclosure, but if we can’t do a short Sale, we will not be able to avoid it. Thank you for you consideration,