Seller FAQs. If your question is not addressed in this document, please call us at and one of our Client Coordinators will assist you.

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1 Seller FAQs You re thinking about a short sale, but want to know more about them. We ve compiled a list of commonly asked questions from sellers just like you. Please read through this document to answer some of the questions you may have. If you would like further assistance, please contact us. If your question is not addressed in this document, please call us at and one of our Client Coordinators will assist you.

2 Table of Contents ATC Financial s Role in Your Short Sale... 3 Our Goal For You... 3 Potential Consequences of a Short Sale... 4 Difference Between a Short Sale and a Foreclosure... 6 Should I Stop Paying My Mortgage?... 6 Can My Short Sale Still Get Approved If I am Current On My Mortgage?... 6 How Does a Short Sale Affect My Credit?... 7 When Does Document Collection End?... 8 Who Should Submit Documents?... 8 Foreclosure Notices... 8 The Short Sale Process... 9 HAFA Guidelines and Other Info Important Things to Know About FHA Guidelines Important Contacts at ATC... 16

3 ATC Financial s Role in Your Short Sale ATC represents the seller in negotiating their short sale. We handle everything from collecting documents, submitting them to the bank, following up with frequent bank calls for updates, negotiating with short sale lenders relative to counter offers and terms of the release, as well as communicating with all parties (sellers, buyers, Realtors, banks, title companies) to keep everyone in the loop as we progress toward short sale approval and then settlement. Our Goals for You Our first goal is to obtain a short sale approval. Our second goal is to try to minimize or eliminate the terms that may be associated with short sale outcomes such as: promissory notes, cash contributions and/or deficiency judgments. 3

4 Potential Consequences of a Short Sale Full and Final Release of All Future Liability The short sale lender may grant your short sale and the approval may include a full and final release of all future liability for the deficiency balance. What is a Cash Contribution? Your bank may require you to bring cash to settlement to obtain a short sale release. This amount typically between $1,000 - $20,000 depending on the scenario and the amount of the potential deficiency balance (amount of loan + interest and penalties - net to the bank). The amount requested is based on investor guidelines and MI guidelines once they look over the homeowners financial situation. This is often negotiable. What is a deficiency judgment? If your state is a recourse state (only a few states are not recourse states), the bank reserves the right to collect from the homeowner the amount that is owed on the home less what they collected in the short sale. This right has no exact terms. Often, investors won t waive the deficiency balance once they look over a homeowners assets, financials and hardship. There is a 12-year statute of limitations on the deficiency balance because it is signed under SEAL (typically there is just a 3-year statute of limitations). ATC s primary goal is negotiating away the deficiency balance and ensuring your approval letter will state that it is waived. Although we do not guarantee that we can accomplish this, our goal is to have the homeowners walk away from the short sale if at all possible with no liability. If a deficiency balance is not waived, the bank may or may not pursue it, however, they have the legal right to do so if they wish. What is a Promissory Note? Your bank or the MI company may require that you sign a note agreeing to pay a reduced amount (for example: $10,000 payable over 10 years, 0% interest) in order to obtain a short sale approval that includes a full and final release of all future liability (each scenario is different). Usually this note is unsecured and requested at time of negotiation. An unsecured promissory note is not attached to any collateral. In a short sale, these notes are usually based on the seller s ability to repay, the amount of the loss, or multiple factors dependent on who holds the mortgage. 4

5 Potential Consequences of a Short Sale What is a 1099-C? A 1099-C is issued to homeowners who go through a short sale regardless of what other ramifications are agreed upon at the settlement table. If you have had a short sale in which a debt of $600 or more is forgiven by the bank, you should receive a Form 1099-C in January or February of the year after the short sale has been completed. It will come at about the same time you receive the rest of your tax forms such as W-2s and 1099s. The 1099-C will show the amount of debt forgiven and the fair market value of property that you gave up to the lender through the short sale. The IRS urges you to check the form carefully and notify the lender immediately if any of the information shown on their form is incorrect. However, in some cases, even if the homeowner receives a 1099-C, the homeowner can be considered exempt from potential tax liability. ATC strongly recommends that the homeowner seek advice from a CPA or tax advisor regarding any tax consequences as a result of the short sale. Some examples of exceptions may include: Proving insolvency under the IRS code Proving the Mortgage Debt Forgiveness Act of 2007 applies We encourage you to visit the IRS website for further details on this information Again, it is imperative that the homeowner seeks advice from a tax advisor or CPA. Before the Mortgage Debt Relief Act of 2007, people who lost their homes to foreclosure often had their outstanding home mortgage cancelled by their lender. However, most homeowners did not understand that this cancelled debt was considered taxable income by the IRS. However, with the Mortgage Deb Relief Act there is help. Note: Keep in mind that every short sale is different and the banks will evaluate the financial and/or situational hardship in determining the outcome and terms of the release. The majority of the short sales typically come with full releases. However, with 2 nd mortgages, small banks or credit unions, mortgage insurance companies, they are the ones that typically ask for additional terms. Sellers are not obligated to accept the terms if they are not satisfied and can request to have the file closed. There is no further obligation to ATC. ATC strives to perform our best efforts in minimizing the cash contributions, promissory notes and deficiency judgments as outlined in our Credit Service Agreement, but does not guarantee the elimination of them. 5

6 Differences Between a Short Sale and Foreclosure? 1. Foreclosures typically have a higher level of impact on a credit report versus a short sale. 2. Foreclosures are typically issued with an automatic deficiency judgment where through a short sale, we can possibly get this deficiency waived. 3. The ability to purchase a new home is more difficult with a foreclosure on the homeowner s record versus a short sale. Should I Stop Paying My Mortgage? No third party or Realtor should ever recommend a homeowner to stop paying their mortgage payments. This is a decision that the homeowner has to decide on their own. However, with some short sale lenders and investors, it is a requirement that the homeowner fall behind on their payments before the lender will consider a short sale approval. Again, this is not a recommendation to stop paying their mortgage. These are guidelines of FHA and Fannie Mae loans, but other banks and investors may require this as well. Either you or ATC should call your bank to find out what their guidelines are. Can My Short Sale Still Get Approved If I am Current On My Mortgage? Although we cannot advise a homeowner to fall behind on their mortgage, the banks may give more attention to a loan that is in default versus a loan that is current. However, we have received approvals for homeowners that were in both situations. 6

7 How Does a Short Sale Affect My Credit? We cannot advise exactly how the bank will report to the credit agency or how it will affect your credit score. However, we have provided a link to some research regarding how your FICO score is affected by short sales. ( research-looks-at-how-mortgage-delinquencies-affect-scores.html) **ATC Financial does not take responsibility for the accuracy of this data. It is presented for informational purposes only. 7

8 When Does Document Collection End? After the initial document collection, at the beginning of the short sale process, we will continue to collect your paystubs and monthly bank statements. The banks require updated financial information from sellers, so it is important to send us your paystubs every 15 days and your bank statements every 30 days. We may request additional documents from you, as the bank asks for them. Who Should Submit Documents? If your name is on the mortgage, you need to submit all documents. So, if there are 2 homeowners names on a mortgage, both need to submit the same documents. Alternately, if your name is on the title but not on the mortgage, you only need to submit the Listing Agreement and the Contract. Foreclosure Notices Doing a short sale does not prevent you from getting foreclosure notices from your bank. You may get them after you are delinquent on your mortgage for 60 days, 90 days, and 120 days and then eventually from an attorney. If you are undergoing a short sale and are delinquent, you may receive numerous notices as required by law in many states. If you receive a notice with a foreclosure date, please contact a foreclosure attorney as soon as possible. Please let us know as well. Often times, the short sale negotiators do not communicate with the bank s collection departments. ATC Financial does not handle foreclosures, as they are outside the realm of our expertise. Make sure you contact an experienced foreclosure prevention attorney as soon as you see a foreclosure date on your notice. You may be eligible to apply for foreclosure mediation as well. Please visit for more information. 8

9 The Short Sale Process Upon receiving a signed listing agreement from the listing agent, ATC will reach out to the homeowner with our short sale package. This package includes instructions and details for document collection. Document collection can take up to 1-4 weeks. ATC will frequently reach out to the homeowner until all documents have been received. Documents Received -> Waiting for a Ratified Contract from a Buyer Contract Received Verify contract terms are acceptable and within reason A title company has been selected and accepts ATC s policies and responsibilities in working together with ATC for the short sale settlement. Title Company performs a current owner s title search to uncover any other liens or judgments that may be attached to the property. Title Company sends ATC a preliminary HUD1 statement. Title Company does not charge additional fees to the seller. Complete Short Sale Package has been sent to the short sale lender(s). Once ATC verifies the package has been received, the timeline starts 9

10 Short Sale Timeline Once Package Is Submitted to the Banks First 30 days... BPO or Bank Appraisal ordered Bank Negotiator assigned to the file and verified Upon Completion of BPO or Bank Appraisal Next 10 days... Bank has verified BPO/Appraisal completed and in review Next 10 days... Awaiting bank to provide counter offer terms Once terms of the short sale has been received, ATC will present them to all parties necessary and begin negotiations to obtain approval Negotiation Process can last 5-20 days depending on how far off the terms are and how long the parties need to think about accepting or countering the terms. Terms of the Short Sale Accepted Verbally Approval Waiting for Written Approval (1-5 days depending on bank negotiator) Once written approval has been received, both approval and final HUD are submitted to the title company to proceed to closing Title Company must provide ATC with a final HUD1 with Buyer s costs on the HUD1 72 hours prior to closing to obtain closing approval from the short sale lender(s). Buyer to secure financing and proceed to settlement If Buyer is financing, this could take 30 days to secure If Buyer is a cash deal, closing can take place as fast as 10 days or less 10

11 Short Sale Timeline Once Package Is Submitted to the Banks Preparation Submission of Short Sale Package Internal Valuation Document Collection Pre-Contract Period Approved Sales Contract Negotiator Assignment BPO/Appraisal Order Negotiation Investor Review Decision Terms of Counter Offer Counter! Short sale approval is at the discretion of investors and MI companies Approval Settlement It is important to remember that the timelines provided here are just a rough estimate. Every short sale is different, yours may take 2 weeks or it could take 90 days or even a year. It is impossible to say for sure. The way to ensure that the process goes as smoothly as possible, is to work in conjunction with ATC and your Realtor throughout the document collection stages. Every time the bank requests any documents, it is important to get the documents back to us as soon as possible so the file can continue to move forward. If you do not send us documents in a timely fashion, the file will lay stagnant. 11

12 HAFA Guidelines and Other Info Please Note: This document is intended for informational purposes only and is not a guarantee of program eligibility. This is not a contract and any outcome of the sale of your home is bound by the terms outlined in the ATC Service Agreement. Every homeowner is entitled to free advice from a HUD-approved counselor. For local contact information and additional resources, please visit or call HOPE (4673). What is HAFA? HAFA stands for Home Affordable Foreclosure Alternatives and is a program offered and funded by the Federal Government. The homeowner s mortgage servicer(s) must verify borrower eligibility and agree to the terms set forth. How can it help me? A HAFA approved short sale, once closed, releases the borrower(s) from any remaining mortgage debt. This applies to all mortgages on the home. The mortgage servicer works with the borrower(s) to determine an acceptable sales price. A HAFA short sale has a less negative impact on the borrower(s) credit score than a conventional short sale. The borrower(s) is afforded a $3,000 relocation stipend at closing. Do I qualify? You must have a documented hardship, either financial or situational. You cannot have purchased a home in the last 12 months. Your first mortgage cannot exceed $729,750 and must have been obtained on or before 1/1/2009. You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction. How do I apply? Upon your request, ATC will get your case into your mortgage servicer s HAFA Eligibility Department. There will be a few extra forms to fill out, which will be provided to you. 12

13 HAFA Guidelines and Other Info What s the catch? While there is no real catch, the homeowner does have certain responsibilities under the HAFA program. These include maintaining the house and property, cooperating with the Real Estate Agent to facilitate showings, providing clear title to the buyer(s) and responding fully and promptly to requests from the mortgage servicer for additional information or paperwork. Anything else? The sale of the home must be an Arm s Length Transaction. This means that the buyer cannot be related to the seller or have a close personal relationship with the seller; this contingency includes business relationships and relation by marriage. The difference between the remaining amount you owe and the net proceeds of the sale to the mortgage holder is called Deficiency, and it must be reported to the IRS. The mortgage servicer will issue a 1099C to be used when filing taxes. This amount, as well as the amount of relocation assistance, may be taxed as income. ATC cannot advise on tax matters and strongly recommends consulting an accountant or tax professional with any questions. HAFA does not change the verbiage used by the major credit reporting agencies; the forgiven debt will be reported as settled for less than the amount owed. It is important to keep in mind that the HAFA process will take longer than a conventional short sale. If the borrower(s) is determined ineligible, the short sale process must restart from the beginning and all documents must be updated and resubmitted to the appropriate department. This is out of ATC s control. 13

14 10 Important Things to Know About FHA Guidelines Short sales can be complicated enough with conventional loans, but with FHA loans there are many more rules and regulations to abide by in order to qualify for a short sale. Please remember that FHA is much stricter with their guidelines and are not as forgiving if you do not follow them. Here are some important things you need to know about FHA loans: 1. The home must be sold to a third party who is at arm s length. This person cannot be someone the seller or seller s agent knows personally, such as a family member, friend, or other acquaintance. Side note: For conventional loans that ask for an arm s length transaction, many banks will not allow an employee of their bank to purchase the home. So if the seller has a Bank of America loan, the buyer cannot be an employee of Bank of America. In general, banks now really frown upon having one of their own employees buying a distressed property from the same lender. 2. If you do a short sale, the seller s outstanding debt (including unpaid principal balance, delinquent interest, and partial claim) will be forgiven. With a short sale that has an FHA loan the deficiency is automatically waived, however a 1099C might be issued on the homeowner we strongly suggest they seek help from an accountant when they file their taxes in order to best deal with this. 3. The homeowner will receive an incentive of up to $1,000 if the short sale is closed within 3 months from the date of application. The realtor, the maximum incentive is $ HUD (Department of Housing and Urban Development) will give the homeowner an additional $1,500 to contribute to 2nd mortgages and other liens. Additionally, the homeowner can request to forgo the $750 incentive listed above in order to combine with the additional $1,500 to pay off the 2nd mortgage and other liens. 5. HUD allows all reasonable cost of the sale, including up to 6% sales commission, local and state transfer tax, and other closing costs. Unacceptable closing costs include: repair reimbursements or allowances, home warranty fees, discount points or loan fees for non FHA- financing, and lender s title insurance fee. 6. For the seller concession (sometimes also called seller costs and closing cost assistance), 3% is the standard. However, for FHA loans, the maximum is 1% ONLY if the buyer is also FHA. Sometimes FHA will grant a variance and allow 3%, but this takes extra time and is NOT guaranteed. 14

15 10 Important Things to Know About FHA Guidelines 7. Where other banks ask for a BPO (Broker Price Opinion), FHA loans require an FHA Appraisal. The appraisal is valid for 120 days and is not disputable. It is important to meet the appraiser at the home to ensure a thorough appraisal is done as well as to walk them through the house and justify the price of the home to them. It is easier to justify the price to the appraiser at this point than it is to fight the bank for it later on. FHA will NOT use distressed sales as comparables unless they represent the only comparables within a reasonable proximity to the property. 8. There are Tiered Net Sales Proceeds requirements for the first 30 days of marketing the home, minimum net sale proceeds should equal 88% of the appraisal price. For the following 30 days of marketing the home, minimum net sale proceeds should equal 86% of the appraisal price. It is important to note two things: which is what the bank wants as their final income from the sale, NOT the total sale price and that the home is being sold As-Is and the appraisal price applies to an As-Is sale of the home. 9. If the home has sustained damage, it is considered neglect and the homeowner will no longer be eligible for a short sale. However, if the damage was caused by fire, flood, earthquake, tornado, boiler explosion, or mortgagee neglect, then the bank must obtain prior approval from the NSC (National Servicing Center). 10. Under no circumstances should the homeowner be encouraged to default on their mortgage with the purpose of participating in a short sale. Other important things to know: You must be 31 days behind at the time of closing You must live in the home (only given to homeowners, not investors, etc.) exceptions when rented for under 18 mos. These are also the same things they generally look for in the hardship letter You must prove financial hardship expenses must exceed income either at the time of the application or imminent Once FHA issues an Approval To Participate, you have 120 days to sell the home. If you have a foreclosure date within those 120 days, the foreclosure date is delayed. Extensions are available only if contract received late in the 120 days and unlikely that you will sell in that short of a time period. 15

16 If You Have Any Further Questions... Please do not hesitate to contact us to ask any questions that were not answered in this document. Our Case Managers are available to help you Diana Grueva, VP of Operations x101 Kendall Manges, Case Manager x 106 Becky Hill, Case Manager x 104 If they are unavailable, any one of our knowledgeable Client Coordinators would be happy to assist you. Additionally, you may contact us via at partners.atc@gmail.com. Our website is also a great tool for you. Check it out at If you wish to proceed to the next steps, please have your Real Estate Agent contact us for the next steps. Thank you and we look forward to working with you. - The ATC Team 16