Presented by: Randy Roach of North American Realty of Nevada. A Guide To Understanding The Process

Transcription

1 Presented by: Randy Roach of North American Realty of Nevada A Guide To Understanding The Process

2 What Is A Short Sale? It s a Real Estate transaction where two unique events must occur together. (1) Net Proceeds Sale Loss A short sale occurs when your net proceeds from the sale are insufficient to cover your note balance(s). (2) Lender Agreement The lender(s) agrees to release its mortgage lien(s) and note obligations on the property in exchange for payment less than the full loan balance.

3 Why Would A Lender Agree To A Short Sale? (1) Lender Loses Less As Compared To A Foreclosure The discounted payoff of the short sale must be less than the lender s cost to foreclose. Nevada leads the nation in foreclosures High Legal fees associated with the foreclosure process Costs associated with holding the property until a successful resale Maintenance costs of the property until a successful resale Potential rehab costs of the property after foreclosure Commission & marketing costs of resale

4 Why Would A Lender Agree To A Short Sale? (2) Seller Distress The lender will agree to a short sale if the seller can prove distress. Seller is in default on mortgage or may soon be in default Seller can document financial distress Seller has a firm sale which generates insufficient proceeds Seller sale provides no net to seller Seller s agent provides current market comparables to support sales price

5 Potential Seller Benefits Why Would A Seller Agree To A Short Sale? 1. It may have less impact on your credit rating as compared to a foreclosure. 2. Your lender may stop reporting missed payments to credit agencies. 3. Provides more time for you to act in this difficult situation. 4. You may buy another home sooner as compared to a foreclosure. 5. Eliminate stigma associated with foreclosure. 6. Short sales are the market in Las Vegas, making up 46% of the homes currently on the market, while foreclosures currently only make up 14%.

6 What Must A Seller Do To Prepare For A Short Sale? The following is a checklist of items you may need to gather to submit to the lender to authorize a Short Sale. Hardship letter Appraisal Financial information worksheet Statement of Assets & Liabilities Copy of 2 most recent bank statements Copy of 2 most recent pay stubs Copy of 2 most recent IRS tax returns Late bills summary Medical bills Divorce decree Child support payments Unemployment benefits SSI income Power of Attorney

7 What Is The Short Sale Selling Process? 1. Seller signs listing agreement with real estate agent subject to selling as a short sale with lender(s) approval. 2. Agent finds buyer who offers less than the note balance. 3. Seller accepts buyer s offer. 4. Offer submitted to lender(s) with all supporting documentation. 5. Seller s lender(s) accepts buyer s offer and approves the short sale. 6. Transaction closes when the buyer delivers closing funds, the lender releases the lien, and the seller delivers the deed.

8 What Are The Qualifications For A Short Sale? (1) Has The Home s Market Value Dropped? Appraisal validates and substantiates that the home is worth less than the unpaid mortgage balance. (2) Is The Mortgage In or Near Default Status? Most lenders will help homeowners even though there are not actually in default. We will need to consult your lender to determine their position on short sales.

9 (3) Is The Seller Experiencing a Hardship? What Are The Qualifications For A Short Sale? You must submit a hardship letter explaining why you cannot pay the difference due upon sale, including why you have or will stop making the monthly payments. (4) Does The Seller Have No Assets? The lender will want to see a copy of your most recent pay stubs and in some cases tax returns and a financial statement. If the lender discovers assets, the lender may grant the short sale but could require seller to pay back all or part of the deficiency.

10 What Constitutes A Hardship? 1. Unemployment 2. Divorce 3. Medical emergency 4. Sudden illness 5. Death 6. Bankruptcy 7. Increase in mortgage payment due to resetting of ARM(s)

11 What Does Not Constitute Hardship? 1. Bad Purchase Decisions Blowing your paycheck on a boat for weekend lake trips does not qualify as a hardship. 2. Unhappy With The Neighbors This does 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 and your family.

12 What Does Not Constitute Hardship? 4. Pregnancy Having more children is not considered a hardship. 5. Moving Into An Apartment Whatever the reason for doing so, this doesn't qualify as hardship. 6. In-Laws Coming To Live With You Sorry, this does not qualify as hardship.

13 How Is A Short Sale Different From A Normal Sale? 1. Marketing There is no difference. I ll utilize my extensive marketing program. 2. Buyers There is a big difference. Short sale buyers are price sensitive & driven. 3. Length of Escrow A Short Sale typically takes substantially longer to close due to waiting for bank approval.

14 How Is A Short Sale Different From A Normal Sale? 4. Home Pricing There is no difference. Your home will be listed and sold for today s fair market value. Appraisal is based upon the most recent comparable sales. 5. Sale Impact Having buyers and buyer s agents fully aware of and educated on the short sale status increases the likelihood of a successful sale. This is exactly what we want, given your financial situation and the decreasing property value trend now prevalent in our market.

15 (1) Potential IRS Tax Consequences What Are The Consequences of a Short Sale? If the lender agrees to the short sale, the lender may have 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 being taxed on the forgiven amount, according to the Mortgage Forgiveness Debt Relief Act of You should speak to a real estate lawyer and a tax accountant to determine the amount, if any, of short sale tax consequences.

16 What Are The Consequences of a Short Sale? (2) Deficiency Judgment The lender has the right to pursue a summary Judgment for the deficiency (the difference between the amount owed and the net proceeds of the short sale). There are ways to avoid having the lender pursuing a deficiency judgment. (3) Blemished Credit Record Short sales will show up on credit reports as a pre-foreclosure in redemption status. The typical short sale will affect credit for up to 2 years, while a foreclosure will affect credit for up to 7 years.

17 Which Is Better, Foreclosure or Short Sale? Both Hurt But A Short Sale May Be Better, Here s Why: Due to the increase in the number of short sales, Fannie Mae has established a 2-year elapsed time period for reestablishing credit following completion of a short sale. VA buyers may qualify for a new mortgage after only 1 year following the completion of a short sale. A foreclosure client must wait usually 4 years before they will qualify for a mortgage. A short sale will effect your credit score, but not nearly as much as a foreclosure. Usually, a short sale will reduce your credit score by points, on average, whereas a foreclosure will typically lower your score by points, on average. If you are current on your payments and remain current until closing, a successful short sale can potentially do little or no damage to your credit.

18 What Are The First Steps To A Short Sale? 1. My Role As a Realtor, I cannot give you legal or financial advice as both fall outside my area of expertise and the scope of my license. Banks do require that a third party professional (a Realtor) handle short sale transactions, so they will not negotiate directly with the seller. I am committed to getting your short sale approved and closed as quickly and smoothly as possible. 2. Listing Agreement We will determine a list price based on recent comparable sales and prepare the listing agreement. 3. Short Sale Package This includes an offer to purchase, your hardship letter, financial statement, bank statements, pay stubs and/or tax returns, and lender authorization.

19 FACTS 1. The Las Vegas Real Estate Market is trending quickly toward short sales versus foreclosures: Short sales currently make up 46% of the homes on the market in Las Vegas. Foreclosures currently make up only 14% of the homes on the market in Las Vegas. 2. Banks are approving short sales at much higher rate than they were a year ago. 3. HAFA (Home Affordable Foreclosure Alternatives) is a government program that took affect April 5, 2010 that is designed to help homeowners avoid foreclosure by streamlining the short sale process. This program provides incentives for homeowners and lenders in connection with short sale transactions including it s requirement that sellers be released from future liability for the deficient amount on the first mortgage and provides $3,000 for seller relocation assistance.