Short Sale Guide for Homeowners

Transcription

1 Love American Homes, LLC Short Sale Guide for Homeowners America s leading short sale authority! Homeowners that NEED TO SELL a home, but CANNOT AFFORD TO, because of the amount owed on the home, and/or the condition of the home, now have a viable alternative to foreclosure a program set up by lenders known as a Short Sale. Love American Homes is a leading provider of short sale transaction processing for REALTORS working with homeowners and buyers (including investors). This guide explains short sales and answers all of the common, and not so common, questions that people have about short sales. Love American Homes info@loveamericanhomes.com phone or fax Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 1

2 Short Sale Guide for Homeowners What is a Short Sale? The sale of a home where the loan(s)/lien(s) are negotiated to a reduced payoff amount so that the home can be sold for less than what is owed rather than foreclosed on Because the payoff(s) are reduced (shorted) it is called a Short Sale Short Sale = Foreclosure Alternative What is a Foreclosure? A lien holder with a non-performing loan (behind on payments), accelerates the loan (calls it due) After filing a notice, a lender can auction a home at the County Courthouse steps Normally, the 1 st lien holder forecloses, however 2 nd or 3 rd lien holders can foreclose, or even HOA s or government agencies (for property, state, or federal taxes owed) What is the Profile of a Typical Short Sale Homeowner? Bought or built a new home with a $0/down (or minimal down) mortgage in an area that has not appreciated Refinanced an existing home, borrowing most of the equity, in an area that has not appreciated Bought a home in an area that has seen significant price reductions Has suffered a divorce, lost job, medical problems, or other financial hardship including any combination of an increase in expenses and/or decrease in income Has a non-owner occupied investment property that is no longer performing to generate positive cash flow Has an Adjustable Rate Mortgage (ARM) in which the payments have increased Has had an increase in payment due to an escrow shortage adjusted after tax increases, or an under-funded escrow from the purchase of a new home Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 2

3 What are the Requirements of a Short Sale Homeowner? No significant equity: the value of the home minus repairs minus cost to sell IS LESS THAN the amount owed Missed payments or is about to miss payments* Cannot afford to keep making payments HAS TO SELL and does not just wish to sell * In some cases homeowners borrow money from credit cards, family members, an IRA, etc., to pay a mortgage that they cannot afford. When this money runs out, the homeowner is often left with a foreclosure AND large additional obligations. Because of this, it is sometimes beneficial for the homeowner to consider options such as a short sale, sooner rather than later, and/or consult with a credit counselor as soon as their financial hardship begins. Examples of Short Sale Homes: 1. Home Value: $150K, Repairs needed: $2K, Total of Loan(s): $175K a. As-is Value = $150K - $2K = $148K b. Cost of Sales (COS) = 8% x $148K = ~$12K c. Sales Proceeds: $148K - $12K = $136K IS LESS THAN $175K (this is a short sale) 2. Home Value: $135K, Repairs needed: $12K, Total of Loan(s): $115K a. As-is Value: $135K - $12K = $123K b. Cost of Sale = 8% x $123K = ~$10K c. Sales Proceeds: $123K - $10K = 113K IS LESS THAN 115K (this is a short sale) 3. Any home at any price can be eligible for a short sale if it has no significant equity Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 3

4 What Paperwork is Needed for a Short Sale? Love American Homes will generate a checklist of all paperwork, as well as all forms required by your specific lender(s). For each borrower, this checklist will generally include: Authorization to Release Loan Information Seller s Hardship Letter Lender Specific Financial Questionnaire Supporting Hardship Info (i.e., HOA or vendor liens, medical/disability statements, etc.) Copies of one month of pay stubs (if working) * Copies of 2-months of bank statements * Copies of 2-years of recent tax returns * Additional lender specific documents Property Repairs Estimate Completed by Realtor Comparable Market Analysis Completed by Realtor Listing Agreement Completed by Realtor Contract, if applicable Submitted by Realtor Buyer Pre-Qualification or Proof of Funds, if applicable Net Sheet prepared by LAH * If these items are not available, the homeowner must write a short note stating they don t have these items. What are the Benefits of a Short Sale? Avoids a foreclosure first and foremost A foreclosure is the worst possible scar on your credit worse than late or missed payments and worse than a bankruptcy Along with a foreclosure, the lender may go after the homeowner for up to the full value of the loan - this can result in additional legal action in the future Allows homeowner to stay in the home (without paying the mortgage) until the home is sold Allows the homeowner to solve the problem on their own terms Said another way Either you are going to solve the problem, or someone else is going to solve it for you and you probably won t like the other guy s solution Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 4

5 What are the Disadvantages of a Short Sale? Hurts your credit Everything you do affects your credit missing payments is bad. A short sale (also known as a negotiated charge off) is worse. Bankruptcy is worse than that. A foreclosure is about as bad as it gets. A short sale is much, much better than a foreclosure May incur tax liability A lender reserves the right to issue a 1099 (income statement) that appears as phantom income that the homeowner may have to pay taxes on* May incur a deficiency judgment A lender reserves the right to sue to recover some or all losses May impact someone s security clearance In rare situations, some military and government employees could lose their jobs if they do a short sale (or a foreclosure, bankruptcy, etc.) * The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence sold between 2007 and How do I Get Started? 1. Review this guide to answer all of your questions about short sales 2. If you have already received a Short Sale Homework Kit from Love American Homes, LLC, (usually via ) just follow those instructions, complete the paperwork, and return it to your REALTOR 3. If you have NOT already received a Short Sale Homework kit, please complete the Short Sale Submission Form (see the last page of this Guide) and return it to Love American Homes following the directions on the form a. After receiving your submission form, LAH will generate paperwork, instructions, and training guides (Short Sale Homework Kit) and these to homeowner and Realtor b. Complete the paperwork and return it to your REALTOR 4. Your Realtor will scan and return required paperwork via (Note, it can also be faxed, but electronic is strongly preferred) 5. LAH will complete the Short Sale Servicing performing the services listed below What are the Fees? Homeowner pays a $395 application fee along with Short Sale Homework kit submission Realtor pays a $1000 completion fee (our profit) at closing. No close, no fee. Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 5

6 What Services Does Love American Homes Perform? Coordinate with REALTOR AND Homeowner o Analyze the subject property for eligibility into the short sale program o Host initial short sale interview/consultation between Realtor and homeowner as needed o Provide short sale homework package, guides and instructions through to Realtor and homeowner o Collect all paperwork from through Realtor o Provide solutions for unusual situations (we have done over 1000 of these, we ve seen it all) o Provide updates as needed via phone or on-line o Contact Realtor with negotiated and approved terms Coordinate with the Lender(s) o Submit Authorization to Release Loan Information and receive verbal confirmation of receipt o Assemble page short sale package and submit o Ensure short sale package received o Track and postpone auction date(s), if needed o Develop a good working relationship with assigned loss mitigation negotiator(s) o Arrange with assigned negotiator(s) to have an appraisal, a Broker Price Opinion (BPO), or both, performed on the property o Collect any last minute lender specific documents, as needed o Negotiate the best possible sales price o Request waiver of deficiency o Secure short sale acceptance and closing instructions For help, contact us at: info@loveamericanhomes.com or :30am to 4:30pm CST Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 6

7 Additional Questions About Short Sales Can I stay in the home? Yes, it s your home until you sell it. In fact, it would not be in your best interest to vacate the home or tell your lender(s) that you are vacating the home because the lender(s) might DENY YOUR SHORT SALE and/or change the locks on the home. Should I make the payments? Generally a lender will not negotiate a short sale on a property for which the payments are being made. If you can afford to make the payments, a short sale may not be a good option for you. Are there other alternatives to doing a short sale? In general, if the home has little or no equity, the only way to sell the home (for less than what is owed) is to do a short sale. Otherwise you will have to bring money to the closing table in order to cover the loss. If you don t want to sell the home, you may consider negotiating a forbearance agreement with your lender. These agreements generally allow a homeowner to agree to a schedule to make up missed payments that resulted from a temporary interruption in income. If your situation is more permanent than temporary, you will likely not be approved for a forbearance, and a short sale may be a better option. Does this hurt my credit? Yes, but so does missing payments, paying late, etc. It s much, much better than the alternative a foreclosure. Generally speaking, missing payments is bad. A bankruptcy is worse. A foreclosure is the worst of all. To most accurately assess your specific credit impact, you should consult a credit counselor for guidance with your specific situation. Will I make any money? No, the home has no equity. Your lender(s) will not approve a short sale if they see you getting any money from the sale. In some cases, though we can t promise anything, FHA lenders do pay a $ bonus to cooperating homeowners. Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 7

8 Will I have to pay anything? All closing costs, REALTOR commissions, unpaid taxes, and secondary lien payoffs are negotiated by Love American Homes and are paid out of the closing proceeds (essentially by the lender in the form of a discount on the payoff). The homeowner does not pay these expenses. The home is sold as-is and repairs are the responsibility of the buyer. A $395 processing fee to set up the file is paid, by the homeowner, to Love American Homes, LLC, to start the short sale. This is a non-refundable fee. An additional fee is paid by the REALTOR upon successfully closing the short sale. How long does this process take? Normally 2-4 months, could be 5 even 12, though unusual. Most of this time is waiting for your lender(s) to review the paperwork and approve or negotiate a contract. In most cases, your REALTOR will give you 30 days or more notice before an approved closing. What are the odds of success? Many factors affect the odds of success. In general, if the homeowner fulfills the Requirements of a Short Sale Homeowner (see description in guide), a short sale will likely be approved, provided a buyer makes a satisfactory offer on the property, and there is time to complete the process. The most significant factor is time: If a homeowner has just missed a few payments, the odds of success are high. As the auction date approaches, the success rate drops off sharply. Love American Homes does have a rapid response system to help homeowners just days before the auction and can usually stop a foreclosure even 48 hours before an auction is scheduled, but the odds of success are much higher if more time is allowed. What do I tell my lender(s) if/when they call me? What is a BPO? After you start your short sale with us, you WILL want to tell them the truth that you have hired a REALTOR that is listing the home, and that your REALTOR is working on submitting an offer through a short sale. Your lender may also ask other questions such as are you still living in the home? As we stated before, it would not be in your best interest to vacate the home or tell your lender(s) that the home will be vacated. Your lender(s) may also ask for money, partial payments, and additional explanations about your situation. It is our experience that no matter how many times you explain things, some lenders have a policy to call repeatedly and ask the same questions over and over. A Broker Price Opinion (BPO) is an appraisal done by another REALTOR for the lender(s) during a short sale. Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 8

9 The BPO tells the lender(s) what the property is worth the higher the BPO, the more the lender will want for the home (and the less likely it will be that a buyer can be found). It is not to the homeowner s benefit to have a high BPO. Some homeowners consider meeting the BPO REALTOR at the home in order to explain the situation and point out the challenges that exist for selling that particular home (such as repairs needed, market conditions, etc.). It is not legal to bribe or influence a BPO agent to reach a specific conclusion. What if I have multiple liens against my property? All loans/liens against a property must be negotiated as part of the short sale process. Love American Homes performs this negotiation with each lien holder. In general, 2nd and 3rd mortgages, as well as vender liens, etc., will be wiped out in the event that the home is foreclosed on. Because of this, these lien holders are usually very negotiable. Should I declare bankruptcy? Probably not if selling the home through a short sale would leave you financially solvent. Possibly so, if you HAVE TO because of obligations that go beyond the home mortgage. Consult with a credit counselor or bankruptcy attorney to discuss your specific situation. What happens if I do declare bankruptcy? A home cannot be sold or foreclosed on (auctioned) while in bankruptcy (Ch 7 & 13). When a homeowner declares bankruptcy, the lender will file a motion with the bankruptcy court to have the home removed from the bankruptcy so they can foreclose. Bankruptcy is a common strategy to avoid foreclosure, but the reality is: bankruptcy only DELAYS the foreclosure temporarily, and does not prevent it. Fees and missed payments pile up during bankruptcy making foreclosure more likely and less preventable, which can usually leave homeowners with a bankruptcy AND a foreclosure. If a homeowner s financial problems can be mostly resolved by selling the home, a short sale is often a much better option than a bankruptcy. Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 9

10 What happens if I do declare bankruptcy? (Cont d) If bankruptcy is inevitable, timing the short sale with the bankruptcy is critical. It s often better to do the short sale first, or if that is not possible, to coordinate the short during bankruptcy so that it can be started as soon as the home is removed from the bankruptcy. Love American Homes has extensive experience working with bankruptcy attorneys while negotiating homeowner s short sales. If you are considering a bankruptcy, Love American Homes will need your bankruptcy attorneys contact information. What is a 1099 Income statement, and will I get one? If a lender loses money, they may (but often do not select to) issue a 1099 to the homeowner for that loss. A 1099 is a phantom income statement documenting the loss taken by the lender. If a homeowner received a 1099, they may owe taxes on that money depending on their tax bracket, time in the home, and other financial considerations. In 2007 Congress signed The Mortgage Debt Relief Act of 2007 which generally allows taxpayers to exclude income from the discharge of debt on their principal residence sold between 2007 and What is a Deficiency Judgment, and will I get one against me? If a lender loses money, they may (but rarely select to) sue the homeowner for that loss. If they file a lawsuit and win, they would receive a deficiency judgment against the homeowner for the damages. Although it is possible that a lender will sue a homeowner, it is very unusual because it would require the lender to hire a lawyer to file a lawsuit against a person that has documented themselves to be incapable of paying their mortgage. In other words, even if they won the lawsuit, they could not collect, which makes filing a lawsuit pointless. Love American Homes has done transaction processing for over 1000 short sales and has not ever heard from a homeowner that was sued by their lender for a deficiency judgment. In most cases the best way to avoid (or minimize) the likelihood of getting sued by your lender is by doing a short sale instead of a foreclosure. Additionally, Love American Homes will request a waiver of deficiency from the lender when the short sale is approved. What happens if and when the short sale is approved? When the short sale is approved, the lender(s) will send a short sale acceptance and closing instructions to Love American Homes. This letter is then forwarded to the title company that will close the sale of the home. At this point the REALTOR will schedule a closing with the buyer and homeowners. Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 10

11 What happens if and when the short sale is denied? If the short sale is denied, the lender will proceed with the foreclosure. In some cases, after a short sale has been attempted and denied, the lender may accept a deed-in-lieu. At this time the homeowner may simply return the keys to the property. At any time, the homeowner may always reinstate the loan (make up all back payments and penalties, fees, etc.) thus stopping the foreclosure and putting the loan back in good standing. What happens if a home is actually auctioned by the lender? The lender s trustee (usually an agent of their law firm) solicits bids on the courthouse steps. Lenders normally bid the loan (set the opening price at the outstanding loan amount). Homes without significant equity go back to the banks and become REO (bank owned) listings. Homes with equity get bought by the highest bidding investor. The auction wipes out inferior liens (2nd/3rd mortgages, vendor liens, etc.). IRS, state, and property tax liens are never inferior, and must always get paid by the winning bidder. The winning bidder (investor or bank) receives a special deed and can then move to take possession of the property Normally this new owner will then contact anyone still living in the home and negotiate a timeframe for them to leave, or begin eviction proceedings. In either case, the new owner cannot take possession of the home immediately. What are the top reasons a short sale does not succeed? Homeowners dragged their feet completing the documentation. Too Late lender(s) will not always accept a short sale just before the auction date. Bad BPO (high appraisal), unrealistic counter offer from lender, no buyer can be found at negotiated price within the allowed timeframe. What other (uncommon) things can cause a short sale to not succeed? Home/Homeowner not eligible note: Love American Homes will generally pre-screen to avoid this. Repairs exceeded 10%/ Appraisal <63% (FHA). Homeowner rejected due to financials (excessive income). Brand new loan sometimes this is not allowed. The other (secondary) lien holder(s) will not negotiate their debt and the primary lien holder will not pay what the secondary lien holder(s) require for their payoff. Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 11

12 What other (uncommon) things can cause a short sale to not succeed? (Cont d) Homeowner owned another home that is current on payments sometimes this is not allowed. Bank does not do short sales very rare, but possible. Could not negotiate secondary liens unusual, but possible. Unexpected bankruptcy killed short sale. Homeowner would not sign all paperwork. Homeowner changed their mind about doing a short sale. Additional problems with the condition of the home (significant repairs, flood, mold, foundation problems) that made the home unsellable, unmarketable, or uninhabitable from a buyer s lender s perspective unusual, but possible. Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 12

13 SHORT SALESUBMISSION FORM Please complete this form and fax it to You may also return this to your Realtor or other referring party. You will receive a Short Sale Homework Package and additional instructions by within 24 hours. Short Sale Processing Requirements Today s Date: REALTOR Information Name: Phone number: Alternate Number: HOMEOWNER Information Name: Other Names on the Deed: Other Names on the Loan: Phone number: Alternate Number: Property Information Property Address: City: State: Zip: County: Legal Description (if known): Mortgage Information 1st mortgage servicer (lender name): Loan No. Loan Type: FHA VA Conventional Private Home Equity (Select One) Approximate balance: Date last payment made: 2nd mortgage servicer (lender name): Loan No. Loan Type: FHA VA Conventional Private Home Equity (Select One) Approximate balance: Date last payment made: Short Sale Guide for Homeowners Love American Homes, LLC, Copyright 2009 P a g e 13