Short Sale after 08-01-13

"Many homeowners who are potential Short Sale candidates have been holding on and trying to work out a loan modification with their bank or reinstate their loan.

         Unfortunately, as well-intended as this is, it is working against many homeowners in this current appreciating market.  The banks and mortgage servicers know that even if they incur the costs of foreclosure (one of the biggest motivators for them to approve a Short Sale), that in an appreciating market, time is on their side and they can offset attorney fees, property rehab, etc. when the property value increases. 

          One of the more frustrating initiatives of Fannie Mae in particular is their stated position of countering all offers on Short Sales at 10-15% over market value.  Well, obviously this guarantees an appraisal issue even if they can find a buyer willing to overpay for the property. 

          If the Short Sale is not approved, then Fannie Mae in this case repo’s the property and sells it as an REO (foreclosure).  They are consistently overpricing the REO’s congruent with their approach when the property was a Short Sale, but, oh by the way, once it’s an REO, any buyer can purchase it with Fannie Mae Homepath financing… and guess what, there is no appraisal condition!!  See the strategy here?

          Specific changes got into effect on 8-1-13.

          On it’s face, the specifics of the release (that apply to agents and homeowners – many of the changes apply to the services  are simple enough: properties must stay on the market for 5 days + a weekend before Fannie or Freddie will consider a Short Sale.  The implications however are that Fannie and Freddie are continuing to demand sale prices that are unrealistically higher than market value (10-15%), thus the additional marketing requirement.

          On a positive note, they have further streamlined the approval process, so if they are going to approve, the process will be a little less “painful.”  

The purpose of all this is to: 

1. Quickly evaluate which sale type Fannie and Freddie will profit from more: Short Sale or Foreclosure;

2. Clear the properties they are not going to approve so they can focus on getting the highest dollar amount on the properties they will approve.

The bottom line to all of this is: if you are in a position where you think you may have to Short Sale, give me a call so you can proactively decide what your next steps are.  Time is winding down on the non-taxability of forgiven debt (was extended to 12-31-13), and banks and servicers are doing all they can to take advantage of the appreciating market… which many times spells foreclosure for the homeowner."

HAMP- (Home Affordable Mortgage Program). Loan Modification Guide

Helpful Links

• Request for Modification and Affidavit Form (RMA)
• Instruction Guide for Completing the RMA
• 4506T-EZ Form
• Instructions for Completing IRS Form 4506T-EZ 
• Contact Your Mortgage Servicer

If you want to keep your home, but can't afford the payment a loan modification is your best option. However, as you may have already learned, lenders are slow to approve loan modifications.Homeowners apply for the Home Affordable Modification Program (HAMP) by submitting a complete "Initial Package" to their mortgage company. The Initial Package includes:

• Request Form (Request for Modification and Affidavit)
• Tax Form (Form 4506T-EZ)
• Verification of income
• Hardship Letter

Below you can read more about how to complete these documents. If you need help completing your paperwork, call the Homeowner's HOPE™ Hotline at 1-888-995-HOPE (4673) to work with a HUD-approved housing counselor for free.

Step 1 - Complete the Request Form (Request for Modification and Affidavit)

The Request Form provides information to your mortgage servicer about your home and financial situation. You can download an instruction guide for completing the Request Form here. After you have completed the form, print two copies - one for your records and one to send to your mortgage servicer. All of the borrowers on the mortgage must sign the Request Form.

Step 2 - Complete the Tax Form (Form 4506T-EZ)

The Tax Form gives permission to your mortgage servicer to request a copy of the most recent tax return you have filed with the Internal Revenue Service (IRS). Click here for instructions on completing the form. After you have completed the form, print two copies - one for your records and one to send to your mortgage servicer. Only one taxpayer is required to sign the Tax Form.

Step 3 - Gather Proof of Income

Your mortgage servicer is required to verify your income to ensure that the modified mortgage payments will be affordable for you. The type of documentation you need to provide depends on the source of your income. The simple Proof of Income Checklist will tell you what documents you need to collect if you are a wage earner, self-employed, or receive retirement income. Be sure to make copies of your income documentation and keep the originals for your records.

Step 4 - Send the Documents to Your Mortgage Servicer

After you complete, print, and sign the Request Form and Tax Form, send these documents, along with your proof of income, to your mortgage servicer. You will find the correct mailing address and fax number at Contact Your Mortgage Servicer.

If you would like to learn more about it, read this book "Fight Foreclosure" or contact me

Guide how to buy a Short Sale property

The real estate market is currently saturated with homes selling as short sales. These are homes being sold by the owners for less than what is owed on the original loans. In order to buy one of these properties, the mortgage holder must approve the offer. Since they will be taking a loss on the amount owed to them, they will need to be sure that the home sells for market value and that the homeowner is qualified to pursue a short sale. This process can take up to six months, so be sure that you are able to commit to the time involved.

Below are ten ways to ensure that your purchase goes smoothly.

1. Hire a real estate agent. Since the mortgage holder is responsible for paying real estate commissions, having professional representation costs you nothing.
2. Be prepared to show proof of your ability to purchase the home. You may be asked to provide bank statements, tax returns, origin of down payment, and pay stubs.
3. Be sure that your offer is in line with current market conditions by have your agent do a comparative market analysis. Offering the seller’s asking price does not guarantee acceptance. Agents use different strategies to price their short sale listings. Some agents prefer to start with a low list price knowing that it will be rejected. The mortgage holder will then respond back with the value and the conditions that they are willing to accept. In this strategy, the first offer is a throw away and was only meant to gain information. Other agents set the list price high to lessen their client’s default amount. The mortgage holder will agree to this inflated price and the transaction will move forward. If the appraisal ordered on your behalf does not come in at the price you offered, you’ll be back at square one.  Your options at this point will be to renegotiate the price, pay the difference between the appraised value and your offer, or cancel.
4. Do the sellers have approval to do a short sale? It can take up to thirty days to approve the conditions of a short sale. There are guidelines that the sellers must meet. Be aware of these timeframes at the start and make arrangements accordingly.
5. Since the short sale process is lengthy, you can still shop around for another home. You are not in contract until the mortgage holder approves your offer and you agree to move forward. If you want to make an offer on another home, protect yourself by disclosing to that seller that you are awaiting approval on another short sale and that the offer is contingent on the first offer being cancelled. By doing this you protect yourself from being contractually obligated to purchase both homes and a potential lawsuit.
6. Postpone ordering inspections until you receive approval. The cost of inspections will be your responsibility even if your offer is rejected. The same is true for an appraisal ordered on your behalf by your lender.
7. Be aware that most short sales are sold as is. The seller is not obligated to do repairs or improvements. Some repairs can be negotiated with the mortgage holder such as conditions that pose health and safety risks.
8. As soon as possible in the transaction, find out if there are any outstanding liens on the property as these may become your responsibility.
9. Ask if the seller’s default amount will be forgiven. Many sales have fallen through on this point. If the mortgage holder is unwilling to forgive the difference between the sales price and loan amount, the seller may elect to cancel the transaction.
10. If applicable in your state, it is advisable to have the mortgage holder choose the escrow and title company. Buyers may be charged a penalty for not closing on time. If a delay occurs that is the fault of the escrow company, the penalty may be waived if it is a company of their choosing.

Buying a home today can be challenging.  On average, only one in every five short sales will close escrow successfully. Know your options and be aware of the pitfalls. Hiring a real estate professional in this market is a wise choice whether you are a first time home buyer or a seasoned investor. Be sure the agent you hire is knowledgeable in current market trends and has a proven track record.

Feel free to call me with your Real Estate questions