First off, there are many misconceptions about foreclosure, deed-in-lieu, and short sales. We will try to debunk them here.
Common Foreclosure Myth #1: No matter what I do, I’m going to owe money to someone. On most short sales, the seller is able to walk away owing the bank nothing. Of course, it’s all up to each individual bank, but eight times out of ten, you can walk away owing nothing. The bank bank loses way less money on a short sale than a normal foreclosure. In return for you helping them out, they will help you out.
There is a big difference between a short sale and a foreclosure.
On a short sale, the utilities are turned on and often someone is living in the house. A vacant foreclsoure house is harder to sell. The buyer knows the home is bank owned and will adjust their offer down because of that. On a bank owned house, the house sits there for 6-9 months empty before it sells. The bank has to pay to keep it up and insure it. That ties up their money. A vacant house also has a high liablity — there is always the chance that some kid may go into the house and gets hurt. Because of that the banks want to do short sales and are very willing to work with you.
Myth #2: A Foreclosure will go off my record in 3-5 years. Yes, you might be able to get a loan after 5 years, but here’s the problem. When you walk away, the bank will come back and get a judgment for the money they lose, and also any money they have to spend. They’ll tack on attorney’s fees, late payments, interest, maintenance, lawn mowing costs, realtor fees, locksmith costs, title insurance, and all sorts of other fees. This judgment will stay with you until you pay it off. Let’s say you owe $200,000 on your home and it’s now worth $170,000. According to a study done on this, if you do a short sale, the bank will lose 19%. But, if the bank takes the home back and waits for it to resell, they will lose 41%. That means you’ll owe them $82,000 on average. That is the judgment amount.
This deficiency converts to a judgment and judgments last up to 20 years here in Florida. Most of the time, the bank itself will not come after you. But, the bank will sell the right to collect the money to a third party collection company. That company will then attempt to collect from you.
Have you ever experienced the calls you get when you get behind on a credit card? Those people are vicious! They just keep calling and calling and calling. Not only that, but they will drag you to court and ask for all your financial information. They can force you to bring in your bank statements and information on any retirement accounts such as an IRA or 401K. And if you don’t bring in this information, they can have a warrant issued for your arrest. You may have no prior criminal history, but you will after that. The court gives judgment collectors a lot of ways to go after you. They can send a cop out to your house to grab anything valuable. Do you have a nice TV? They might take that. Is your car paid off? If it isn’t absolutely necessary for you to use to get to work, they can take that too. No one will give you a loan with that judgment on your credit. You might not even be able to get a cell phone.
The worst thing is that this debt purchasing company will be going after you for 10 or even 20 year. They will do whatever they can to collect what they think is “their money.” Even your current and future employment might be affected because many employers now require credit checks.
Myth #3: A Short Sale will take 8-12 months and can drag out even longer.This is the case when the person you are dealing with doesn’t know what they are doing. Our short sales average 45 to 90 days. We do these every day, day in and day out. In fact, we have done over 27 short sales with banks ranging from Chase to Countrywide to Wachovia. The difference between dealing with someone who knows what they’re doing is this. It’s like the difference between hiring a top dog lawyer for a lawsuit versus hiring your friend who isn’t a lawyer.
When we work with you we will handle everything and do all the work. All you have to do is provide us with basic documents and that’s it. We will call the bank, handle the negotiations, and keep you updated as to what’s going on.
Myth #4: Banks and lenders rarely accept short sales. We are able to get short sales accepted most of the time. Here’s why your bank may have already told you they will only take X amount. But, let’s say someone owed you a lot of money and they wanted to pay you only half of what they owe. What would you say? You’d probably tell them to pay you the full amount, right? But, if the person came to you with cash and told you they just simply could not afford to pay you any more, what would you do? You’d probably accept whatever you could get, right? Well, it’s the same way with a bank.
The banks often tell you they won’t take a short sale. The reason is because they want you to pay them the full amount. Or, they want to get you to agree to pay them monthly for the rest of your life.
Myth #5: A Short Sale is no less damaging to my credit than a foreclosure. I can tell you one thing. Fannie Mae and Freddie Mac, who hold the loans on about half of the loans in the country don’t think so. They recently changed their requirements. Fannie Mae only requires two years on a short sale before you can get a new loan. If you give the house back to the bank, you have to wait for five years. Several new requirements now apply that can drag this out to 7 years. These companies are the backers of more than half of the loans issued today. This makes foreclosure more damaging than even a bankruptcy, which requires a 4 year wait.
Is a Short Sale right for me?
It depends on your situation. Many people decide to do a short sale when that can’t afford their mortgage payment, have already moved out of the house, or experienced a loss in income. Your lender would rather get this resolved now rather than take the property through foreclosure.
Your lender is looking to limit any loss on your loan. Upon completion of a successful short sale, your lender will end up with more money in their pocket than a foreclosure. Bottom line, your lender wants to work with you.
I have two loans. Can I still do a short sale?
Yes. We will work to process a settlement with both lenders. Oftentimes both loans are with the same lender. In this case it’s almost like negotiating with only one lender. If the first mortgage forecloses on the house the second lender loses everything. That causes them to be much more willing to cooperate. You can still do a short sale even if the sales price is less than what is owed to the first mortgage.
How does a Short Sale affect my credit?
A short sale will negatively affect your credit score, but not nearly as much as a foreclosure or deed-in-lieu. With a short sale, you can buy a house in 2 years versus the 5-7 years you will be forced to wait if you have a foreclosure on your record. A foreclosure or deed-in-lieu affects your credit for a longer period of time.
In addition, many employers are now checking people’s credit before hiring them. Having a foreclosure on your credit will make it tougher to get a job.
What do you charge to help me with a short sale?
We do not charge anything to help you with a short sale. Your lender pays all the costs including title company fees, closing costs, property taxes, and any back taxes or Homeowner’s Association Fees.
Do I need to be behind on my mortgage payments to qualify for a short sale?
No. You can do a short sale and never get behind on your payments. Many lenders request a genuine hardship such as a job loss or job transfer.
How long does a short sale take?
it depends on the lender and other factors. Some short sales are done in 60 days while others take 6 months to finalize.
Will I owe my lender any money for the loss?
The answer depends upon the type of loan you have and the lender you are working with. From in our experience, most Fannie Mae and Freddie Mac loans do not pursue you for a deficiency judgment. In addition, in our experience, FHA and VA insured loans do not pursue you for a deficiency judgment. Because laws and loan contracts vary, we will never know for sure until we get your lender’s short sale approval letter.
The short sale approval letter will spell out whether or not the lender can pursue you for a deficiency judgment. In addition, if your lender issues you an1099, they will no longer have the option to pursue you for a deficiency. The law does not allow them to write off the debt, issue you a 1099, and then pursue you for a deficiency. We recommend that you discuss this issue with counsel.
Will I be responsible for income taxes to be paid on the loss?
Most of the time the answer is no. The Mortgage Forgiveness Debt Relief Act of 2007 made most short sales tax free. I’ve been asked this question over and over again. So, I did a lot of research on the subject. A summary of all my research is available for you to research yourself. Click here to read thru it for yourself. I still recommend that you contact a competent accountant or other tax professional.
How do I get started on a short sale?
Please contact us to get started. We will discuss your situation with you and answer any questions you have. You can call us at (269) 350-5514.
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