Frequently Asked Questions about Short Sales
First off, there are many misconceptions
about foreclosure, deed-in-lieu, and short sales. I hope 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. A
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. Here is why there is this big difference
between a short sale and a foreclosure.
On a short sale, the utilities are turned
on and someone is living in the house. A vacant house is way
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. They can't loan that money out and collect
interest. Also, there is the liability if some kid goes 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 me to get started. I will discuss your situation with you and answer any questions you have. You can call me at (913) 339-0630. Please fill in the form below to get started on a short sale.
Sincerely,
Ken Flaspohler
