What is a Short Sale?  sign-up 

A short sale is when a bank or mortgage lender agrees to either eliminate or discount a loan balance due to an economic hardship; real estate market conditions; and other situations such as medical issues. The homeowner can request permission to short sale the home.  Some institutions will not approve a short sale unless a contract is obtained up front.  This route takes too long to occur and many owners have lost their homes due to this approach as the foreclosure will proceed.  Many home owners immediately acquire the services of a REALTOR; list the property and obtain a contract, which is then presented to the Bank/Mortgage Servicer.   Some do both.  The bank will usually conduct a BPO or appraisal or both, then make a determination of acceptance or may even make a counteroffer. 

Banks are always after the "Highest and Best Offer".  At times the first offer submitted may not be the highest offer.  We call this the "Test Offer - Not Best Offer".  The first offer is the one that opens the door and enables the agent and owner to find out just how much the bank really wants/will accept for the listed property.  If the bank is unaware that there are multiple potential back-up offers, it just may accept the first low offer.  Don't forget to address any second mortgages as the banks will not communicate with each other.  In fact, our agent must have you send in information for both loans which many times will mean two different applications and this still applies even if the second mortgage in with the same bank..  

An excellent agent will prepare an accurate Comparative Market Analysis (CMA), which then would facilitate the bank's acceptance of the first (possibly lower) offer.  This happens when the first contract comes from a buyer's agent that stipulates that the home is to no longer be shown and no other offers are accepted and as a result is removed from the market as in the case of a short sale renter, who eventually makes an offer.  

The buyer with first offer, if rejected loses the #1 position, unless they increase their offer.  If they do not, the next potential higher offer, the one from the buyer on stand by and meets the requirements of the bank, should be immediately submitted.  Should none of the current standby contracts meet the requirements of the bank, they all should be notified and the home should then be placed back on the market at the bank's required price. This is the reason why immediately selling your home with an agent on the MLS is critical.  A selling history would give you the ammo needed to justify why the bank's recommendation would not work or is too high for the market, even if they conducted an appraisal.   Buyers please understand that the entire process will usually take 3-6 months or longer from start to finish and for many reasons.  Many can take up to a year and especially if your agent is not aware of their need to contact the bank on an almost weekly or even three day basis as the "squeaky wheel gets the oil".  

We hear of "Authorization To Discuss" forms  being signed and immediately lost on multiple occasions even when there is an offer on the table.  Even months later, agents are then told that because the agent did not place two stars next to their names after over six months of discussions, that they are being denied access to service.  So the agent placed two stars by her name on the form; faxed it back to the bank; and immediately gained access/authorization to discuss.  I know this sound insane, but the banking system is a shambles although many of the bugs are being worked on and worked out even while many homes go to foreclosure.  

We also hear of short sale packets being lost on more than three occasions.  Some even end up in Loan Modification Departments sitting aimlessly lost even to the point that a home forecloses.  This is why you need a proactive seasoned agent to manage your sale.  The process should be simple, but it is not.  It is a disaster!  Many buyers and owners are shocked and real estate agents look really bad and are frustrated.  It really is the bank stupid - not the agent in most cases and the luck of the draw really depends upon whom you get on the phones from one second to the next.  Many agents are now out of the business because they lost many sales after many months of not knowing how to approach the short sales process.  That's a shame.  Where was the National Association of Realtors? Thankfully the industry has caught up as the short sale waters of California, Nevada and Florida are now flooding the entire country.  The worst is yet to come as the homes on market inventory is at an all time high.  

Short sales initially received a bad wrap as many agents did not fully understand the process, hence did not properly prepare their clients for such long waiting periods.  Failure to properly prep the buyer is the main reason many contracts fall through on the agents end plus they also fail to line up back-up contracts or potential standby buyers.  It has been published that only 20% of all short sales are successfully closed.  Many agents, now have a better chance of achieving a 100% success rates as many banks now halt/suspend/readjust the foreclosure process when a valid offer is obtained as now they have a better grasp on home values due to the fact that many other homes have now been processed and appraised.  

Eliminating the foreclosure - this act alone can save a bank over $50k To $80k in foreclosure attorney fees.  Most banks are slowly coming to their senses, while the actions of others still exceed any realm of reasonable expectations.  They are absolutely delusional and hurting the efforts of many 100s of 1,000s of homeowners, who are now in a short sale holding pattern with no landing in sight - even the Loan Modification efforts of the Obama administration were rated a C+.  Short Sales are a growing disaster waiting to happen, if you select the wrong real estate agent!

Many owners are abandoning ship now as five years of lowered costs are simply too costly when you consider the fact that a home will revert back to the old loan balance with higher interest rates at the end of the five year period of reduced notes.  It looks attractive, at first but who wants to pay $300k at any interest rate, when the home is now only worth $150k-$200k.  In order for many of these risky vehicles to work the value of the note (home) must also be permanently adjusted.  Many believe that this is only the first wave of modifications and that in five years another market crash and ensuing round of adjustments are pending.  Will you take that gamble?  You choose!  In fact if you filter out the noise the message from the Federal government is clearly saying that the stimulus packages successfully slowed the economic freefall.  Now get that message!

Some owners are accepting loan modification terms of significantly lowered rates and payments while planning their future exit strategy (Short Sale or Foreclosure) as their home loan notes are still inflated when compared against the current market conditions placing the owners in an upside down status and still unable to sell there homes for 10 to 20 years.  Consider exiting while you can.  Many of us who chose not the take a second note and/or who purchased before 2006 are still in very good shape.  In fact, you should be selling and purchasing a newer home right about now as it is time to upgrade!    

I Smell a Rat!

Note:  And to make things much worse, many banks are quietly opening their own mortgage divisions and really secretly wish they could get rid of real estate agents all together as they are now competing with real estate brokerages.  Such banks can now hire and train their own real estate agents to their standards (LOL); list your home; have your friends (their Agents) set your prices; sell you one of their homes; sell you any MLS listed home; verify titles; order appraisals; close your transaction with their mortgage services, then how we see it - deposit your funds into their banks; send you late notices; charge you late fees; send you default notices; send your home to preforeclosure; choose not to work with you or renegotiate on your loans when the need to do so occurs; watch you squirm, beg and cry then ultimately foreclose on your home or take your payments until you die or pay off your mortgage all while reporting you to the "Big Three" credit bureaus.  

No matter what they tell you do not believe the hype.  That's the equivalent of letting wolves and jackals enter the hen house!  Weren't they the ones that caused this mess in the first place?  How soon we forget!!!!!!!!!!! 

 

This Just In!

It is important to note that many homeowners are still just a few 1,000 dollars short of being able to complete a sales transaction, hence think that you can not afforded to acquire the services of a real estate agent. Many Real Estate brokers are not listening to the needs of their potential clients.  In fact, they have all but practically ignored them.   If you live in Jacksonville, Florida and things are tight, help may be on the way.  Call and ask about using the services of our member agents who have recently launched a Deferred Commission Plan for upside down homeowners who are willing to list their homes under favorable cutting edge deferred commission structures.  The plan will soften and/or cushion the upfront financial impact to the homeowner.  More importantly, it allows homeowners to immediately complete a real estate sales transaction and move forward with their lives.  Please sign-up or call me, Carmen Bogard, Middleton Realty Inc.; 24/7 at (904) 536-2291 for more details as many short and long term arrangements are available based upon your unique situation.  

Homeowners Beware of Sneaky Banks!

Recently one of our sellers, in order to close on a contract on his home which was a short sale, signed a deficiency judgment or clause.  Banks are ruthless and some are refusing to release the liens and charge off the remaining debt as a non collectable balance stating that their collections department will be contacting the homeowner to make payment arrangements.  That owner decided to take his chances and sign the agreement stating that by the time the bank comes after him, he will have found a Federal job and at that point can then file a bankruptcy.  In his situation his actions were delaying or stalling actions.  So please have an exit strategy!  Of course he applied for and received a Federal job, but has not yet received any particular demand letters to date.

Lenders are becoming creative as they probe uncharted "Short Sale" waters like great white sharks and sooner or later will figure out a way to change the rules of the game.  They always do!  So if you are upside down in your mortgage our advice is seek legal advice and consider getting out of your bad loan now if you can.  By adding such language to their short sale agreements, banks are placing the homeowner in a potentially explosive and vulnerable position in the near future and we guess this will occur at the least expected moment in your lives.  They are also exposing our economy to greater risk or collapse.  We hear that the current deficit is expected to run high as in the trillions for the next 10 years.  Wow, that says a lot. So Be Careful!  Be Aware!  Be Very Afraid!  Get Off The Bus and do not stay on too long!

This type of short sale arrangement/agreement can ultimately be more damaging than a foreclosure or lead to a foreclosure!  The difference is that during the initial stages of the pre-foreclosure process, you  hired an attorney and successfully defended your home (foreclosure defense) forcing the bank to negotiate with you and saving 1,000s of dollars as you had zero mortgage payments for up to three (3) years.  Remember the fact that this only worked because you were fortunate enough to have called an attorney or licensed real estate agent and learned of the need to file a response within the first 20 days (State of Florida) of initially being served foreclosure papers.  Timelines vary from state to state, so if you are served as part of a judicial process, don't run - hire an attorney and respond!  

Well those days would end when you accept a loan modification and fail to meet your agreed upon obligations, your home will immediately proceed to foreclosure.   In fact it is projected that up to 50% of all such loans will fail within five (5) years and  20% of all loan modifications failing within the three month trial period.

Note:  Many states and jurisdictions do have either or both judicial and non judicial foreclosure processes.  A non-judicial foreclosure process may mean that you will or may not be served.  We recommend that you review your mortgage documentation and immediately contact a licensed local attorney or real estate agent in your state/jurisdiction for representation and to explore all legal/viable avenues available for your legal defense of your home. 

Deficiencies and Credit Ratings!

How will it show on your credit?  There are virtually no laws or legal structure detailing how banks must report a short sale.  This is all the better for you.  On the other hand, some of the country’s largest lenders are taking advantage of this vagueness or lack of legal guidelines to pursue liens, lawsuits, garnishments, and judgments against homeowners who opt for a short sale.  

Here are the potential credit score ramifications for how a short sale is reported:  

It is also important to note that paying off a bad debt that has been reported on your credit report will then allow the creditor to extend the reporting of your negative debt another seven (7) years.  So if you have a negative item on your credit report (i.e. ..credit cards) that have been reported for six years, they actually will drop off of your report at seven (7) years.  But, if you pay that debt, it will then remain on your credit report for another seven years.  The only way to improve your score would be to obtain a small line of credit such as a secured credit card and make timely payments, paying of the balance at the end of each month so as to not be penalized with the high interest rates and charges usually associated with such subprime credit cards.  If you do choose to accept and pay a bad debt, please make sure that you try to negotiate and receive something in writing that the negative item would be completely removed from your credit report or shown paid as agreed.  

Also if you are taken to court over your bad debt, request that the credit card company or debtor prove that the debt is actually yours.  Never state that the debt is yours.  Make the debt collection agency prove that the debt is yours.  After 5 or 7 years, who really can remember the name of the cards that they or their spouses or ex-spouses once had.  Many banks, once they charge off the debt that they claim is yours, will then sell that debt to a third party collection agency, who will threaten and harass you.  Simply request in writing via certified letter that the debt collector send proof that the debt is yours or cease all attacks upon you.  They in all likelihood will not respond. Send proof your efforts to the credit bureaus and they will then request proof that the debt is yours.  

If all fails, take your chances and go to court.  They will usually file hoping that you are dumb enough "not" to show up in court, hence they will be granted a judgment against you.  They will then attack your assets anyway they can and the item will show as a judgment for seven (7) years on your credit.  In fact, many are in court defending themselves over several items, as they have even experienced identity theft (the magic word that no collection agency wants to hear, especially when you can prove the in past years that the information of others have shown up on your credit reports or have filed a police report due to identity theft), so they simply challenge everything.  So, show up in court with your letter and remain firm that you can not remember such debts and have requested proof.  You should also state that you have been a victim of identity theft in the past and the information of others have shown up on you credit report in the past.  Take proof if you have it, but at least make those statements!   The judge will then either give them time to research and return proof, giving you more time to prepare for payment if you should find that the debt is truly yours.  But in most cases many banks and debtors do not retain proof credit card payments made by you for more than two (2) years.  They must then prove it!  Proving that they sent a bill to your address is not valid proof as you simply cannot recall what did or did not happen years ago.  So they now would have no case.  

Morale of the story!  Never communicate with a bill collection agency as to any debt as they may record your conversation.  In fact, you should record them and stick to your guns.  If you win and once you do, that judgment or negatively reported item must be removed from all reporting agency databases and will possibly increase your credit score about 100-150 points even if the initial removal is temporary as the may try to report you again or sell the debt to another agency!  Know your rights!  You have a right to let any judge know that you only want verification due to past erroneous credit incidents and experiences!  One other note:  Anyone with severe stress, heart and health conditions may experience memory loss.  Again know your rights; hire an attorney or licensed real estate agent and respond accordingly!

How Long Will It Be On My Credit Report!

A paid settlement or charge off, the item can be reported for 7½ years from the date of the first late pay that led to the paid settlement or charge off.  If a judgment is filed to collect the deficiency amount, the judgment can remain for 10-20 years and under certain state laws, can be renewed until paid in full. 

How Long Before You Can Buy Another Home After Short Sale?

The current guidelines from Fannie Mae & Freddie Mac state that the waiting period for a Short Sale is 2 years from the date the Short Sale proceeding is completed.  There is no exception for extenuating circumstances.  if a judgment is filed against you for the deficiency amount, you will not receive loan approval until that amount has been paid in full.

Tax Ramifications & Short Sales - The Mortgage Forgiveness Debt Relief Act Of 2007

When the lender decides to forgive all or a portion of the debt and accept less, the forgiven amount is considered as income for the borrower; leaving it open to be taxed. However, The Mortgage Forgiveness Debt Relief Act of 2007 contains amendments to remove such tax liability, allowing the borrower and lender to work together to find a solution beneficial to both parties.  The new law applies to debt forgiven in 2007, 2008 or 2009.