Your Northern Virginia Real Estate Expert

Did You Know?

 

99% of homeowners do not realize that it is not too late to stop the foreclosure and work out a win-win situation for both the bank and themselves. In most cases, your bank does not want to foreclose on your home. I provide options and alternatives that postpone or even stop your auction entirely! One option is a short sale in which we negotiate with your bank to allow you to sell your home fast and below market value, even if you owe more than the home is worth.

 Please call to find out what options you have.

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A short sale occurs when a seller needs to sell their property for less then is owed on the mortgage (s) and the lender allows a release of lien from the property. In most cases the homeowner needs to show a HARDSHIP of either financial, medical, job related, such as a job relocation to approve a short sale. Most times the balance from the short sale is forgiven by the lender or the balance is negotiated as part of the short sale. Each short sale scenario is different, as the lenders decision depends on the seller’s financial picture, market value of the property in relation to the purchase offer price, the lenders investors requirements and their own Foreclosure ratios.

 

Why would a lender accept a short sale?

A short sale has a better return on investment to the lender than a foreclosure. They are able to cash out of the loan faster than a foreclosure process. Plus they do not have the legal fees which are normally attached to a foreclosure.

 

As a homeowner, why would I choose to attempt a short sale?

Let’s face it. Bad things happen to good people.

There are many reasons why homeowners find themselves in a position of default…change in mortgage payments, loss of job, health issues, etc. When you get behind on your mortgage payments, the lender will start the foreclosure process, no exceptions. If the foreclosure takes place, you have ruined your credit for a period of up to 10 years. You can expect your credit score to go down about 200 points* or more, making it impossible to make any future purchases using credit. A foreclosure is usually a required disclosure you must make on any credit or job application.

The lender may also file a deficiency judgment against you. A deficiency judgment can arise if the lender sells your home at auction for less than the mortgage debt. The lender then holds you responsible for the unpaid portion of the loan. The lender may take legal action to pursue payment, such as garnishing your wages.

A short sale is usually listed as settled debt, and is much less harmful to your credit. You can expect a decrease in your credit score of approximately 50 - 75 points*. The loan may be forgiven, and no deficiency judgment will be placed against you.

 

Is it true I will be given a 1099-C by the IRS, and will owe taxes on the unpaid loan amount?

This has been a major concern for homeowners who choose to do a short sale. Previously, the IRS had the ability to consider the forgiven loan amount as earned income, and you could be taxed on that income. However, recently the House Ways and Means Committee voted to remove the phantom income tax that previously haunted distressed homeowners on primary residences. Contact your accountant or attorney for further information on 1099's in a short sale.

 

Who should handle our short sale?

The most important thing to consider when deciding to work out a short sale with your lender is to use a qualified professional to handle the process and negotiations. If the processor is not experienced in the short sale process, the deal can be over before it begins.

A professional Real Estate agent will need to list your home on the market as the first step. Be sure they are aware you are attempting a short sale, and that they have experience working with short sales or experience working with a loss mitigator. The best scenario is to let the real estate agent handle the marketing of your home, and allow the loss mitigator to handle the short sale.

 

What is the short sale process?

The loss mitigation representative will explain the process and prepare your hardship package. They know upfront exactly what the lender will require when submitting your offer, and will be prepared fully to negotiate on your behalf.

Your home is listed by an experienced short sale real estate agent, who prices the home according to market value yet being aggressive in price reductions if no offers are submitted by buyers. Remember, the goal is to bring in a quick offer and to prevent you from going into foreclosure.

Once an offer is received, an entire package is presented to the lender, and the negotiations begin.

 

Will the lender always accept a short sale offer?

Unfortunately, not always. However, the more complete and detailed the short sale package submitted to the lender, the better the chances of getting an approval. The key is a good Short Sale Realtor listing the property, a qualified and very experienced short sale negotiator with a team of experts to handle each and every obstacle which could be encountered.

 

Your Credit – How it’s Affected

The following article was written by: Mick Bernard a Certified Credit Restoration Expert and President of Credit Strategies, a credit consulting firm based in Scottsdale, Arizona.

 

Short Sale vs. Foreclosure

This debate is racing across our nation. It is one of the questions I am asked the most, “Should I let my house go into foreclosure or should I do a short sale?” Everyone seems to understand a foreclosure will not only demolish their credit score , but it will also ruin their chance of getting a decent interest rate on any new financing they want to get in the next few years. A foreclosure is considered a major incident by the credit bureaus. Any major incident can have a devastating impact on your credit score. Other examples of major derogatory credit incidents are bankruptcies, charge offs, judgments and short sales, which are normally accompanied by the term “account settled.” Anytime your credit report has the term, “Settled or Settled for Less than Full Amount,” it is considered a major derogatory incident and can have a major negative impact to your scores. How much it will reduce your score is determined by many reasons some of which we can discuss and some that are kept a secret by Fair Isaac, the inventors of the FICO credit scoring system. We do know the higher your credit score, the more damaging a major derogatory incident will be. In other words, a major incident affects the people that have the furthest to fall.

 

Foreclosure

Most people know what this is. A foreclosure is when the bank takes back a home because the homeowner doesn’t make the payments on their home loan or mortgage. In most cases a home doesn’t go into foreclosure until a homeowner is several months behind on the mortgage. A foreclosure can have a double negative impact on a consumer’s credit score. In addition to a foreclosure listing being a major derogatory incident, there are also normally a significant number of late payments reported by the lender to the credit bureaus. These late payments vary in severity from “30–days” late to the much more damaging “90-days” late incident. In many cases there are additional late payments more severe than 90 days being reported, such as the 120 and 150-day late payments. The number of the late payments and the severity of those payments will all contribute to the damage done to your credit scores.

 

Short Sale

Short sales are more of a mystery to consumers because there is some confusion regarding the impact they have on their credit scores. Fair Isaac has confirmed that they consider a short sale to be a major derogatory item because of it being listed as a “settled account.” Major derogatory incidents can have a severe negative impact on your credit scores. Most of the cases I’ve been involved with, the main difference between a foreclosure and a short sale is communication. During the foreclosure process the homeowner tends to be more invisible during the process. During a short -sale transaction there is constant communication between the bank and the homeowner. During that time the homeowner or the homeowner’s representative has the opportunity to negotiate with the lender. In addition to negotiating a reduced loan pay-off they could also be negotiating what the lender will report to the three credit bureaus when the transaction is closed. If the lender reports, “Settled or Settled for Less than Full Loan Amount,” the short sale will be considered a major derogatory incident. If the lender doesn’t report the short sale as “Settled or Settled for Less than Full Loan Amount,” then this will not be considered a major derogatory incident and will not have the negative impact. The homeowner may also choose to remain current on their home loan during the short sale process. If they remain current then they will not have the added negative impact of the late payments affecting their score.

 

Affects on Credit Score

The effect a foreclosure or a short sale has on your credit score is impossible to predict because of the variety of other variables impacting the scores. If you find yourself in the unfortunate situation of not being able to make your mortgage payment, do your research. Call your lender to see what options they have available before making any decisions. Call a professional; there are many different professionals that specialize in these types of transactions. The decision you make could have the largest impact on your credit score than any decision you have ever made.

Frequently Asked Questions About Short Sales and Foreclosures.

What is a mortgage default?
A mortgage is considered to be in default when one or more monthly payments have been missed.

What solutions are available if I am in default on my mortgage payments?
You may qualify for a broad range of help. Some solutions are:
· Short Sale/Payoff
· Forbearance Agreement
· Loan Modification / rate and term adjustment
· Deed in Lieu of foreclosure

What is a Short Sale/Payoff?
Short Sales occur when borrowers sell their properties for amounts that are less than the amount owed to the lender.

How do I qualify for this?
Borrowers need to prove that they are experiencing a substantial financial hardship.

 

What is a Hardship?
A hardship is a situation that has a life changing effect for the borrower that results in an in-ability to pay the mortgage debt in either, short or long term. Some examples are:
· Separation or Divorce
· Medical Bills
· Inability to work due to health reasons
· Death of Spouse
· Job Relocation
· Reduced Income or Unemployment
· Business Failure
Bad loan product / excessive rate adjustment

 

How do I qualify for this?
Contact Gregory Frank and schedule a consultation with him about the most suitable solution.

 

How do I qualify for a Short Sale?
A borrower must prove that a hardship exists. The lender must be willing to accept the short sale proceeds as full settlement of the debt.

 

What is required from the property owner?
The property owner in most cases must:
• Sign a listing agreement with the realtor
• List the property for sale
• Cooperate with access, showings, offers, and with the realtor and SSW.
• Vacate the home following close of title

• Agree not to finance or otherwise encumber the property
• Be responsible to maintain the home in "show" condition
• Be responsible for minor repairs to the home

• Provide financial statement and income documents to the bank

• Be a responsible homeowner until close of title and vacancy of home.

 

Can any Real Estate Agent assist me in selling my home in a short sale situation?
Possibly, but usually you have only one shot to succeed in a short sale transaction, it is therefore highly recommended you work with a company experienced in short sale negotiations that can properly represent you and is specialized in this field. Negotiations at this level are best left to professionals trained in this field!

 

How can Gregory Frank help me?
·Professional consultation
· Preparation of Hardship Package
· Negotiate a Forbearance
· Negotiate a restructure of current loan
· Arrange loan reinstatement assistance (hard money)
· Negotiate a Deed in Lieu of Foreclosure
· Negotiate a Short Sale with lender
· Buy back program
· Pre paid Legal Services
· Mortgage analysis