Frequently Asked Questions
SHOULD YOU CONSIDER A SHORT SALE?
A short sale is not always the best option for every homeowner and should only be considered after every other option for keeping the home has been explored. However, people’s lives change and sometimes owning a home becomes more of a burden than expected.
Nobody buys a home expecting to lose it in a foreclosure, but when your financial picture changes and you can no longer afford the home. It is time to take drastic measures to limit your losses so you can get on with your life with as little damage to your credit as possible. Hard decisions must be made and the sooner you make them the better off you will be. One thing is for certain, you are not alone! Foreclosures are at an all time high and we are here to help.
THE BENEFITS OF A SHORT SALE FOR BOTH YOU AND THE BANK
There are clear advantages to a short sale over a foreclosure for both the homeowner and the Bank in virtually all situations. For homeowners, a short sale removes their burdens and allows them to move on with their lives. Credit ratings are not ruined as with a Deed In Lieu or foreclosure action, allowing you to regain your financial stability and qualify for a new mortgage at some time in the near future.
There is also the question of other liens against the property. They do not simply evaporate as a result of a foreclosure action. An unsatisfied lien might remain on your record for up to 20 years. Negotiating a short sale pay-off and settlements with all lien holders is always far better.
DID YOU KNOW?
- That a homeowner who goes through foreclosure is ineligible for a Fannie Mae backed loan for several years thereafter, and an investor owner is ineligible for seven years.
- Future mortgage loans and interest rates will be affected because the foreclosed homeowner must answer “Yes” to the Form 1003 Uniform Residential Loan Application question “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”
- A foreclosure affects credit scores downward by 250 to 300 points, which will typically last for over three years.
- Foreclosure stays on your credit history for 10 years or more.
- Current and future employment may be affected as many employers now require credit checks, particularly for employees in financial or sensitive positions.
- Outside of conviction of a crime, foreclosure is the most serious issue affecting a security clearance. For those employed by a police force, the military, a security company, the CIA or other governmental agency, a foreclosure could mean immediate loss of the security clearance and the position.
WHAT ABOUT A DEFICIENCY JUDGMENT
This depends on the state you’re in and the Bank’s loss, bearing in mind the new legislation that relieves owner occupants of this threat. There are costs associated with pursuit, so even on an investor-owned short sale, if there is no money to be recovered a deficiency judgment may not be enforced by the Bank.
Part of any short sale negotiations with the Bank should include that terms of the short sale will include a “Full Release of Lien and No Deficiency Pursuit“. This is completely up to the bank and their specific policy.
Although we cannot make any promises or guarantees, we always ask during our negotiations with the bank that:
“Paid as Agreed” will be reported to the credit reporting agencies (Equifax®, Experian® and Trans Union®) on the settled debt. Paid as Agreed on a credit report means that the payments were made in accordance with the terms of the credit extended. Other, less desirable credit file remarks that can appear on a credit report for a long time:
- Accounts not paid as agreed – 7 years
- Collection accounts – 7 years
- Bankruptcy information – 10 years from date filed
- Legal judgments – 7 years
- Paid tax liens – 7 years
- Unpaid tax liens – indefinitely
As noted before, we cannot promise or guarantee the seller/borrower that he will walk away with no deficiency judgment or how the bank may choose to report to the credit agencies, but we always try to negotiate the best possible outcome for the borrower. As an “ALL CASH” buyer we can often improve our offer to entice the lender to waive deficiency pursuit and seller contributions.
Our goals when negotiating a settlement on behalf of the homeowner are:
- A FULL RELEASE OF LIEN
- NO DEFICIENCY JUDGEMENT
- NO PROMISSORY NOTES OR SELLER CONTRIBUTIONS
- “PAID AS AGREED” REPORTING
WHAT ABOUT TAXES AS A RESULT OF A SHORT SALE
If a short sale settlement is reached and the borrower is an owner-occupant in a homesteaded property, he will not have a 1099-C tax problem – at least through 2012. The new Mortgage Debt Forgiveness Relief Act was signed into law by President Bush on December 20, 2007. This law can eliminate taxes that would often be due from the homeowner in the event of a short sale. Visit the IRS web site for complete details about the Mortgage Debt Forgiveness Relief Act.
INVESTOR OWNED SHORT SALES
It is commonly believed by many Investors who are facing foreclosure that they will have to pay taxes on the discharged debt because they do not qualify under the Mortgage Debt Forgiveness Relief Act. Specifically because the properties are not their primary residences. Click here to find out why this assumption is wrong and why getting bad advice could cost you thousands.
A FINAL LOOK AT SHORT SALE MISCONCEPTIONS
MYTH: BANKS RATHER PURSUE FORECLOSURE vs. A SHORT SALE
It is still widely assumed that, somehow, a Bank can come out ahead by running up a balance with late fees, accrued interest, etc. and then recoup that money by spending tens of thousands of dollars on a foreclosure to recover a house that can’t be sold for what it is worth – which is how it got to the foreclosure stage in the first place.
REALITY: BANKS WOULD RATHER LOAN THAN OWN
For Banks, there will be some sort of monetary loss whether accepting a short sale or pursuing foreclosure. But the time and money lost to a foreclosure, which can and usually does take months, far exceeds the discount a Bank will incur up front in a short sale.
Additionally, in a short sale a Bank does not incur post auction costs of owning, maintaining and liquidating the house before recouping a portion of the debt. Finally, a short sale removes a non-performing asset from the Bank’s books, allowing it to lend more money elsewhere.
- A Foreclosure affects a Bank’s lending capacity.
- Foreclosed assets are non-performing assets.
- Banks do not wish to be property managers or landlords.
- HUD says: “Foreclosure should be considered as a last resort and should not be initiated until all relief options have been exhausted.”
- On a typical SFR foreclosure, REO costs (legal fees, eviction, property taxes & insurance, repairs & maintenance, security, HOA fees, costs of sale) can add up to $40,000 or more.
MYTH: THE BANK WILL NEVER TAKE THIS OFFER?
The proposed loss is over $100K and there is NO WAY they will look at it.
REALITY: THE ONLY VALUE THAT COUNTS IS TODAY’S!
You don’t know what they will look at, much less take. We make an offer to stop the bleeding. The only thing that matters is the fair market value of the property at this time – not what it was worth last year or even last month. In a declining market, look forward to where the even lower value will be three months ahead. This is loss mitigation – for the homeowner and for the Bank.
MYTH: ORCHESTRATING A SHORT SALE IS DIFFICULT!
Any sale of real estate entails mounds of paper work and detail after detail that must be handled prior to closing. A short sale is just a different set of details. Once you understand the process and more importantly how to avoid the pitfalls, it’s no different from any other transaction. More importantly, choosing who will handle your short sale is probably the most important decision you’ll need to make today! Getting this part wrong could mean wasting valuable time all the while you are inching closer to a foreclosure judgment and auction.
REALITY: CONSIDER YOUR OPTIONS CAREFULLY!
Should you do this yourself (DIY), hire a Realtor or use an Investor who has already assembled a team of highly seasoned professionals that specialize in getting short sales completed in the least amount of time possible.
The first PRIORITY when trying to orchestrate a short sale is to find a buyer who is pre-qualified with solid financing and is willing to wait the 30-90 days to complete a short sale. Regardless if decide to DIY or use a Realtor you will most likely list the property on the MLS looking for a buyer. Depending on the average “Days on the Market” for properties in your particular neighborhood, this could burn up several months of valuable time. The good news is that you can skip this step entirely by using and Investor. Why?
MYTH: I HAVE A SECOND MORTGAGE AND THEY WILL NOT RELEASE THEIR LIEN!
Since the first mortgage holder is typically the one initiating the foreclosure they control how much the second is allowed. As such it can often be difficult to get the second to cooperate because the first will only allow them a few thousand dollars. Even when they do cooperate they will often only issue a lien release and with hold their right to pursue a deficiency judgment. This is a huge problem for the seller because the lender will have up to 20 years to pursue the homeowner and will often sell this right to professional debt collectors.
REALITY: WE HAVE A PROVEN TRACK RECORD FOR GETTING THE SECOND TO COOPERATE.
Even when there is a second mortgage that refuses to cooperate our negotiators know how to handle them to reach a settlement using the latest consumer protection laws in your favor. As a last result, since you are working with a professional real estate investor and when it makes financial sense we can bring more money to the table in order to help resolve the lenders dispute.
MYTH: THE SECOND WANTS ME TO SIGN A PROMISSORY NOTE OR THEY WILL PURSUE A DEFICIENCY JUDGMENT
Often times the lender will try to get the seller to sign a promissory note or threaten to pursue the seller with a deficiency judgment. In cases such as this we already know what the lender is planning to do with their note once they have it. Since they are not in the business of collecting on notes they will typically sell it off for pennies on the dollar. We have several solutions to eliminate this possibility. One solution is to improve our offer to reach a settlement so that the lender collects more now rather than spend the next twenty years trying to collect on an unsecured promissory note that can be easily discharged in a bankruptcy proceeding.
This is a complex subject that really complicates matters. Many investors and real estate agents will not pursue a short sale if a bankruptcy filing is imminent. A bankruptcy stays (stops) any/foreclosure action in progress. But a stay can be lifted at any time and the Bank may pick up where it left off in pursuit of its debt.
The question you should be prepared to answer is this:
Should a distressed homeowner who is eligible for a short sale even consider taking a bankruptcy in the first place?
The Three Most Common Types of Bankruptcy Are:
- Chapter 7 – the most severe, essentially a total liquidation where all non exempt property is sold and the proceeds are distributed to creditors. Unsecured debt is terminated, secured debt remains. It can be taken by individuals and businesses.
- Chapter 13 – typically used by individuals and small businesses, it is a reorganization of debt. A plan is arrived at and payments are made to the bankruptcy trustee, usually for 3-5 years, and the trustee pays the creditors.
- Chapter 11 – like Chapter 13 but with many more requirements and is used by larger businesses, partnerships or corporations.
We’ll be dealing with Chapters 7 and 13. When a debtor files for Chapter 7, a “341 hearing” is set where creditors have an opportunity to question the debtor about debts and the bankruptcy trustee reviews the list of assets and liabilities as well as debtor income and expenses. Creditors are given 60 days to object to the discharge. The debtor usually receives a discharge in four or five months.
Chapter 13 is used by individuals who don’t qualify for Chapter 7 and who want to keep their non-exempt property. The court uses living standards provided by the IRS to determine reasonable expenses and a repayment plan amount, with the IRS receiving priority followed by secured creditors (mortgages), followed by unsecured creditors (credit cards). When the plan is completed (3-5 years) the bankruptcy is discharged. Generally, Chapter 13 is less damaging to credit, but any bankruptcy will remain on the debtor’s credit report for 7-10 years.
Florida- The Debtor’s Haven
Different states have different rules concerning bankruptcy and exempt property amounts, particularly regarding homestead exemptions. Florida protects 100% of a debtor’s homestead from a bankruptcy proceeding, as well as IRAs, 401 Ks, prepaid college plans and other things. Wage garnishments are restricted and a creditor of one spouse cannot receive joint property of both spouses. Typically, it is difficult to liquidate debtor assets in Florida.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
This Act tried to make it more difficult for consumers to discharge debt under Chapter 7, forcing them to reorganize under Chapter 13. The law made many changes, but the one that is pertinent here is the Means Test.
Under the old law, anyone could file under Chapter 7, with the final determination as to eligibility made by a bankruptcy judge. The new law requires a means test to decide if filers can pay some of their debts and file under Chapter 13.
Filers whose gross income for the six-month period prior to filing is below the median income for their state automatically qualify for Chapter 7. Filers whose gross income is above the median must calculate their Disposable Monthly Income (DMI) to determine whether they can make payments on their debts sufficient to qualify for Chapter 13.
If the DMI is less than $100 per month (whatever is leftover after priority and secured debt payments, taxes and allowable expenses as determined by the IRS) they can file under Chapter 7. If the DMI is above $100, they must file under Chapter 13. This generally rewards filers with assets that are heavily mortgaged and hurts debtors with larger amounts of unsecured debt.
If a homeowner has no equity and is insolvent, should he be part of a bankruptcy?
Would the homeowner be better off doing a short sale and dealing with other creditors after the sale?
If you are working with a seller, proceeding with a short sale, and talk of a bankruptcy or an actual bankruptcy has entered the picture, keep these important points in mind:
- You may need to obtain approval from the bankruptcy trustee to proceed with the sale.
- Make sure to convince the trustee that there really is no equity in the property.
- You may not be dealing with the Bank’s loss mitigation department once a borrower takes bankruptcy. Depending on the size of the Bank, some have a separate department to handle such cases.
- A bankruptcy may not always stop a short sale, but it will certainly slow it down by months.
- Use the threat of bankruptcy as leverage with the Bank to accomplish a short sale.
Often, a seller may want to move on with his life and feels that a bankruptcy is the best way to stop a foreclosure and make a clean start. But if he is unable to bring the debt current with the Bank after Chapter 7 discharge, or the Chapter 13 reorganization fails (as a sizeable percentage do), he will end up with a bankruptcy AND a foreclosure on his record.
A distressed homeowner who passes the test for short sale eligibility is almost always better off working diligently to accomplish a short sale.
It is often better to wait until after a short sale has been completed to file for bankruptcy so that any non-secured debts can be included in the bankruptcy in order to avoid a post short sale / foreclosure deficiency judgment.
WHAT IS ALL OF THIS GOING TO COST YOU?
It is very important for you to understand, “We are not in the business of profiting from you!” Our profit comes from assisting the bank in limiting their losses. We work directly with Asset Managers and Loss Mitigators everyday to achieve this. Their only goal is to save the Bank money by liquidating non-performing assets before they become a liability (REO or Bank Owned Property)!
We are in the business of negotiating settlements on the non performing assets of banks in an effort to help them liquidate bad debt. In doing so, we receive a discount when we purchase the property which is usually a % of the 30 Day “Quick Sale Value”. This becomes our fee or “Spread”. We then turn around and pass a portion of that discount on to and end buyer by selling to them either at or slightly below “Fair Market Value”. In short- If we don’t complete your short sale, we don’t get paid!
- How does a short sale affect my credit? Your credit is cleared faster, 2 years for short sale vs. 7-10 years for a foreclosure.
- How is my past mortgage shown on my credit report short sale vs. foreclosure? Credit shows “paid as agreed” instead of foreclosure or repossession (Some lenders do not even report to credit bureaus so it would just be a charge off)
- How does a short sale affect my employment future? Since a short sale is listed as “paid in full” and a foreclosure is listed on your credit report as a foreclosure. A foreclosure could prevent you from getting certain jobs.
- Can the bank come after me after I sell my house by a short sale? It has been our experience that many banks will totally forgive your debt while others will only forgive a portion of the remaining balance, each case is different. If that situation arises, our experienced negotiators will negotiate with the bank to try and lower or eliminate any balance left over from the sale of the property. In a foreclosure, the banks can come after you for unpaid balances, place judgments, even attach wages, possibly forcing you into bankruptcy.
- How does a short sale affect me getting loans in the future? Loan applications do not request information on short sales but they do on Foreclosures.
- Can I get evicted from my house during a short sale? Short Sales take about 2 to 3 months to close giving you time to move without the feeling of being “kicked out”.
- Do I have to pay taxes on my short sale? Not until 2012, you will not have to pay taxes for the money that was forgiven on a short sale. Consult your tax adviser for further clarification.
- Who is in control of my short sale? You are in control!
- How do I know the buyer of my house is qualified? We are experienced professionals and only accept offers from prequalified individuals or proof of funds from cash buyers of your property.
- How does the short sale process help my emotions? Helps you feel like you are fixing the situation rather than feeling like a victim.
WE CREATE A WIN-WIN TRANSACTION FOR EVERYBODY INVOLVED!
The Bank Wins, You Win, We Win.
You can get relief from your mortgage payment and move on with your life while ending the daily harassment from your lender. The homeowners that we have helped are tremendously thankful to be relieved of the burden the foreclosure has caused.
A short sale also prevents additional damage to your credit. Late mortgage payments have already done some damage to your credit; however a foreclosure will do much more damage to your credit score that could take years to repair.
By avoiding a foreclosure and getting your finances in order, you could be in a position to repurchase a new home in just a few short months. Most likely at a much better price.
Also it is important to note that we provide our short sale service for free!
Do you need to sell fast?
Do you have a problem property?
Do you have properties you need to get rid of quickly
We are cash buyers who are ready to buy now!
Do you need a Short Sale and want to work with an Experienced Investor with a proven track record for getting results?