South of NoVa™ Blog

What Is A Short Sale

You may have heard the term but are not clear on what is a short sale in real estate investing. The newest way to purchase or sell property by negotiating a discount with a mortgage company isn’t very new at all.

To sum it up, a realtor, investor or homeowner contacts the mortgage company of a homeowner who is behind on payments in an attempt to negotiate a discount. The lender either accepts or rejects an offer to purchase the property lower than current amount owed.

Another accurate and in depth description can be read by clicking the below link.

Wikipedia.com’s definition of a short sale

Being reasonable when requesting a discount is the best way to get a short sale approved. If you request 20-30% off of what is currently owed on the property, your chances of acceptance are pretty good.

If a property is in need of many repairs or has some serious defects you may have luck negotiating as low as 50% of what is owed.

Banks have been loosening their policies as of recently, making it easier to get an approval.

Since the sub prime mortgage meltdown and decline in real estate values, many people are overleveraged and need to sell. When there is little or no equity in a home and a homeowner must sell, a short payoff may be the answer.

Short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoidance of having a foreclosure on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure.

In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.

Lenders have a department (typically called a loss mitigation department) which processes potential short sale transactions. Typically, lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the locality where the property is located.

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very common in short sales, similar to REO and HUD properties, requiring potentially multiple levels of approvals and conditions. Junior liens, such as second morgagees, HELOC lenders, and HOA (special assessment liens), may need to approve of the short sale. Frequent objectors to short sales include tax lieners (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the short sale.

While it is frequent if not common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance. Further, it is common for a lender to omit updating the zero balance and settlement option on the mortgagor's credit report, or even flat refuse to do so "due to their financial loss."

The Mortgage Forgiveness Debt Relief Act of 2007

When the lender decides to forgive all or a portion of a borrower's debt and accept less, the forgiven amount is considered as income for the borrower and is liable to be taxed.

However, after the signing of The Mortgage Forgiveness Debt Relief Act of 2007 by President Bush, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together to find a common solution that is beneficial to both parties. This protection is limited to primary residences so consultation with a tax advisor is necessary ensure that a borrower qualifies.

A short sale does not adversely effect a person's credit report beyond documenting the short sale as "foreclosure proceedings started". But it does count against a person's credit to about the same degree as a foreclosure by similarly remaining on the report for 7 years and, most often, prevents the issuance of any mortgages for the same period of time.

Friday, February 26, 2010    7:21:44 PM

Extended First-Time HomeBuyer Tax Credit
The first-time homebuyer tax credit has been extended and is available on offers made on or before April 30, 2010 with escrow closed on or before June 30, 2010. For more information, please visit:  http://www.federalhousingtaxcredit.com/

 On-going HomeSteps Homebuyer Incentives**

• 2-Year Home Protect Home Warranty***
• Appliance Discount***
• Buyer's Closing Cost is negotiable for up to 3.5%**
  

Please note: **On-going HomeSteps homebuyer incentives are available to owner-occupants only. ***

For complete terms and conditions regarding the 2-Year HomeProtect Home Warranty and appliance discount, please visit http://www.homesteps.com/smartbuy.htm

5 Commandments of Sustainable Home Building

Excerpted from the Gaiam Real Goods Solar Living Sourcebook

The principles of ecological or sustainable design are holistic. They ask you to consider efficient energy and resource use at every stage of the home-building process: choosing a site, planning and design, choosing of materials, construction, setting up home systems, landscaping, and even the end of a structure’s life cycle. Almost a century of cheap energy has led to habits of use and patterns of settlement completely divorced from the inherent qualities of the land.

Dan Chiras, author of more than 20 books on sustainable home building including The Natural House, The Solar House, and The New Ecological Home, says following these five rules when building make you part of the solution, not part of the problem:

1. Practice conservation. Use what you need and use it efficiently. This concept speaks to a number of issues, including building small, using passive solar design, emphasizing energy efficiency, reducing wood use, and using materials with low embodied energy.

2. Recycle, recycle, recycle. More and more building materials and products are available that are manufactured with recycled or “waste” materials.

We have noticed that the market for foreclosures is picking up. There are more buyers and investors looking for a good deal. They are definitely out there, So-much-so that when we call to put an offer in, the listing agent informs us that they already have 4 or more contracts on the property. It's like our client sees the home they want, we write out the contract right then and there. Then we call the listing agent, we inform the agent that we are submitting an offer and we are told the above and if our clients would like to make a back-up offer. That means that if the ratified contract for some reason falls through then our clients would be considered. It's bad enough having to wait one to two months before you are told that the contract has been accepted by the bank that now owns the foreclosed property.As the client, the buyer or the agent has a few things to make sure:

That the buyer has a pre-approval letter to send in with the offer. All the information about the buyers' ability to have the mortgage financed for the sales price that they make with the offer. It really is not good to be informed that for some reason, the buyer does not qualify, make sure that the person handling your mortgage knows what they are doing. If for some reason there will be a problem, that person or your agent should let you know as soon as possible, not two or three days later.

We inform out clients that if the home is owned by someone and up for sale, the answer to their contract will be within 24-48 hours depending how early the listing agent can contact the owner. There is a different time period when presenting a contract to the bank or lending institution that owns the property as a foreclosure.

Home prices are still falling and they will level out sometime next year. The word on the Tom Toms is that the real estate market will get better in 2010 or later. Yes the market is that bad.

When you find the house that you like, please don't take a day or two to think it over. A number of our clients have found by doing this, the house they really liked has a contract on it.

We have much more to discuss about the process of buying a short sale or foreclosure.

For those who are facing pre-foreclosure there are ways to hold your home from foreclosure, such as selling your home as a short sale. We hate to see anyone lose their home without investigating all of their options. That's where we or agents that have your confidence come in to help.

Foreclosures have hit the 100,000 million number for homeowners loosing their homes.

It's good to be able to share what's happening in South of NoVa™

Take good care!

There is Help out There!

A home is security, a place to slow done the pace of life.

It’s where you have provided protection for you and/or family.

It is not to be taken away.

In Real Estate and Mortgage institution there is little sympathy but hard cold facts.

We as Realtors® are seeing a lot of foreclosures and we have empathy for those who are losing their place of protection and security. Empathy means that we experience your pain in our hearts.

Borrowers across the country are wondering how or whether their eligible for relief announced by President Bush in mid-December to stem the tide of defaulted subprime mortgages.

It is up to us as Realtors® to pass this information along.

*There is help out there for you!

What can you do if you are facing pre-foreclosure or foreclosure?

Call the national counseling hotline 888.995.4673 (888.995.HOPE). It is a 24/7 telephone number. When you call you will be in contact with a HUD-approved counselor that affiliates itself with a non-profit Homeownership Preservation Foundation.

This is not a quick conversation where all of the help and options to help you are rattled off. Information needs to be gathered about the caller’s financial situation, this will help to find out if you meet eligibility requirements.

Expect for your conversation to be about 45 minutes. There is much information to be gathered such as your financial situation. The counselor will determine whether you are eligible to participate in this program and have you contact the mortgage institution to work out a plan. There may be a need for the counselor to recommend to you to call another counselor in your area and receive counseling in person. In other cases the consoler will contact the mortgage institution directly.

The criteria for help is offered for three types of homeowners.

A. Homeowner is up-to-date on their mortgage payments and there is no problem to keep them from being up-to-date with their payments. After the rate change they would like to refinance into a loan with a interest rate that is lower.

B. Homeowner has keep up with their mortgage payments but will default after the interest rate kicks to a higher percentage rate. The present loan needs to be adjusted to a interest rate that is not going to be cumbersome or can refinance to a loan that is within their reach.

C. Homeowner is in trouble and will default before there is any interest rate change.

This help applies to purchase-money mortgages and only to borrowers and only borrowers that purchased during the height of the market boom from Jan 1, 2005 to July 31, 2007 and whose rate changes between Jan. 1, 2008 through July 31, 2010.

That all said and done, but what about those out there who don’t meet this criteria. The counselors will provide help. It happens to a lot of us these days, income problems such as losing your job or having to run to the emergency room, a family member has to stay and the cost of the medical was definitely not in the budget. That’s where the counselors can give direction. They are there to help you, no matter where the mortgage market is turning.

Carefully going through your financial situation will take time, so everything may not resolved with just one conversation with your counselor . To get everything going in the right direction you may have to talk more than once. The need may arise to talk together a few more times. If you want to shorten the time period, have available paperwork verifying income and monthly expenses. Things like utility bills, weekly or monthly food purchase, auto loans, credit card payments, etc. In order to get the quickest response, please be prepared before placing the call.

Mortgage companies, banking institution and other lending companies are getting more REO’s (Real Estate Owned - meaning the home has been foreclosed) than they can handle. This part of the market has required to hire more people, train them and give them more authority. These companies need to get rid of this runneth over of inventory. Some of the lending institutions are providing work out plans. There is help!

There are also ways to avoid prepayment penalties when it comes to refinancing. It can be done by having your loan restructured so that the prepayment penalties will be eliminated. As always there are catches to get the process going. Don’t give up!

*What Experience Do We Have With This Market. Just So You Know a little more about us

We are so excited about the above information that we just had to share it.

We took the precaution to look into the loan options available for our clients. Sellers were doing well during the up swing market that suddenly changed into this terrible situation. We made sure that they had 30 yr fixed mortgages or if one of our lenders suggested an arm, which occurred to only one of our clients. We made sure that they were longer arms such as 5/1 to give the owner more time to refinance and get a better rate.

It is the Realtor(s)® responsibility to make sure that their client gets the best deal for a purchase. We give our clients trusted mortgage lenders to make a selection.

It still is a bad feeling to see that someone purchased a home for $419000 and today that home is only worth $199000.

*We are doing BPO’s meaning Broker Price Opinions and have done so for 9 months and what an eye opener experience this is! This is when a bank or mortgage lender is making a decision as to the selling price for Short Sales (Sellers that are trying to sell their home before foreclosure) or the institution now has foreclosed on the property and wants a Broker or Realtor® to give their educated opinion on the property. We take exterior pictures of the property. We then search MLS to find homes that are similar in number of rooms, year built and make a comparison of these properties to the property in question. There are times when we do interior BPO’s, we find that some of the homes are in great condition and others have been trashed. We have seen places where the refrigerator, microwave, stove, sinks, etc were taken out or ripped out from their places.

This then gives us more information on the current market, area and provide a service to our clients that would never put their home in jeopardy.

There is help out there! A little more information coming about getting HELP OUT THERE!

Thanks for reading.

Here is the actual language from the new FHA Guidelines:
FHA Guidance on Short Sales Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to take advantage of declining market conditions, and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

Download the new guidelines (available to download here) Reference: For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g

Here is the exception:

Guidance on Borrowers current at the time of Short Sale Borrowers are considered eligible for a new FHA-insured mortgage if they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and the proceeds from the short sale serve as payment in full.
Reference: For detailed information, see “Short Sales” at 4155.1 4.C.2.l.

Here is the translation: If the homeowner/ borrower didn’t miss any payments prior to doing the short sale AND their overall credit history will allow…they CAN buy immediately following a short sale using FHA financing. The focus seems to be on rewarding those who made their payments on time..and did a short sale VS. those who missed payments prior to a short sale.

More info:
Guidance on Borrowers in default at the time of Short Sale Borrowers in default on their mortgage at the time of the short sale (or pre- foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.
Reference: For detailed information, see “Short Sales”, at 4155.1 4.C.2.l.

Translation: Borrowers CAN use a new FHA-insured mortgage if they were current on their previous mortgage and other debts at the time of the short sale and if the proceeds from the short sale serve as payment in full.

Bottom line, missed payments = no FHA financing…for 3 YEARS. If a borrower executes a short sale while in default on their mortgage would not be eligible for a FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Some lenders can make exceptions if the default was due to circumstances beyond the borrower’s control such as the death of the primary wage earner.

Anyone eligible for the Home Affordable Foreclosure Alternatives program (HAFA) would not be eligible for a new FHA-insured mortgage for three years. WHY? Because to qualify for HAFA the homeowners has to MISS PAYMENTS! Under HAFA, the US Treasury Department provides incentives to servicers, banks and investors to pursue a short sale for seriously delinquent borrowers.

This does not mean that the lenders will accept the incentives.

Thanks for visiting our Blog!

About us 2.28.08

Our names are Larry and Madeline Whitehead
Realtors®
Heatherman Homes LLC
Licensed in Virginia

Larry is from Northern Virginia and Madeline is from New England. We spent part of our lives in the West. We moved to the Northern Virginia area because my wife fell in love with Virginia. We are residents of Stafford County. We provide service from any points South of NoVa (South of Northern Virginia): Prince William County, Dumfries, Triangle, Quantico, Stafford, Fredericksburg, King George, Caroline County and Orange County, along with Northern Virginia

We have been happily married since 1972 and we have 3 children & 8 grandchildren.
Our Experience

We worked together at Stone & Webster Engineering company in Boston, Massachusetts.

We worked together in a Women Owned IT business for 20 years while Larry also worked in Telecommunications.

As many of you know when you lose your job because of downsizing and you make more than others, well you just have to be the one to get ride of first. If you are a manager of a very accomplished team, keep them and get rid of you. After being without sufficient income, we decided after 3 years, we need to make a change. We could use our consulting experience when helping folks selling, buying or renting homes. Therefore, we became Realtors®  and we enjoy using our abilities assisting our clients with the housing challenges of this 21st century with its fast paced life style.

We take the time necessary to find the home that most readily meets your likes, wants, needs and budget.

Please, Enjoy our  South of NoVa Blog!

There will be a number of entries all with the same date and different times, we have two blogs and some of the information will have been from http://justaskmadeline.com Information pertinent to who we are and where we provide our services, etc. There is information on JustAskMadeline that will not be found on this blog, so please also visit our Just Ask Madeline Blog