I have owned my house since 2006. My employer reduced my salary by 30% and now I have to move out of state where I have found a new job. The house is a problem. Since 2006 my house price has dropped by about $40,000. That means I have a $40,000 deficiency, which I don't want to pay. I have option to rent the house, but I am still considering a short sale. Any advice? -Sergio
Hey there, Sergio. To answer your question, I would attempt a short sale. Depending on your situation and the type of loan you have, more than likely you will not have a deficiency. I can give you a better answer after I get more information from you.
I wouldn't recommend renting the house. How hard is it going to be to manage when you are out of state? What if the tenants stop paying? What if a pipe breaks and floods the house? I'm not saying don't rent the house. I just know from past experience that managing rental property from a distance is super tough. I knew a real estate investor who targeted what he called, "tired out-of-town landlords." He would offer to buy their property below market.
Surprisingly, many of them accepted his low-ball offers because they were so tired of dealing with the property. Here is the other downside on renting: you will probably have negative cash flow every month. I don't know what your house will rent for, but if you are upside down on your house value then you are likely also upside down on the rental value. That means you will almost certainly lose money on the rent every month. With your precarious financial situation, a recent 30 percent salary cut, and a move out of state,
the last thing you need is another bill each month.
With a short sale, you can walk away owing nothing and without tax liability while being eligible to buy another house in three years. That sounds a lot better to me than being stuck with a money losing house two years from now.
We often get asked if a short sale is even worth the effort. One seller asked if they need to have their short sale approved
by their lender before they put their home on the market. They went onto explain:
“When I called my lender, they wouldn't talk to me about my short sale. I am concerned that they might do that when I finally sell the property and I’ll never get the short sale approved.”
Here was our answer: Most lenders will not talk to you about a short sale until you have several things in place. They want a solid offer from a pre-qualified home buyer along with all the necessary financial documents. They do this because they only want to process short sales that will sell and close. Now, I think it’s a stupid way to do things. Instead of refusing to negotiate short sales until there is an offer on the table, they should instead pre-approve short sales.
It would make the process so much easier. A home could be placed on the market at a set price. Buyers would be more interested in the property because they know they can get an answer in 2-3 days versus 2-3 months. We have brought this up with Matt Vernon, the Vice President of Bank of America’s Short Sale Department. He knows there is stuff to improve. But, it’s hard to change the course of a huge company with so many different parties involved. Despite all this, experienced short sale agents are getting short sales approved every day.
The Short Sale Process is getting better and easier to navigate. More and more lenders are moving towards “Approved” Short Sales. You just need to find a good short sale Realtor who can navigate their way through the crazy short sale process.
If you're thinking about a short sale, I can help you short sale your property and get back on your feet. Send me an e-mail at Ashish@EastLionInc.com
. I will contact you for a free consultation. When we talk, I will explain how the process works in detail and answer any questions you may have. Or, if you prefer, you can call me at (818) 259-3455.
Discover how other sellers successfully completed a short sale and request a free consultation by going to our Facebook page
Real Estate Agent, East Lion Realty & Mortgage
Phone: (818) 259-3455
Ashish Trivedi specializes in loan modification assistance and short sales in Southern California. Copyright 2011 SFI Marketing Institute, LLC. All Rights Reserved.Important Notice
Ashish Trivedi, East Lion Realty & Mortgage, and the Stop Foreclosure Institute are not affiliated in any way, shape, or form with the government. Our services have not been reviewed or endorse by the government or your lender. Most lenders willingly work with agents on short sales. Why? Because most short sales are beneficial to a lender. If you accept our offer to help you on a short sale, your lender may not agree to a short sale or to modify your loan. We do offer a loan modification kit.
However, the likelihood of negotiating a modification is like everything else in life. It takes work and persistence to convince your lender to modify your loan. No matter what you or we do, your lender may not approve a loan modification. We do not recommend that you stop paying your mortgage, because this will cause damage to your credit and could cause you to lose your home. Because we know avoiding foreclosure is so important to any homeowner, we recommend that you speak with the appropriate legal or tax adviser before making any decision.
This is not intended as legal, technical, or tax advice. Please speak with a licensed professional before making any decision. Information is deemed reliable but not guaranteed as of the date of writing. You have the option to reject a short sale or loan modification from your lender if it does not meet your approval. If you decide not to go through with the short sale, then you do not have to pay us our fee. We normally make a real estate sales commission for helping you on a short sale.
The views expressed here are Ashish's personal views and do not reflect the views of East Lion Realty & Mortgage. This information on "Does My Short Sale Have To Be Approved Before I Put It Up For Sale?" is provided as a courtesy to our viewers to help them make informed decisions.
What a relief! You can now short sale your home and not feel like a loser. In fact, it's becoming the "cool" thing to do. I recently read an article about how Medicare was costing way more than the government had projected it would cost. The article stated that there were several stages of how these programs work.
First, people who are eligible have to be told about the program. They join and the program might meet close to its projected costs. Then, all the people eligible for the program join. After a little while people who aren't eligible for the program feel like suckers for not getting the free benefits. They jump in. The program starts to cost more than originally projected.
Politicians see the popularity of the program and expand the eligibility. Even more people jump on board. Something similar is happening in short sales and loan modifications. The sucker stage has kicked in. It's now considered a smart financial decision to short sale your house. No one is ashamed of it anymore. I don't think they should be ashamed. After all, the American Taxpayers are the ones who bailed out the banks. We are the ones bailing out Fannie Mae and Freddie Mac. Unfortunately, each of us will pay a bunch of money into those failed entities, whether we want to or not. We might as well get some of our money back.
A good short sale agent can help you avoid owing thousands of dollars in the future. Why? The most banks lose money when they reject a short sale. They turn down a sales price of $200,000. They foreclose on the home and put it up for sale. However, they are not able to get the price they want. The home ends up selling for $150,000. What does that mean to you?
First, you probably owe them a lot of money. They may have been losing money on the original short sale. But, now they lost another $50,000. They will probably ask you to repay them for their loss. Many people are shocked to learn that they are stuck owing tens of thousands of dollars to their bank. A short sale can help reduce the amount you owe. I'll explain how.
First, most short sales result in the bank forgiving you on the debt. We have seen banks lose hundreds of thousands of dollars and still forgive the debt. I estimate that over 80 percent of short sales result in the homeowner result in the debt being forgiven. Contrast this with a foreclosure. In most cases, the bank can chase you down for the money for seven to 20 years.
Here is the second way that a short sale can reduce the amount you owe. Most short sales result in the bank result in reduced losses to the bank. I'm sure you are wondering why. First off, the home usually sells for more money as a short sale than it would as a foreclosure. We have seen $385,000 short sale offers get turned down, only to result in the home selling after foreclosure for $230,000. That's a huge loss. Second, a short sale costs the bank less money in property taxes, homeowner's insurance, lost interest income, etc. Overall, the costs are much less. All these costs add up fast.
Most agents complain about how short sales drag out for months at a time. Another agent once told me, "I hate short sales. They take 9-12 months to complete. The banks never call you back to let you know what is happening." The real problem is that most home buyers will wait for 45-60 days for an answer on a short sale offer. After that, then they become impatient.
Here are four simple steps we can use to get your short sale approved in 90 days. If we miss any of these steps, then you risk waiting 6-9 months for an answer on the short sale.
Step 1: Find out the type of loan it is. Examples are Fannie Mae, Freddie Mac, FHA, VA, Portfolio, and "Sliced and Diced."
Step 2: Influence the BPO. The BPO is the bank's version of an appraisal. They use that property valuation to make a decision to approve or deny a short sale offer. Many BPOs are inaccurate. As a result, many short sales are unnecessarily rejected. The banks lose even more money when they property sells later on.
Step 3: Find out what the BPO value is. Ask the negotiator for that info. They are required to send you a copy of the FHA appraisal (if the short sale loan is an FHA loan.) You can get a copy of the VA appraisal (short sale on a VA loan) from one of the VA Loan Centers.
Step 4: Use that information and knowledge of the loan owner's short sale guidelines to force the lender to approve the short sale.
Note: If the buyer's offer meets the loan owner's short sale guidelines, then it should be approved as is. No being wishy washy and wasting people's time.
In a recent blog post, I discussed how banks throw out a short sale file if it is rejected. When an offer comes in on a short sale, it takes 30-60 days for a person at the bank to look at the offer. Then, that person orders an appraisal on the property. After that appraisal comes back, the bank employee reviews the property value and the home seller's personal financial situation.
Based on that, they approve or deny the short sale offer. They do this to avoid approving short sales when either a homeowner can still afford the house or the house is selling for under the appraised value. What do they do if the short sale offer is rejected? Well, they tell the buyer to hit the road and close the file. Everything gets thrown out. The appraisal is thrown out. And all the time that employee spent looking at the seller's finances is thrown out.
So, each buyer has to wait 60-90 days for an answer on their short sale. If that buyer's offer doesn't work, then all that paperwork is thrown out and the property is put back on the market. (Yes, some banks are pre-approving short sales before they come on the market. But, that is the exception, not the rule. Most banks are not pre-approving short sales.) The home is marketed and then the next buyer has to go through the process all over again. So, why does this matter to you?
A short sale helps you avoid the bad mark a foreclosure puts on your credit for the rest of your life. On any future loan applications, you will have to check "yes" next to the question, "Have you ever lost a home to foreclosure?" So even though the foreclosure goes off your credit in seven years, that question stays with you for the rest of your life. That is why most people prefer a short sale. Your agent is going to have to be persistent in order to give you a better chance at a successful short sale. A competent, experienced short sale Realtor that can successfully navigate the system.
They can convince your lender that it is in their best interest to accept the short sale offer. They can also convince them to pre-approve the short sale at a set price. This gives you a better chance at avoiding foreclosure.
Short sales are closing all over the place. We can remember one instance where a seller had a job transfer out of state. They were short selling an FHA loan with a second mortgage. The short sale was fairly simple because FHA's short sale guidelines.
Here was how the seller benefited from the short sale:
Benefit #1: The seller was able to walk away with the debt wiped out completely. The FHA short sale guidelines released them from the first mortgage debt. The second mortgage also gave them a complete release. At first, they weren't willing to do that. But we offered them a little extra money in return for a complete release. Fortunately, they agreed to it. This meant that the seller was able to completely wipe out a total of $80,000 in upside down debt.
Benefit #2: Limited Tax Consequences. The seller will only owe taxes on approximately $30,000 of the loss. Why? Because that was around how much money was borrowed on a home equity line. The Mortgage Debt Relief Act of 2007 states that you will not owe taxes on a loss if you used that money to purchase or remodel your home.
However, if you borrowed and used the money for something else, then you would owe taxes on the loss. You would owe the money whether you short sold, or the lender foreclosed. This is only my opinion after reading the law. I recommend that you talk to a competent tax professional before making any financial decision.
Benefit #3: The will be eligible to buy another home in two years. Current Fannie Mae Rules allow homeowners to buy another home two years after a short sale. Compare that with the 5-7 year wait after a foreclosure.
Benefit #4: The sellers paid no money for the short sale. Everything was paid for by the lender. The short sale lender paid the real estate agent, title company, and all the other fees. They can look forward to getting their financial life back on track.
To anyone selling a home, we recommend you ask the buyer to write a letter about why they want to purchase the home. If you are a buyer, then write that letter. The listing agent will submit that letter along with the short sale paperwork. With a little luck that letter will help “grease the wheels” and cause the short sale to be approved faster.Short Sale negotiators are human beings.
They have emotions that can be touched by a good story. These letters might sound like a joke, but they can make a huge difference. I've even seen home owners lose money on their sale because the liked a certain buyer over another one. In that case, the seller sold their home for several thousand dollars less to a buyer that they liked. The other buyer had been rude and the seller didn’t like them.If that made a difference when the seller was losing their own money, then think about the difference it will make to a short sale negotiator who isn’t losing their own money.
Put a good story in your letter. Here are a few examples.You might say something like this:
“We are a first time home buyer looking for our first home. We just want to move out of our cramped apartment and are looking forward to our first home where we can plant a garden.” Or, maybe it would be like this: “We have looked for a while and finally found this home on Elm Street that we love. We are selling our current home so we can buy a house with a yard. Our two boys, Tim and Julian, have been begging us for a swing set. We never had room in our old condo. If you approve our short sale offer, then we will finally be able to give them the large, fenced backyard they’ve always wanted with a swing set. We’ve already picked out the swing set plan and Tim and Julian are so excited about it. So, don’t approve the short sale offer for us
, approve it for them
See how I’m pulling the negotiator’s heartstrings. Unless your short sale negotiator is absolutely heartless, it will make a difference for you. If you're thinking about a short sale, I can help you short sale your property and get back on your feet. Send me an e-mail at Ashish@EastLionInc.com
. I will contact you for a free consultation.
When we talk, I will explain how the process works in detail and answer any questions you may have. Or, if you prefer, you can call me at (818) 259-3455. You can also discover how other sellers successfully completed a short sale and request a free consultation by going to the East Lion Realty & Mortgage Facebook page
Ashish Trivedi is a Real Estate Agent at East Lion Realty & Mortgage. To contact him, his phone number is (818) 259-3455. He is also available though email: Ashish@EastLionInc.com. His homes can be viewed at the East Lion Realty & Mortgage website
. Ashish specializes in loan modification assistance and short sales in Southern California. Copyright 2011 SFI Marketing Institute, LLC. All Rights Reserved.
Under normal circumstances, banks are not required to extend the closing of a short sale. The last thing a buyer would want to hear is that their mortgage lender can't perform especially after waiting for a number of months to buy a home. For the non-short sale transaction the buyer's lender has complete control of the entire transaction and decides on the closing date. This is not the case in a short sale. Why not?
With a short sale the short sale bank usually says the short sale approval is only good for 30 days. If the sale doesn't close before that, then the short sale approval is null and void. If the buyer's lender can't meet that date, the buyer could end up losing out on the opportunity to buy the home. Even worse, the seller loses their opportunity to sell their home and avoid foreclosure. Sometimes, banks prefer to foreclose if the auction date is at hand. However, some banks under certain circumstances will extend the closing date. A short sale may be extended provided:
- It is not a Fannie Mae short sale in default.
- The bank wants to postpone the auction.
It is always advisable to close on time and not need an extension. Some lenders do not understand that the short sale closing date is not always flexible, and that they should do their best to meet that time frame. You might have to let them understand this just to try and prevent foreclosure from coming your way.
Homeowners who would prefer to get out from underwater may prefer to do a short sale compared to a loan modification. A short sale means the bank will accept a reduced payoff and release the loan. If your home is worth dramatically less than the amount owed, it might make more sense to do a short sale and be relieved of the burdened debt.
Loan Modifications are changes to your loan agreement. Your payments get more affordable, but your loan balance is not reduced in any way. In fact, many loan modifications will adjust your payment back up after 3-5 years.
Here are other factors to consider:
1. After two to three years of maintaining credit, if prices remain stable, homeowners may qualify to buy another home with a mortgage and a payment that is affordable.
2. Both a loan modification and a short sale may affect credit. But either solution is generally better than a foreclosure.
3. Most of the short sale listings I sell in my area involve sellers who were denied a loan modification.