AVOIDING FORECLOSURE:   SHORT SALES

Have you missed a mortgage payment..or are you about to?
Are you already in the foreclosure process?
Are you financially overwhelmed and don’t know what to do?

A short sale may be a solution for you.

What is a “Short Sale”?
In brief, a short sale is when a homeowner owes more on their property than the property is worth and does not have the financial ability to make up the difference and the bank agrees to accept an amount less than what the homeowner owes when the home is sold.
 
A number of life circumstances – divorce, family tragedy, illness, career change, loss of job – can cause a homeowner to fall behind on their mortgage payments.  Sometimes it is simply that the mortgage payments on an adjustable rate mortgage have reached a point that the homeowner can no longer afford them.
 
The objective of the short sale is to get the property sold and for the homeowner to avoid a foreclosure on their record which is devastating to their credit and the lender to avoid the foreclosure process and associated expenses.

How do I qualify for a Short Sale?
If you have missed a mortgage payment as a result of a demonstrable financial hardship, and If your monthly expenses exceed your monthly  income, and if the balance owed on  your mortgage(s) exceed the market value of your home, and you have no other assets that you can use to pay off the mortgage(s) upon sale, then you likely will qualify for a Short Sale.

Benefits of a Short Sale
Compared to a foreclosure, there are a number of benefits to the short sale home seller. 
 
Your Credit     A foreclosure will lower your credit score from 250 to over 300 points affecting your credit score for over 3 years and will remain on your credit history for 10 years or more.  A short sale will lower your credit score by as little as 50 points affecting your credit score for as little as 12 to 18 months and is not reported on your credit history.
Future Mortgage Loans   With a foreclosure the interest rate you receive on future mortgage loans will be affected for a period of 7 years and you are ineligible for a Fannie Mae loan for 5 years after the foreclosure. There is no similar impact on your mortgage interest rate with a short sale and you are eligible for a Fannie Mae loan after 2 years.
Current & Future Employment   Foreclosure’s appear on credit reports and may negatively impact current or future employment.  A short sale is not reported on a credit report and therefore is not a challenge to employment.
Security Clearances     Outside of conviction of a serious misdemeanor or felony, a foreclosure is the most challenging issue against a security clearance.  If a person has a foreclosure, in almost all cases the security clearance will be revoked and the position terminated.  A short sale on its own does not challenge most security clearances.
Credit Cards / Other Loans   With a foreclosure on your record it is very difficult to obtain other consumer loans such as auto loans and almost impossible to obtain a credit card.  A short sale does not have the same consequences as it is not reported on your credit report.
Deficiency Judgment   In a foreclosure, the mortgage lender has the right to pursue a deficiency judgment against the homeowner for the amount of the mortgage that is not paid.  Often times the house sells for less after it has been foreclosed than if it had been sold subject to a short sale approval resulting in a higher deficiency judgment against the homeowner.  In some short sales it is possible to convince the mortgage lender to give up the right to pursue a deficiency judgment against the homeowner.

Basic Foreclosure Process
There is a common misconception that once a homeowner misses a payment he is immediately in danger of foreclosure. The reality is that foreclosure is a legal process that a mortgage lender must go through in order to take possession of the property.  The basic process is as follows.
 
Missed Payment(s)/Collection Efforts   The homeowner must miss a mortgage payment, a real estate tax payment, or a home owners’ association payment to be in default.  A homeowner is considered to have truly missed a payment 30 days after the expiration of the “grace period” (the period of time in which a payment can be made without the payment being considered late).  Sometimes it takes a number of missed payments before the homeowner will receive a call from the mortgage lender to collect the payments or work out a payment plan.  If the homeowner can afford to make up the payments with a payment plan then we always recommend this option.  The homeowner must understand that the payments to be made up will be in addition to the regular mortgage payments.
Legal Notice of Default   The mortgage lender or foreclosing party must notify the homeowner that they have defaulted on mortgage by missing a payment.   This may occur between 45 and 60 days after the missed payment. The notice can be delivered as soon as the first payment is missed or it could take several missed payments before the notice is served on the homeowner.   The mortgage lender can also take steps to protect the property by changing locks etc. if they deem that the property has been abandoned.
Legal Notice of Foreclosure (Summons & Complaint)   90 days after the legal Notice of Default the mortgage lender can serve the homeowner with a summons and complaint which is a law suit to allow the lender to gain title to the property. This is the commencement of the foreclosure action which can take between 6 and 12 months to complete. 
Notice of Bank Sale or Auction Date    This notice is sent at the conclusion of the foreclosure action. The homeowner is informed that the property will be offered for sale in a bank sale or auction, usually held at the county courthouse in which the property is located on a specific date.  The sale usually occurs between 4 and 6 weeks after the Notice of Sale or Auction Date is set. It is at this sale that the mortgage lender gains control of the property.  Once the mortgage lender has gained control of the property, they usually list the property with a real estate broker that specializes in selling bank owned properties.

Income Tax Consequences
Prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007, any debt forgiven in a short sale or foreclosure would have to be reported as income.  As a result of the passage of this law there are some debt forgiveness situations that are not subject to federal income tax. Generally to qualify, the debt can be up to $2,000,000 and must have been used to acquire (not improve) a primary residence.  It is necessary to consult a tax professional on this matter.

Why Fraida Varah Real Estate Group
Successfully completing a short sale is a challenging endeavor and only a few Realtors in the country have any training or experience in negotiating short sales.  In order for a short sale to have any chance of success, the Realtor handling the listing must understand how a short sale proposal is evaluated by the mortgage lender and must be able to provide sufficiently convincing documentation to the mortgage lender so that they will approve the transaction.
 
One of the principals of Fraida Varah Real Estate Group is a Certified Distressed Property Expert (CDPE), the professional designation awarded by the Distressed Property Institute.  CDPE’s have successfully negotiated thousands of short sales all across the country.
 
To find out if you qualify for a Short Sale transaction, contact Tony Garufi, CDPE, at Fraida Varah Real Estate Group by phone 438-9302 or email: tony@fraida.com.