HAMP

Short Sale Assistance

Thinking about pursuing a short sale transaction on your house? Let’s start with what you already know.

1. You are unable to keep up with your house payment.
2. You owe more on the house than it is worth right now meaning you cannot sell it.
3. You are headed for foreclosure – You can live rent free in your house for a few months, wait out the foreclosure process, lose 200 or 300 points on your credit score, and forfeit your right to buy another house for 5 to 7 years. Maybe get hit with a deficiency in the future.
4. As an alternative to foreclosure – You can cooperate with your bank in marketing and negotiating a short sale on the home, lose about 100 points off your credit score, be eligible to buy again within 2 years, and the bank forgives your deficiency.

Now what? If foreclosure sounds like a good solution for you the first thing to do is find out if you qualify. Every scenario is different but basically to qualify for a short sale the bank is going to be looking at 4 things.

1. Home Value. You will be required to provide proof in the form of sales comparisons that the house is worth less than is owed on the mortgage.
2. Payment Status. Until recently banks would not consider a short sale until the mortgage was at least 3 months behind, but in light of today’s economy and real estate market they are open to reviewing all cases and cutting their losses to avoid more trouble down the road.
3. Seller Hardship. It is the seller’s responsibility to prove to the bank that they are unable to keep up with the mortgage AND that they are unable to pay the deficient amount if the house sells. Banks tend to understand things like job loss, divorce, illness, death, and bankruptcy. Things like adding to your family, lifestyle changes, or living outside your means are all “choices” and banks don’t tend to see those as “hardships”.
4. Assets. Sellers will have to provide income, banking,  and asset information proving that they do not have access to the cash necessary to pay the shorted amount.  If assets are discovered the seller might be denied OR required to pay the shorted amount back over time – sometimes at a discounted amount.

Documentation. Good communication and cooperation is essential to a successful short sale transaction and it begins with that phone inquiry to start the process.  Although similar, each bank has its own guidelines for its short sale process and the necessary documentation.  Between you and your real estate agent, your package should look something like this…

1. SELLER –

• 2 years tax returns with W2
• 3 months bank statements
• current monthly budgetT
• all mortgages and account numbers
• pending bankruptcy if applicable
• hardship letter
• last 30 days of payment stubs if applicable

2. REAL ESTATE AGENT -

• Letter of Authorization, signed by seller
• Letter of facts regarding the property
• Market Analysis
• Photos (remember, the idea is to project low value, not glamour)
• Copy of all showings with dates and feedback.
• Copy of listing contract.
• Copy of Purchase Contract

Of course there is always the chance that the right buyer won’t come along, but if everyone  is on their toes and does their job properly, the odds of a successful short sale transaction will be increased.  Your real estate agent can help you along the way during the process and provide any real estate market information required.

ADDITIONAL INFORMATION

Tax Consequences of short sale -Although they are forgiving the deficient amount of the loan, the lender may still have the right to issue the Seller a  1099 for the shorted amount, according to the IRS code for debt forgiveness. However, The Mortgage Forgiveness Debt Relief Act of 2007 should in most cases protect you from that. Talk with your tax attorney to be sure.

Incentives for Certain Situations In SOME circumstances a Seller may be eligible to receive a monetary incentive to complete the short sale transaction, according to the HAFA (Home Affordable Foreclosure Alternative) Program that was implemented on April 5, 2010 and will continue through December 31 2012.  In addition to potential incentives, the HAFA Program claims a quicker, cleaner transaction which will make home buyers less hesitant to pursue short sale homes.  The HAFA Program is available to homeowners who qualify for the HAMP (Home Affordable Modification Program).

Now remember, neither I nor my fellow Streeters are  accountants or bankers so make sure you refer your specific questions to the appropriate expert. We are happy to answer any real estate questions for you, though, and point you in the direction of those who have the answers when we do not. Email us, call us, chat online with us… you can almost always catch one of  us online waiting to help you.