SHORT SALE NEGOTIATION

A short sale usually occurs when a home-owner is in foreclosure but before the property goes to public auction.

Under a short sale, a lender must agree to accept less than the amount that is owed on the property.

What is a Short Sale?

NO!  

This is a common mistake and Sellers do not need to be in default for a short sale to occur.

Is Default Necessary?

Full disclosure of your current financial situation. Hardship letter. Last 2 paystubs for all working borrowers,

including any benefits you may be receiving. Last 2 years tax returns. Last 2 months bank statements. Last 6 months of Profit and Loss statement (if self

employed) Authorization to disclose personal information.

Understanding the Short Sale Process?

The sadder, the better. This statement of facts describes how you

got into this financial bind and makes a plea to the lender to accept less than full payment.

Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.

Hardship Letter

Lenders typically do not want to disclose any of your personal information without written authorization to do so.

If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan.

This process can sometimes be a long one so calling the lender personally and stating that ABC company is able to view your account can help shed a few days when necessary and directed by your negotiator

What is the Letter of Authorization Used For?

Most importantly once this process is began neither you or your client should be communicating with the mortgage company.

Should they call you, inform them you have a third party agent handling this transaction and they should speak with us from here on out.

 

Point of Information

NO!

Problems with Loan Modifications:

Primary Residences Only

Banks are not required to reduce the principal balance of a loan therefore the chances of the loan modification become highly unlikely for residents of South Florida to qualify.

Should you request a Loan Modification prior to Short Sale?

Every borrower must be gainfully employed

The income must be verified

No assets can be shown in your bank account

A SHORT SALE WILL give the owner a FRESH START!!!!!!!!

More Problems:

What is the Impact on your Credit?

How much will the Sellers credit score change in a foreclosure compared to a short sale?

Answer: 200 to 300 points for both – There is no credit score advantage to a short sale or a foreclosure.

 Short Sale Compared to Foreclosure:

Fannie Mae and Freddie Mac have set guidelines and the advantage is being able to buy another home within (2) two years after a short sale and a three- to five-year period after a foreclosure.

FHA Loans

Also, a Borrower is not eligible for an FHA mortgage if a previous residence went into foreclosure within the most previous 3 years.

 Short Sale does have one key advantage:

Although their credit may be trashed, there are always ways to get around getting back into a nice house in a nice neighborhood. Having an opportunity for that scenario is the kind of FRESH START most people look for.

Example: Buy via a lease with an option to buy. This is the quickest way for them to get back into the ranks of homeownership.

Example: When you consider now how many houses are on the market, there are many property owners who are competing with the flood of foreclosures, and offering owner/seller financing just to get out of their houses.

 Opportunities

When a Short Sale occurs you will have a SATISFIED Judgment

And, after a foreclosure the banks have a right to a DEFICIENCY Judgment

 Short Sale vs. Foreclosure: Financial Effects

A deficiency judgment is an option available to the lender if the foreclosure sale did not produce sufficient funds to pay the mortgage in full.

Example: › The unpaid mortgage is $100,000; › The foreclosure only produced $80,000; › The lender can then file suit for the $20,000 shortage

from the borrower in order to satisfy the remaining debt.

  There is NEVER a deficiency judgment in a short

sale

 What is a Deficiency Judgment?

Tax Implications:

Example: The unpaid mortgage is $100,000; The fair market value of the property is $80,000;

Assume that the creditor accepts a short sale on the property at $80,000

The mortgage is then released but $100,000 (Mortgage) less $80,000 (sale price) leaves a $20,000 excess that the seller would then have to take as income.

This income would be realized even though the taxpayer received no "cash" at the time of the discharge.

 Are there any NEGATIVE Effects to a Short sale?

In some cases, the lender will require the borrower to sign a promissory note at the closing.

Defined: A written document in which the borrower agrees (promises) to pay back money to a lender according to specified terms at a future time, unconditionally.

 Promissory Note

YES!!

Alternatives for Primary Residences:

Mortgage Forgiveness Debt Relief Act of 2007

This ACT generally allows taxpayers to exclude income from the discharge of debt on their principal residence ONLY.

Known as The Qualified Principal Residence Indebtedness: › The maximum amount of forgiveness is 2 Million and 1

Million if married filing.

 Can the borrower avoid the Tax Implications?

How Long will this Act be in effect?  This provision applies to debt forgiven in calendar

years 2007 through 2012

 Tax Implications Continued

YES!!

 Can the borrower avoid paying the Promissory Note?

If the lender agrees to release the mortgage from the property and the borrower signs the promissory note, it becomes an unsecured debt.

What is an Unsecured Debt?Simply, a loan not secured by an underlying

asset or collateral.

  How?

In a typical bankruptcy case most, if not all, of your unsecured debt will be canceled when your case is discharged, allowing you a financial fresh start.

However, some of your property might be sold, or liquidated, to pay off some unsecured debts.

But, some property cannot be sold to pay your unsecured debt, and this usually includes your home, your car, and any other property you have that is collateral for a loan.

  The only answer at this stage is Bankruptcy.

Investor 1: Short Sells his investment property and signs a promissory note to Lender for $50,000. Investor then files for Bankruptcy. Lender wants Bankruptcy Court to force Investor sell his family home to pay debt.

This will not be allowed by The Bankruptcy Court.

 Example: