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Frequently Asked Questions Bayshore Properties are not lawyers, accountants or foreclosure consultants. We cannot issue advice on any of these issues. We do advise you to consult with a lawyer and/or an accountant and read all documents that you are given so you are well educated about the process, and your decision. Thank you What is a short sale? A short sale is the sale of a home when sales proceeds do not fully pay off the existing loan(s) and lender(s) accepts a discounted payoff to fully satisfy the loan. Another way to define short sale is really a pre-foreclosure sale and occurs when the lender agrees to accept less than the loan amount to avoid foreclosure. A negotiated short sale results in a discounted purchase price for the buyer. The buyer would finance the acquisition much the same as in any conventional realty acquisition...but without the luxury of time. Is a short sale right for me? Lenders are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship that makes it likely you will be unable to meet your obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through foreclosure. As you consider the option of pursuing a short sale, remember your lender is looking to limit any potential loss on your loan. By completing a short sale, your lender has arrived at a solution that is, for them, much better than a foreclosure. Bottom line, your lender wants to work with you. ***Will the bank come after me for the difference? *** California is not a deficiency judgment state, but the lender may decide to issue a 1099 for the difference of a short sale and the loan. If you are insolvent or have filed for bankruptcy, cancellation of debt income is actually only a gain on paper and is excludable from your gross income. In other words, forgiveness of debt when a taxpayer is insolvent does not create income. You are insolvent if, immediately prior to the debt reduction, your liabilities exceed the current value of your assets. But, you should consult with a tax expert or a lawyer on this because we have read that if you can prove hardship, the lender cannot come after you for the difference. Visit IRS.gov, you will find that no matter if you have a short sale done, a foreclosure, or you give up the property, you are responsible for reporting that transaction to the IRS. How much money will I receive from a short sale? None, if a lender takes a short sale on your mortgage you will not receive any funds from the sale. Your bank is going to request a signed HUD Statement from the sale. This is a federal form that works like a receipt for the sale of the property. If we were to show you receiving no money on the HUD Statement provided to the bank, and then give you money, both you and our company would be guilty of fraud. If I do a short sale, how much will I have to pay to sell my home? Nothing. In most cases you will pay literally no sales costs if your lender approves the short sale. All commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the short sale approval. We will include the *following clause in the contract. "Seller’s agreement to sell is subject to approval by existing lender of a short sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow." Remember, lenders approve short sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure. Can I simply deed my property to someone else and avoid the hassle? Deeding your property to someone without paying off the loan is nearly always a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit. Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property. Do not deed your property to someone without paying off the loan unless you have consulted with an attorney. What sort of hardship would my lender consider legitimate? To some extent, that will depend upon the lender considering the short sale request. Generally, so long as the hardship is real and the lender believes the loan is likely to become delinquent as a result, the short sale request will be processed by the Loss Mitigation Department. Below you will find the most common examples of “hardships”. ? Family illness or injury ? Illness or injury in the extended family – particularly if it forces relocation ? Job relocation when the property is equity deficient ? Job loss or significant income loss ? Divorce or split of domestic partners ? Adjustment in mortgage payment or unforeseen increase in living expenses I am current on my mortgage; will my lender consider a short sale? The answer is, maybe. Some lenders will accept a short sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent. We can put your short sale file together within a couple days and submit it for approval. (Remember, there is no charge for this). That is the best way to determine if your lender will accept a file for approval on a loan that is current. Why would a lender agree to accept a short sale? There are actually several reasons why a lender would approve a short sale payoff, including the following; Legal Concerns – Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution. Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property. Reserve Requirement- For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loans until the bad loans are resolved. I have two loans; can I still do a short sale? Yes. We can work with both lenders (many times the same lender holds the 1st and the 2nd loans) to put together a short sale transaction. Even if the value of your home is below the balance of the 1st mortgage, we can normally get the two lenders to cooperate. In the end, neither lender wants to own another home through foreclosure. Who gets paid first? IRS, FTB, property taxes, primary lender, junior lenders and then anyone who has a lien on the property. Do lenders approve all short sales? NO, that is why it is critical to work with someone that has extensive experience at getting short sales approved. From the presentation of the short sale package to the lender to working with the lenders Loss Mitigations Department, we know how to keep the file moving towards approval. I am concerned about my credit, how will a short sale affect my credit? The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event your credit status can encounter - worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit. By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly. What happens to the seller's credit rating when they allow an investor to short sell their property? What typically happens is the loan will show up as "paid" on their credit report; however there will be a notation that says "settled for less than originally owed" or something along these lines. It is more favorable for a homeowner to short sell than to have a foreclosure on their credit report. My income problem was temporary. Do I need to sell my home? You may be able to keep your home, ask your lender for forbearance. You need to convince your lender of two things: The problem that caused the mortgage payment disruption was beyond your control – illness, injury, temporary disability or forced job change are a few examples You are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount. What is a Forbearance Agreement? A Forbearance Agreement is a written agreement with your lender in which you arrange to keep your home. The agreement will normally include two primary elements: The borrower’s promise to remain current on the mortgage going forward Some plan for making up the delinquent interest and other charges. It may mean making additional payments to the lender or the delinquent amount could be added to the loan to be paid later. How do bankruptcies affect the possibility of doing a short sale? Most mortgagees won't consider a short sale if the homeowner is in bankruptcy...why? Because negotiating a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcy. How late in the pre-foreclosure process can you start a short sale? Try to allow a window of at least 75 days if not more, to allow the lender and YPC to negotiate a pre-foreclosure short sale. How long does a short sale take? It seems to be averaging a little more than 60 days What is a Due on Sale Clause? "Due on Sale" Clause (DOS) Provision in a mortgage or deed of trust calling for the total payoff of the loan balance in the event of a sale or transfer of title to the secured real property. A contract provision which authorizes the lender, at its option, to declare immediately due and payable sums secured by the lender's security instrument upon a sale of all or any part of the real property securing the loan without the lender's prior written consent. For purposes of this definition, a sale or transfer means the conveyance of real property of any right, title or interest therein, whether legal or equitable, whether voluntary or involuntary, by for deed, leasehold interest with a term greater than three years, lease-option contract or any other method of conveyance of real property interests. Standard language which states that the loan must be paid when a house is sold. Will lenders allow a short sale when the owner has some or a good amount of equity? If a property has what the lender would consider a substantial amount of equity, chances are they would consider allowing the property to foreclose and then reselling it closer to the retail value. Focus on homes that do not have much equity. Your job will be to create the equity in the home by negotiating a successful short sale. Why do banks short sale? Here are the most common reasons banks will agree to a short sale: ? The mortgage is in arrears or foreclosure. ? The property is in poor condition. ? The homeowner has hardships and cannot afford the payments. ? New homes in the area are being chosen over existing homes. ? The area or neighborhood has depreciated in value. ? The bank’s shareholders are concerned when there are too many defaulting loans on the books. ? Some banks are required to prove a loss each month…Let’s help them out! ? Some banks are required to have an amount equal to or up to six times the retail value of each REO “on hand” – ouch, that hurts! ? An REO is a liability, not asset. Too many liabilities will cause any business to go under if not dealt with quickly. Why does the short sale process work? Your lender runs different scenarios on your property to determine what they will get for a return on their investment. Your lender takes the following factors into consideration: ? The foreclosure process costs them money. ? They may have to pay realtors costs of up to 6% of the selling price of the house. ? There are holding costs involved, for example, how long will the house stay on the market? ? They may have to make repairs on the property. ? They have to carry property insurance. For these reasons, the bank is sometimes willing to take less than what is owed on a property. The question we ask is "Does the bank want their money now?" or "Do they want the same amount of money, or possibly less money, six months from now when the home goes into full foreclosure?" A bank must decide if they are willing to take the chance on a short sale. If the bank goes into foreclosure the bank incurs expenses such as lost payments, attorney fees, realtor fees and possible court costs. Can I short sale a nice property? Absolutely! As you can see banks short sale for many reasons other than the poor condition of the property. My property is in rough shape and needs work; can I still do a short sale? Absolutely, in fact, lenders are more motivated to do a short sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work. Aside from expense of completing the work, lenders are simply not set up to get the work done. They are in the loan business, not the fix- it business. Why should I, the homeowner let you do this? What makes Bayshore Properties different than other investors? The foreclosure process is very fast. It is important that the homeowner be made aware of this fact Bayshore Properties specializes in short sales, and we are professional service providers. We know the foreclosure process because it is our business. Obtaining a short sale from your lender is a very time consuming and complicated process. We are aware that there are others that work with foreclosures. The important thing is for the homeowner to feel comfortable with their decision. However, if the homeowner speaks with others it is important that they realize that the clock is ticking, and that the sale date is approaching fast. Can I do this myself? Yes. However, the process is complicated, even when you know the right questions to ask. Negotiating a short sale is only part of the process. The next part involves finding someone to "fund out", or purchase the house at a discounted price within the allotted time span. This, too, is complicated and time-consuming. What are some of my other alternatives? Our company is not a tax advisor, an attorney, or a representative of your lender. However, some of your other options are as follows; ask us for our options page for more detail. ? If you want to keep the house try these options. o Continue paying the loan & wait out the slump, refinance, personal or hard money loan, Talk to your lender about forbearance. ? If you don’t want to keep the house these are your options. o For sale by owner, deed-in-lieu of foreclosure, short sale, bankruptcy. Can I repair my credit? You can repair your credit. There are many different companies that can help you with this process. Do you have to put a sign in my front yard? Yes. We need to create interest in your property. Signs also make it easier for our investors and buyers to spot the house. IF YOU ARE INTERESTED IN OUR SHORT SALE PROGRAM CALL Bayshore Properties 510-732-2655 |
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