San Diego Short Sales
What is a short sale?
A “Short Sale” is a sale of real property in which the outstanding loan balance(s) are greater than the amount that the property can be sold for. A short sale can be done before or even during the foreclosure process, after a "Notice of Default” has been filed. A short sale will stop the Trustee Sale which terminates the foreclosure process. The short sale process occurs when our negotiators negotiate with your current mortgage company to accept a discount from the amount that is currently owed on a property. Banks are in the business of lending money and not owning real estate. This is what makes a short sale such a viable option for lenders and homeowners alike. However, many homeowners are unaware of what exactly a short sale is and the benefits that will put them in a better situation. A Short Sale is a much more dignified solution then a Foreclosure. A Short Sale is also better for the homeowner for financial reasons and credit worthiness. Credit is still going to take a hit by doing the short sale, but the recovery period is much shorter.
Will I have to pay capital gains taxes if I sell a property as a short sale?No. If your bank suggested that, they are ridiculous. Capital gains would indicate that you are in some way "better off" financially because of money you have made. In a short sale, you lose and owe money.Why does the short sale process work?
Typically once a notice of default is assigned, the mortgage company will run different scenarios on your property to determine what they can get for a return on their investment. Your mortgage company takes the following 4 factors into consideration among many others:
1. The foreclosure process costs extra money.
2. They may have to make repairs on the property (especially in foreclosure situations)
3. There are carrying, holding, and maintenance costs associated with foreclosure.
4. They will have to carry property insurance on your property
These reasons will allow the bank to consider taking less that what is currently owed on a property. The lender will typically want their money now as opposed to getting the same amount of money six-twelve months from now.
We are about to buy a short sale from the bank and are wondering if the bank is responsible for ridding the house of mold or are we?
First of all, if you are buying a house from the bank, it's not a short sale. Second of all, in almost every case where there is a bank-owned property, it will be sold AS-IS. Check the verbiage of your purchase agreement with the bank (or seller). Any purchase agreement should contain a clause referencing who is liable for what. If you signed a purchase agreement that didn't reference the mold or "items required by the home inspection to be completed," then you will be liable.What are the advantages of a short sale?
You can minimize the damage to your credit: Foreclosures can remain on your credit for seven to ten years. On the other hand, a short sale will usually report as a “settled debt.” This results in significantly less damage to your credit rating. A short sale will preserve your credit more than a foreclosure and your FICO score will not be as negatively impacted. This will allow you will be able to get into a new home much sooner. Secondly, you can minimize your financial liability: In a foreclosure situation, the lender will sell the property at a significant discount once they regain control and possession of the property. The homeowner can then be financially accountable to the lender. In a short sale situation, the same financial accountability may still stand. However, in a short sale, the homeowner is still involved in the negotiation process. This involvement and contribution of input can allow the homeowner to have more control over the sale price of the property. This can reduce the potential associated liabilities.
If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?In some cases it will and in some cases it won't. It depends on the amount of the deficiency. Usually the mortgage insurance only covers a certain amount. Moreover, the lender will try to collect from you before they file a claim with the mortgage insurance company. The mortgage insurance is not there for your protection, just the lender's.When should I begin the short sale process? You should begin the short sale process as soon as you possibly can. In other words ASAP! Foreclosure proceedings tend to be extremely time sensitive and the quicker we can open negotiations with the lender and market the property the greater our chances are of negotiating a successful short sale. Whether or not you behind or on time with your payments please contact us immediately for a free consultation. This will allow us to get a head start on the negotiations. Remember, time is of the essence!We had a first and second loan and went through foreclosure. The first was paid off and we were told the second would be forgiven. Now a collection company is coming after us for the second, what do we do?The bank will never forgive one dime of debt unless it is explicitly stated in writing and you have it reviewed and confirmed by an attorney. The fact is they probably lied to you verbally. You're only recourse now is to engage in a legal dispute against them or file bankruptcy.Do I need a Realtor to represent me in a Short Sale?
If you currently are not being represented by a Realtor, we can assign a professional to you, one who is extremely knowledgeable in the details of evaluating, listing, and marketing short sale properties. As soon as we begin working together, your assigned Realtor will assist you in quickly obtaining offers on your property. With these offers, we are able to smoothly negotiate the short sale with your lender. We definitely recommend that you work with a Realtor that is knowledgeable in the distressed property segment of the real estate market.
What are the implications of unpaid judgments?Worst case scenario, your wages can be garnished.How long does the foreclosure process take?Complicated question depending on what you consider the start of the "process" to be. Generally, the Bank will record a NOD (notice of default) with your country and deliver it to you via certified mail. From that time it takes between 3-9 months for the house to go up for auction, during which, you can pay the delinquent amount to "cure" the foreclosure proceedings.Why should I allow you to represent me in my Short Sale?
The foreclosure process is very fast and extremely time sensitive. It is important that the homeowner be made aware of this fact. Our company specializes in short sales, and we are professionals. We know the short sale process because it is our business. Obtaining a short sale from the mortgage company is a very time consuming and complicated process. We are completely aware that there are other companies that work with short sales. The important thing is for the homeowner to feel comfortable with the agent they choose to sell their home. However, if the homeowner speaks with other agents it is important that they realize that the clock is ticking, and that the sale date is approaching fast.
Will I still have to pay taxes if I do a short sale?This is a broad question depending on whether we're talking about property taxes or federal income taxes. You'll always have to pay extra income tax if the bank sends you a 1099 for the deficiency. SOMEONE will always have to pay property taxes. Whether its you or the lender depends on their policies and the specific agreement you reach while negotiating the short sale. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.I owe more than my home is worth. Am I eligible for short sale or is my only option foreclosure or bankruptcy?Always consult your lender or a short sale expert as to what your options are. They are usually loan modification, short sale, deed-in-lieu of foreclosure (basically an accelerated voluntary surrender), and foreclosure. The banks like to prevent foreclosure when at all possible. They've even been known in rare cases (most loan modification get denied and never end up going through) to lower people's rates and payments because of all the new defaults in '06, '07, '08, '09 and all of the default that are on the horizon through 2013. Either way, your first stop should be to get information from you lender on what options they provide. If you do a short sale you will not have to file Bankruptcy. A bankruptcy will not remove this lien, as the bank is a secured lender with a Note and a Deed of Trust against the property. Can I do a short sale myself?
Yes. However, the process can be complicated, even if you know the right questions to ask. Obtaining a short sale approval is only part of the process. Finding someone to purchase the house at a discounted price within the allotted time span is typically the most complicated part. Lyons Realty works as your agent but ensures you obtain approval via a professional negotiator. We maintain a high level of service that homeowners and lenders can count on as part of the short sale process. We stand apart from other companies because we will always serve all parties equally in the transaction. This creates a win-win-win outcome for everybody.Does a good credit score help the seller trying to do the short sale?Your credit score will stay high as long as you don't make any late payments leading up to the short sale. Some lenders may call the deficiency a judgment though, which will hurt the score a bit.How will a short sale affect my credit?
Credit history is a very complicated issue. There are many factors that determine your credit rating. What we hope to do is to keep a full foreclosure off of your credit report.Are you able to help me repair my credit?
Yes, we are able to refer you to an expert that we highly recommend.
Where can I get information on investing in short sales and foreclosures?First of all, there is no magic listing place for short sales and most want to keep the fact condfidential. If a seller has gone to the trouble of asking their lender if they can do a short sale and the lender has given them a verbal approval, then the short sale will show up much the same as any other property for sale, only it will take you two-three times as long to close it. Foreclosure investing is a whole different ballgame. There are numerous theories, books, websites, and other forms of media, often that charge you for their knowledge. It's mostly garbage. The only real way to get a leg up in the real estate investing marketplace is to align yourself with a local real estate profession in your local area that is a true advisor not just an agent that is looking to earn a commission off of you.Is a short sale still an option if a foreclosure has taken place?By definition, no. However, if depends what you mean by "taken place" and whether you are the owner or the buyer. If you are the owner and you haven't been evicted yet, there is always a dollar amount called "cost-to-cure" that, if received by your lender, will cure you default. If you're a buyer, it's all the same to you. All you do is make an offer.How does a realtor profit from a short sale?When formally requesting a short sale commitment from the bank, realtor commissions are usually included if a realtor was involved in the deal. The bank may counteroffer to lower the commissions. Realtors can also "hunt" for short sales by talking to clients that have had their homes listed for a long time with no success. The realtor can explain the short sale process and help the owner negotiate with their lender to get it sold and the realtor gets their commission. You do not pay a fee.Will I have a higher interest rate on future mortgages or will they be harder to obtain?It all depends on the arrangement between you and the lender. If you pay them a promissory note for the deficiency, then the damage to your credit will be minimal and you shouldn't have a problem obtaining loans in the future. If the lender shows "settled for less than the amount due" on your mortgage tradeline, some future lenders will look at that as a foreclosure. Some lenders even report short sales as foreclosures. Here's what to do: Obtain, in writing, your lenders policies on short sale credit bureau reporting. Then ask American Mortgage Specialists how that affects your ability to qualify in the future. Generally, when you get a new mortgage, as long as you don't have a foreclosure, bankruptcy, or unsatisfied judgment, your ability to qualify will be the same as it is now (and your credit score needs to stay the same).I want to do a short sale and have a 2nd mortgage, does this make me ineligible?No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender. - But it does make it more difficultI hear all these great promises about loan modifications, some slick x-loan officer is asking me for an upfront fee for $3,400, should I pay it?NO! Plain and simple loan modifications don't work! If you are going to try to do one, do it yourself and don't pay anyone to do it for you. Keep in mind of your timeline. If Short Sale is your back up plan make sure you allow enough time What is a foreclosure?Foreclosure is a procedure in which the lender repossess the property securing the loan or forces the sale of the borrower's property in satisfaction of a debt. You don't want to go through foreclosure! There are many serious consequences of going through full foreclosure proceedings. Your credit will be one of the most significant consequences and it will be ruined by taking a hit by as much as a 300-400 point reduction. You will often be bombarded with phone calls at all times of the day by your lender, and you will have difficulty getting credit cards, auto loans, any financing, and even renting an apartment or another home for the next 7 years.
Do offers that exclude requests for repairs or terminate receive high priority?Again, Short-sales are “as is”. The lender on a short sale does not typically pay for repairs. The seller is experiencing a financial hardship and therefore simply cannot pay for them. The buyer that does not request repairs or termite clearance receives higher priority. The buyer has every right to perform a home inspection and we recommend that they do. Any repairs that are discovered are the responsibility of the buyer. If you are making an offer on an older property or if you feel that repairs will be required after inspection please plan accordingly by setting aside extra funds. As always if your home inspection reveals major repairs and you no longer wish to purchase the property you may walk away. VA buyers need to bid on properties that are move-in ready. Note that it is possible to receive a credit for repairs if the repair credit is coming from buyer’s maximum credit of 3%. On short-sale listings we typically have a termite inspection performed on the front end. That way we know how much of a termite issue we are dealing with. Once this is known the buyer can structure their offer accordingly.Who typically pays for the home warranty policy on a Short Sale?If such a policy is desired it will need to be a buyer charge. Lenders will pay for the majority of the escrow company’s closing fees and the owner’s title insurance policy to guarantee clear title to buyer. Upon receipt of your offer, we will review the offer and make sure that it is “lender ready” prior to submission.Who selects the escrow and title company? The Seller will select escrow and title company. Short-sales are very unique transactions and they must be handled by an experienced escrow officer and title company. We work with Mark Simonsen at Chicago Title, Ed Quinten at Stewart Title and Kachina Krafchow at Ticor Title.Can filing Bankruptcy affect my chances of qualifying for a short sale?
We are still able to negotiate a short sale if you have already filed for Bankruptcy. However, Bankruptcy is typically used only as a last resort in a foreclosure situation. We have found that filing for bankruptcy only temporarily delays the foreclosure process and ultimately the property will be sold to satisfy debts to creditors.
Is there usually a seller's concession for buyer costs? 3% of the sales price is the largest “seller credit to buyer” that lenders allow on a short sale. 3% is not guaranteed. Some lenders will issue a smaller credit. Bank Of America Home Loans (BOA) formerly Countrywide, currently only allows a seller’s concession if the buyer is using FHA or VA financing (no concession typically allowed with conventional financing). We will let you know if the seller’s lender is BOA. Please note that if there are repairs and they are being paid for from the seller’s concession it is possible for the lender to allow repairs (because these are the buyer’s funds and he can use them as desired for non-reoccurring closing costs).Is the short-sale being negotiated by a professional short-sale negotiator? Our short sale negotiators have many years of experience and are professional problem solvers. The buyer and the seller both benefit from their services and they share this fee. At the closing the buyer contributes a fee equivalent to 1 - 1.5% of the purchase price for negotiator’s work. The buyer may pay this fee from a seller’s concession if allowed by the buyer’s lender (conventional lenders allow this, FHA & VA may not). The buyer may also reduce the purchase price by 1% to pay for this service. The seller cannot receive any proceeds from the transaction, so instead he can evaluate your offer according to the guidelines that will allow the transaction to succeed (and subsequently prevent him from suffering a foreclosure).What does a perfect short sale transaction look like?Seller signs listing agreement with a real estate agent that is an expert in Short Sales, Agent markets the property and finds buyer who makes an offer for less than the amount of the mortgage, seller accepts the buyer's purchase offer, lender approves offer, and the transaction closes when the buyer delivers good funds to escrow via cash or traditional financing. The lender releases the lien and the seller delivers the deed.What are some helpful hints when buying a short sale?1. Get pre-qualified from your lender. (Know what you can afford)2. Check public records or have your agent perform a search for you.3. Hire an agent with short sale experience or that has their own short sale inventory3. Prepare the seller for lender demands by hiring a short sale negotiator (No out of pocket cost)4. Submit loan application, documentation and purchase offer to your lender once the seller has accepted your offer5. Give the seller's lender a deadline to speed up the process. (Make sure your offer includes contingencies so you are free to cancel)6. Reserve the right to conduct inspectionsWhat are some red flags I need to look for when interviewing an agent to represent me on my short sale?Do they understand the paperwork?Can they answer all of your questions?Do they LISTEN to you or are they impatient?Have they ever walked away from a short sale listing?Do they use a professional negotiator or do they TRY to do it themselves?