On the fence about doing a Short Sale? Read this Article from the Wall Street Journal
Underwater On Your Mortgage Or Just Can’t Pay? Know Your Options!
1. Understand loan modifications: If you are barely underwater on your home, this route may work, if you are 20% or more upside down, go directly to a short sale. Chances are it will take DECADES to break even on your home. Banks are NOT willing to do “principal reductions” (principal is the amount you owe). However, they may be willing to reduce your interest rate in order to get a lower payment. BE CAREFUL: think smart about your financial future when modifying a loan on a home that is worth considerably less than you owe. UPDATE: Only 69,000 homeowners in the entire United States have received a permanent loan modification by the end of January 2010! IN ADDITION: 70% of modifications end up with a HIGHER monthly payment than before. Go to step two.
2. Short Sale: When a loan modification will not work, or you just need to get out of the house all together, do a short sale. The short sale process takes about three to six months. You will need me, who has the specialized knowledge and processes needed to complete short sales. (My team includes very experienced and dedicated staff and a local MN short sale attorney’s office that negotiates with the bank on your behalf).
3. Deed in Lieu of Foreclosure: If you just can’t sell the house or condo, offer to deed the house back to the bank. This is your last, best bet before a Foreclosure. In order to deed the house back to the bank there can be no second mortgages or other liens on the property. The bank may not want it and instead will want you to continue trying to Short Sale. Typically the bank will want you to have listed the property with a MN short sale real estate agent for at least 90 days on the Minneapolis Multiple Listing Service (MLS). I have had several customers who have attempted to deed back to the bank and the bank just responded with “Lower the price another $10,000 and call us back in 60 days”. We did, and the bank gave us the same response again 60 days later. The bank does not want your property and would rather you participate in a MN short sale. A deed in lieu of foreclosure will hit your credit harder than a Short Sale.
4. Foreclosure: At some point of not making payments long enough and not getting a purchase agreement on the home, the bank will probably decide to move forward with their right to take the home back through a foreclosure. If you are “served” papers, you still have time to sell the home…you may complete a affidavit that will post pone the foreclosure sale for five months. If you list your property and find a buyer, most lenders will automatically postpone the foreclosure sale. However, you should not walk away or wait any longer to get the home on the market. The quicker we can get involved and get the home under contract with a new buyer, the faster we can stall a foreclosure by completing a fast MN short sale.
Qualify for a Short Sale
Banks are not willing to take a loss on their investment unless you qualify for a MN short sale.
1. The market value of the property has dropped: The home is worth less than the unpaid balance of the mortgage. The only way to know this is to look at the recent closed transactions of properties around your home. Recent is within the last 6 months. A true value is determined by what someone else is willing to pay for the home, however a MN short sale real estate agent or appraiser can give you a good determination of value.
2. In default or near default: Lenders are all over the board on this one. Some require you to be late on payments, some do not care, and some will tell you something different every day that you call. The bottom line, if you can’t pay, you can’t pay. If you can pay and it’s very tight, it’s your own personal decision to keep paying or to stop paying the mortgage. Ask our MN Short Sale attorney his legal opinion on this issue.
3. Seller has no significant assets: Rarely will a bank allow a short sale and take a loss on the investment if you have a load of cash sitting in the bank. Clarification: If you have a million in retirement funds, do not to worry, but if you have $50k+ sitting in the bank? They could ask for some of that cash to cover the difference. What if you have $10k in the bank? $10k is living expenses, just in case money, emergency money – banks will be much more likely to hear your hardship situation and not ask for any of that money.
4. Seller hardship: The Seller must have a current or imminent hardship. The banks want this in a letter and you need to be legitimate and truthful.
Examples of a Hardship:
The following is a non-exclusive list of hardships that a Lender or Lien holder may take into account when deciding whether to accept a short sale:
• Unemployment or loss of income
• Reduction of income
• Increase in household expenses (long term)
• Divorce or separation
• Medical emergency / sudden illness
• Bankruptcy
• Death of spouse or death of co-borrower
• Short or long term disability
• Adjustable rate mortgage reset
• Failed business
• Job relocation
• Military duty
• Medical bills
A few examples that DO NOT constitute a hardship:
• Don’t like your home
• Don’t like your neighbors
• Buying another home (with the same or greater mortgage payment)
• House is haunted
• Moving just because
The bank will ask for these documents with your short sale application:
• Hardship letter (here is a good example)
• 3 months most recent bank statements
• 3 months most recent pay stubs
• Last two years tax returns (or extension requests)
• Listing agreement with a real estate office
• HUD-1 Net sheet (this is used at closing to show how the sale proceeds are distributed)
• 6 month profit and loss statement (if you are self employed)
The bank needs the above items to verify that you qualify for a short sale. The bank will continue to request updated short sale documents throughout the short sale process. As it turns out, it is harder to get out of a mortgage than it was to get into one back in the days of easy mortgages! Do not get frustrated, just remember there is a good amount of paperwork push involved and the attorney’s office can help you with this.
Steps to Short Sale your Minneapolis, MN Home
1. Contact me You may set up an inital consultation over the phone or in person. I will review ALL of the options that are available to you (including loan modification, short sale, deed-in-lieu, and foreclosure, etc.). Conference calls are generally a great way to do this.2. Meet with me: Let’s get started. I will a give you the short sale application(s) specific to your lender(s) so you can start getting together the paperwork. We will sign a listing agreement at this time and get the property on the market. I do not charge any upfront fees to list the property. If a point of sale inspection, well or sewer system inspections are required by law, you will need to pay for these inspections. Your lender will allow my commission and your closing costs to be paid out of sale proceeds.
3. Meet with the attorney: The attorney will contact you to set up an appointment to review your situation. There are no fees charged to sellers who are selling a primary residence. Sellers of investment properties pay a $250 up front fee. The attorney’s office will negotiate the terms of the short sale for your maximum benefit. Your lender will pay the attorney fees out of sale proceeds.
4. Marketing the Property: We start marketing the property for sale. This period will take time even with a low price. Keep the home looking good and the yard in good shape for curb appeal. We are competing to sell the home against all the other short sales and bank owned homes so it is important to understand that we still must attract a buyer.
5. Under Contract: We get an offer that is realistic that we believe the bank will consider. I will review all offers with you and suggest that we accept, reject or counter any offer. We sign the purchase agreement with an addendum stating that the offer is contingent to the lender’s approval.
6. TIME: It takes about two to four months for the offer to be approved. Bank of America (Countrywide) has been the slowest however; they now have a new system called EQUATOR that has significantly sped up the process. Most banks are hitting 60 days or more to give us an approval and clear to close letter. Do not try to reason as to why yours should/will close faster…..it will not. Banks are flooded with short sale applications and are struggling to handle the volume.
7. Closing: We finally got the approval; we will typically close within 30 to 60 days after short sale approval is received from your lenders. You should not have to pay for anything at closing. In some cases your lender will allow you to have $1,000 to $3,000 of the sale proceeds. All realtor fees, attorney fees, closing fees, etc are paid from the proceeds of the sale. The remaining sale proceeds go to your lenders to settle your mortgage debt.
Deficiency Judgment:
What is a deficiency judgment? This is the legal ability of a bank to get a judgment against you for the difference of what is owed and what the home is sold for. That is why it is important that your lender agree to consider the remaining debt settled in exchange for the proceeds of the short sale. What are the chances of getting a deficiency judgment? Small banks and credit unions will typically pursue the remaining debt via the legal system if you do not reach a settlement with them. Typically a settlement can be reached by agreeing to bring some cash to closing or signing a promissory note for a portion of the remaining debt.
Choosing A MN Short Sale Real Estate Agent
How do you choose the right real estate agent for your short sale? Don’t choose your best buddy, don’t choose your mom’s friend, don’t choose anyone unless they have a TEAM of highly experienced professionals that can complete the process and the sale. BEWARE! Most Realtors do not want to do short sales (and they can really screw up your short sale and finances). Most haven’t done a short sale and have no idea how to go about it other than what they have “heard” (this includes taking a class). From my experience, it takes time, persistence, and a large amount of specialized knowledge to make it all work. I have since put together a short sale team including a local attorney’s office who works on your behalf to negotiate with the bank. We keep up with the ever-changing world of short sales and keep perfecting our processes to better complete each sale. This costs you nothing and should give you ultimate peace of mind knowing you have a competent and professional team working on your behalf.
Buying Another Home
Can you buy another home after a Short Sale? Yes, just not right now. Regardless of your situation, the bank has to approve your short sale. If they let you out of your loan, it will probably be hard to obtain a mortgage for awhile. Look to purchase again in 12 to 18 months. I’ve heard of much sooner and I’ve heard 24 months, but most lenders will consider you eligible again in about 12 + months. Keep paying your bills on time, save some cash in the time being, and you will greatly increase your odds of being able to obtain a mortgage. I will also recommend that you consult with a credit repair specialist who will help you repair negative credit items and improve your overall credit score.
Where To Live After A MN Short Sale
There are more houses than ever available for rent in Minneapolis and the surrounding areas. Many are vacant and never lived in. Many people end up in nicer houses than the ones they sold….for less money. It is easy to start the search, and you may consider looking on Craigslist.com. Keep your budget in check and do not be scared to negotiate the right rental terms. Save some cash, keep paying your bills on time, pay down any other debts, and get ready to buy a home at today’s market value!
What Happens to Your Credit Score?
Will your credit be affected by a short sale? Yes, absolutely. Stop paying the mortgage = negative credit hit. Short Sale = negative credit hit. No way around it, but if you are reading this, you probably could care less at this point. The good news, your credit will bounce back if you keep paying all your other bills and debts on time.
Your Cost For Doing a MN Short Sale
You, the seller, have only a few out of pocket fees; any point of sale inspection fees, well and/or sewer system inspection fees will need to be paid by you. The Realtor fees, closing fees, attorney fees, etc are paid out of the proceeds from the sale. If you have more than one loan….all lenders will agree to take a portion of the sale proceeds for lien release. You typically cannot receive anything from the sale regardless of how much money you poured into the house. If you have an FHA mortgage or qualify for HAFA then you may receive $1,000 to $3,000 of the sale proceeds.
Will Your Neighbors Know You Are Doing a MN Short Sale?
Yes. It is almost impossible to keep it hidden as anyone with a brain can figure it out. Realistically, many of your neighbors are most likely considering doing the same if they are upside down in the value of their homes. In addition, it is in the MLS (Multiple Listing Service) that the sale is a Short Sale so every Realtor and potential buyer will know…..which ultimately will attract more buyers as they know they can buy the home for a slight discount.
Short Sale TIP: Do not wait! If you think you are in the position of needing to short sale your home, call me immediately and I can set up a free consultation at the attorney’s office.
