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Should I Short Sale My Home?

Should I Short Sale My Home?

Thinking about short selling your house but worried about your credit? Don’t worry! Millions of people just like you are thinking about the same thing. Nobody knows for sure what the future holds but we can make some educated guesses from past experiences.

Let’s begin with this: Every lending situation is unique and we cannot recommend which decision is best for you. We will supply you with information, facts, our opinions and our educated guesses. Your job is to weigh all the information you have, check with your accountant or attorney if necessary and make the best decision that fits your situation.

I can’t afford my payment…

If you can’t afford your payment and the loan modification was not successful, or did not lower your payment enough, then the only remaining options are short sale, deed in lieu and foreclosure. If this is the case, contact us immediately, we can help you with this situation before it’s too late.

 

My house dropped in value and my payment has gone up or stayed the same…

There is a new phenomenon that has recently taken place across the nation. Many homeowners are making an economic decision by looking at their options because their home value has dropped beyond any hope of a foreseeable comeback. In this market, homeowners must educate themselves as to what the different options are before making a decision to short sale the home. The options are as follows: Do Nothing – If a homeowner does nothing, they most likely will lose their home at foreclosure auction. Credit report issues, tax ramifications and deficiency judgments may apply. (State Specific) Payoff/Refinance/Short Refinance – Completely paying off the entire loan amount plus any default amount and fees. Usually this is accomplished through a refinance of the debt. With properties worth less than what is owed, you must negotiate with the bank to take less than what is owed. You must not be late on payments & qualify for a new loan. In today’s market, you may qualify for the HARP Government program but you must have a Freddie Mac or Fannie Mae loan.

 

Will a short sale hurt my credit?

Short sales affect credit differently depending on the types of hits your credit actually takes. Homeowners that continue to make all the payments and keep the rest of their financial picture solid wouldn’t be as affected as a homeowner that has stopped making payments and now has the repercussions of a 30/60/90 days late on their credit. Remember each situation is unique.

How much is my credit worth?

This is a personal question you must ask yourself. If your home is upside down $200,000 and you make $50,000 dollars a year, is it worth it to wait for your home to regain value or is it better to take the hit for a couple of years? Another way to look at it is to determine how much the difference your loan amount is over the value. Then you must decide if it is worth having credit issues for a period of time, paying the higher payment or is it cost effective to save the money on lower rent and use the extra cash for what used to be purchased with credit. Your credit will come back but will the value of your house?


If I am going to short sell, is it probably better to do it sooner than later?

This is a personal decision, but if millions of people are in default, it would probably make the most sense to weigh all the options sooner rather than later. You may have missed an opportunity to get head start on special programs.

Will I have tax ramifications or deficiency judgments to deal with after a short sale?

Again, each situation has its own fingerprint and some are even state specific. Regarding taxes, the best thing to do is consult with your tax attorney or CPA to determine how this will affect your personal situation. Ask them if you:

  • Qualify for the Mortgage Debt Relief Act of 2007
  • Can file debt cancellation for the 1099C that the bank sent you
  • Qualify for insolvency. Tax Form 982
  • Or if you do not qualify for any tax relief can they negotiate with the IRS for a payment plan or full payoff if you pay a lump sum of pennies on the dollar of what is owed. Ex: Tax Masters


Again consult your tax advisorfor advice regarding your personal situation. This also applies to any deficiency judgments. This is very state to state specific. Please consult an attorney regarding your state laws on deficiency judgments and ask them what your options are.

Fannie Mae
1-800-7FANNIE (8am to 8pm EST Mon.-Fri.).
www.fanniemae.com/loanlookup

Freddie Mac
1-800-FREDDIE (8am to 8pm EST Mon.-Fri.)
www.freddiemac.com/mymortgage


Industry Terms & Definitions

Reinstatement – Paying the entire default amount plus interest, attorney fees, late fees, taxes & missed payments.

Loan Modification – Utilizing the existing mortgage company to extend the terms of the loan by negotiating changes in interest and/or principle. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment. You may also be eligible for the HAMP government program as well if you have a loan with Fannie Mae or Freddie Mac.

Forbearance – Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.

Partial Claim – A loan from the lender for a 2nd loan to include back payments, costs and fees.

Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current. Most loan applicants ask if this has ever happened.

Bankruptcy – This option can liquidate debt and/or allow more time. We can refer you to a qualified bankruptcy attorney.

– Chapter 7 (Liquidation) To completely settle personal debt.
– Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.
– Chapter 11 (Business Reorganization) A business debt solution.

Sale/Short Sale – Straight Sale applies if the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is MORE than the property’s value.

Foreclosure – is always the very last option. Remember, the bank does not want to foreclose on you and would rather work something out.

What Resources are available for homeowners?



Beware of Foreclosure Rescue Scams

  • Scam artists are targeting struggling homeowners and are anxious to sell their homes
  • Beware of anyone who isn’t an attorney who asks for upfront money to work process modifications
  • Beware of people who pressure you into signing docs immediately or who try to convince you that they can "save” your home if you sign or transfer over the deed of your house.
  • Do not EVER sign the deed of your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt and you have a commitment letter from the bank stating the approval of the transfer.
  • Never make a mortgage payment to anyone other than your mortgage company without their written approval.

 

REPORT These issues to HUD right away: 1-800-669-9777