This Way To Debt

Short Sale Strategies and Overview

Tips on selling your home short of foreclosure

This information is a general overview and guideline and is not necessarily state specific.

This information is distributed with the understanding that the writer is not rendering any legal or professional services.  Mortgage professionals developed this manual, however it should not be used as a substitute for legal advice.  If legal or other professional advice is required, these services should be retained.

Any federal tax discussion contained in this written communication is not intended to be used and cannot be used for the purpose of avoiding federal tax penalties imposed by the federal government or promoting, marketing or recommending to another party any tax related matters.

Table of Contents

1. Current Economic Times

1. What is a short sale?

1. Parties involved in the short sale process

1. Short sale basics

1. Getting Started

1. Manage expectations and timelines

1. The paper intensive process

1. Lender Guidelines

1. Prepare HUD-1/Settlement sheet and send to lender

1. What is a BPO?

1. Patience and follow up

1. Approval letters and parameters

1. Short sale deficiency balances

1. Professionalism and ethics

1.  Current Economic Times

Due to years of aggressive lending in the prime and sub-prime markets, the mortgage industry and banks have suffered serious losses.   Americans generally spend aggressively; it has become the American way.  This aggressive borrowing mentality combined with aggressive lending and a decline in the housing market has led to the “perfect storm”.  Many financial institutions are faced with hundreds of thousands of over-valued homes and millions of loans facing foreclosure and serious credit losses.

Many borrowers made decisions to continue to refinance their homes in order to finance their current lifestyles.  Now borrowers must face the fact that if they are experiencing financial hardship, they must work to rid themselves of their over-mortgaged property.  That is where a short sale comes into play.  Selling a home through a short sale is not an easy or quick venture.  It can be frustrating and overwhelming for all parties involved.

This guide is an easy overview that can help assist and guide individuals in the process of a short sale.  By investing a small amount of time in reading the material enclosed, it will lead to better negotiations and a more easy path towards completing a successful short sale.  Ridding oneself of over-mortgaged property can be a relief and can help turn the page on a new tomorrow.

Lenders open their eyes to the current crisis

• Home values are on the decline
• Adjustable rate mortgages reset causing increased delinquency
• Real Estate inventory increases across the country
• Home values are decreasing at alarming rates
• Homeowners are stuck

Banks are willing to negotiate.  Contrary to popular belief banks are not in the market of owning homes.  In reality when banks take properties through foreclosure and into inventory they lose up to 60% of their loan balance.  This amounts to large losses and is incentive for banks to entertain short sales.

2.  What is a Short Sale?

A short sale is an approved sale of a property for less than the full payoff on the loan.  Generally, a short sale is used when a borrower cannot afford to maintain payments on the property due to financial hardship.  The funds accepted by the lender are “short” of what is owed.

Many borrowers make the mistake in not realizing that there are numerous arrangements or verbiage placed in acceptance letters regarding the deficiency amount.  The deficiency is the amount that is left over after the short sale is accepted.  This booklet will give you valuable information to negotiate properly during the short sale process.

Most lenders have departments that handle their short sale negotiations.  These departments go by a variety of different names depending on the institution.  The most common names are Loss Mitigation, Workout Team or Homeowner Assistance Group.

It was customary within the last few years that many Loss Mitigation or Workout Teams would not entertain a short sale if the loan were current.  Often times it was a pre-requisite for the loan to be 90 days delinquent.  However, tough economic times have forced many lenders to become much more pro-active in mitigating potential losses.  Most lenders will review short sales even when the customer is not delinquent.  Some lenders still resign to the fact that the customer must be delinquent in order to sell their home to a short sale, “borrowers beware” of these lenders.  A short sale can be a tough road and may even require the loan to fall delinquent prior to moving into short sale negotiations.

3.  Parties involved in the short sale process

• Lenders accepting a short sale- this includes any lender which holds interest in the property
• Third Parties- includes Homeowners Associates, judgment lien holders and the local property tax office.  All of these entities must be involved in the short sale process in order to “clear title” and negotiate properly
• Seller/Borrower
• Purchaser
• Funding Lender – this includes a loan officer or broker
• Loss Mitigators – the representative at the lending institution that will negotiating the deal and providing approval and acceptance letters
• Real Estate Agent – this is two part, due to the fact that most real estate sales have both a buyer and seller agent
• Closing Attorney/ Title or Settlement Agent- the closing agent will be facilitating the short sale transaction until funding

For the coordination of a successful and timely short sale transaction, it is important to remember the entire cast of characters involved.  Communication is essential in the proper coordination of a short sale.

There are even some companies or third party negotiators that take on the task of coordination of a short sale.  However, these companies complete the job at a cost to the consumer.  By following this easy guide, borrowers can negotiate their own successful short sale, potentially saving thousands in costs paid to third party companies.

1. 4. Short Sale Basics

There are several key factors that are important to remember when working on a Short Sale.

-The lender does not have to agree to a short sale, it is a voluntary agreement.

-The borrower has no rights to a Short Sale.

-A Short Sale is an optimal alternative to foreclosure action

-A Short Sale presumes an arm length’s purchase transaction of the property by a third party purchaser

-Seller/borrower will not receive cash at closing

-Realtor commission or any fees involved will be negotiated or reduced

-Sellers will not be retaining the property

Banks accept Short Sales for a variety of reasons.  Banks generally get more money from a short sale that by completing foreclosure and selling the property through the lender’s REO (Real Estate Owned) Department.

Foreclosure actions can be costly averaging $3,000+ to complete.  Not to mention the cost in property preservation and resale expense of marketing the home as a “bank owned property”.  Banks generally market their homes in “as is” condition with no representations or warranties, which drastically affects the overall sale price of the home.

All parties included below complete work during the short sale process:

• The Seller or Borrower
• The Real Estate Agents
• The new home buyer
• The Lender
• The Closing Attorney/Settlement Agent

Short sale negotiations requires a variety of skills including title clearance, brokerage, technical, paralegal and legal work.  However, the lender and closing title agent will facilitate most of the work for you, with no out of pocket to you.  Do not pay attorneys or short sale companies thousands of dollars; with a little knowledge consumers can maneuver through the process free of charge.

1. 5. Getting Started

It is important to know the value of your home prior to listing it with a realtor.  Obtaining a market analysis is a good way to start and is generally done for free by a realtor.  This will provide a good starting point in determining what the property is worth.

Secondly, order payoff quotes from your first and second mortgages.  At this point you will have an estimate of how much the property will sell for versus how much is owed on the property.  If your information indicates you will not have enough to pay off the property immediately call your lenders.

Most lending institutions have departments that specifically handle short sales and they can guide you through the process free of charge.  These department names vary depending on the lending institution.  However, many are referred to as Loss Mitigation, Homeowner’s Assistance Department or Workout Group, these groups can help you.

When making contact with the lender advise them that you need to open a file for a possible short sale and request a list of information required.

Most lenders require that you complete a financial hardship application.  This may sound difficult, however it is simply a list of your monthly expenses versus your monthly income.  It is important to show little to no means to pay in order to complete a successful short sale.  Beware, that most lenders pull a credit report to validate the information.  Please be as thorough as possible.  In most financial applications you must also include monthly expenses such as groceries, utilities, insurance, childcare and medical expenses.  This contributes to your full financial picture.  Please make sure you provide a thorough picture of your financial situation.

6.  Manage Expectations and Guidelines

Short sales may take a long time, often times you do not know how long it will take.  Depending on the lender it can take 1-2 weeks, which would be quick turnaround time.  Some lenders are so overwhelmed with the current economy that it can take 8-12 weeks for someone to review your file or your current offer.

There are no guarantees that a short sale offer will work out.  The house may still go into foreclosure.  It really depends on how willing the lender is to work out an agreement.

Also, it is important to work with your listing realtor.  Any offers from potential buyers, should be advised of the time constraints in receiving acceptance.  It is IMPORTANT to make sure when all offers are received it is clearly stated that they are “subject to bank approval”.  Any offers requiring 24-48 hour response need to be advised that the response time is dependent on the bank.  Generally formal short sale offers need to leave open time limits for acceptances and counter offers.  Buyers need to be aware of this guideline to avoid disappointment and in order not to anger potential buyers.

7.  The paper intensive process

After the offer on the property is received now the work begins in getting the paperwork together.  Attached is a list of items that may be required- all lenders have slightly different requirements, so check with your lender first.  This list will provide a good overview.

Paperwork Needed

• Authorization to release information – this is required so the lender can work directly with the realtor and title company.  This will help in keeping you out of the day to day and allowing these individuals to do the work for you.
• Listing Agreement- initial property listing agreement
• Purchase and Sale Agreement
• Hardship Letter- letter explaining her financial situation, which led to making the short sale necessary.  Usually describes things that are beyond the customer’s control, including illness, death in the family, adjustable rate loan or job loss.  This letter can be handwritten and is no more than one page in length and should be a polite request for assistance.  The most important message should be conveyed that the customer does not have the ability to maintain payments going forward.  A well-written hardship letter can help alleviate many unrealistic requests later in the process.
• Financial Statement or Packet – A form generally supplied by the lender which details your income and expenses
• Recent 401K, Investment or IRA Statements – required for all borrowers on the loan
• Copies of the last one or two pay stubs – required for all borrowers on the loan
• Last two years of tax returns – this requirement may only be required for customers who are self employed and unable to provide pay stubs
• Copies of the last one or two bank statements
• Any special forms required by the lender

8.  Lender Guidelines

Once you get the requirements on what is needed from the lender it is easier to proceed with the short sale.   Make sure that all of the required documents are sent, incomplete or missing information can further delay the approval process.  Many times buyers will walk away if the short sale takes too long.  Therefore, it is important be timely in supplying these items that are within your control.

Many banks require that all realtors reduce their commission to 5%.  This is often not negotiable.  Realtors are familiar with this, but should be reminded.  You do not want a stubborn realtor to prevent your short sale from taking place.

9.  Prepare HUD-1/Settlement sheet and send to lender

Many times the realtor or title agencies can prepare this for you.  It must include the purchase price, estimate closing costs, delinquent taxes.  All proceeds go to the lender.  You as the seller in all short sales must receive $0.00 from the sale of the home.  In some HUD workout programs seller cooperation is rewarded by allowing the seller $1,000 at closing.  But generally this is not the case, go into the short sale expecting zero and focus on the relief when you can rid yourself of the over-mortgaged property.

Once the lender guidelines are met and the proposed settlement sheet is completed, showing where the money is going.  Send the full package to the lender.  Make sure to include names and contact information in case additional information is needed.  Include any contract deadlines or foreclosure dates if applicable.  Also include a name and contact information for the BPO.

It is important to confirm that the lender received the packet.  Many times files can be lost in the chaos at the bank, especially in the current environment.  One follow up call to ensure the packet is received can relieve further delays.

10.  What is a BPO?

A BPO is a Broker Price Opinion.  Most lenders require an interior BPO on the property to ensure it is being sold at fair market value.  It is a real estate brokers opinion on what the property is currently worth.  It is important that your realtor be present during the interior inspection to answer any questions or point out factors in the house that contribute to the value such as roof repairs needed or any other negative factors.  The lower the BPO comes in, the better it is for you as a consumer.

11.  Patience and Follow Up

Now comes the hard part………………….the waiting game.

There are four essential keys:

• Wait- as previously discussed, this can take weeks or even months
• Have Patience- banks do not take huge losses lightly; it may require several levels of management to review the offer.
• Follow-Up- to ensure your information has been received and is being reviewed follow up regularly.
• Be Persistent- call your assigned representative and request answers and updates.  Remember the squeaky wheel gets oiled.  You want to be so persistent that they are anxious to get you an answer in order to prevent the excessive phone calls.  Your realtor can usually help you in making phone calls; it is basically their job to get the property sold.

12. Approval letters and parameters

Once the bank approvals the offer, you will usually get a phone call with a verbal acceptance.  However, a formal written Short Sale Approval Letter will follow.

This may be the most important part of the short sale.  Make sure to carefully read the wording regarding the deficiency, 1099 tax consequences and repayment terms.  These terms are essential and can be damaging if agreed upon hastily.  Terms after the acceptance letter may still be negotiable.

1. 13. Short Sale Deficiency Balances

Even though the short sale is negotiated, it is still important to review the terms of the deficiency balance.  The deficiency is the amount left unpaid after the sale of the property.  There are many ways to negotiate, including no repayment, some repayment or settlement in full.

1. 14. Professionalism and ethics

The closing title company and the realtor are professionals and should act accordingly.  Realtors are bound by ethics.  It is important to be able to trust your realtor, because they are on the front lines fighting and negotiating the best deal possible for you.

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Tags: federal government, foreclosure, HUD, legal, mortgage, real estate, short sale

Have You Ever Thought Life Would Be Easier Without Money?

Chapter 2:

Have You Ever Thought Life Would Be Easier Without Money?
There have been many times when we have wondered why we have to have money in the
first place? It seems to be such a problem. Wouldn’t it be easier if everyone just helped
each other out and gave away stuff to people who needed it?
Of course, we probably wouldn’t want to go to work every day if we didn’t need to be paid.
And, we’d probably try to get everything we wanted without providing much for everyone else.
It might be fun for a while, but when food ran out and everyone was sitting around on
the beach enjoying the sunshine instead of growing more food, delivering more food,
and making our lives nicer with every service and product they provide, we’d probably
wish for money again.
Money has power, money has energy, and with money we can buy things to make our lives
easier, more convenient, and richer. We can pay someone to do things for us or make things
for us or provide products or services. We can even pay to learn new things. Money is
neither good nor bad, but can be used for good or bad purposes. It all depends on what
the person with the money wants to buy.
So, why do we even have money and how did our economy develop?…
Long ago, there was no money. People had to get their own food, clothes, and shelter. If
you didn’t have something, you had to go out and get it yourself. This was very difficult.
People had to work hard to provide everything they needed. Consequently, they didn’t have
much.
Then, there was bartering. People would trade something they had for something they
wanted. People lived in small communities. They didn’t have to travel far to trade their
goods. However, bartering had its limitations. The biggest and most obvious limitation
was that you might not want what the other person was trading. For example, let’s
suppose you had eggs and someone else wanted your eggs. They offered you spinach for
your eggs. Only problem was you wanted to get bacon for your eggs.
Not much you could do if you only traded eggs and they only traded spinach. You’d
have to live without bacon unless you could find another neighbor willing to trade bacon for
eggs. However, the neighbor with the bacon didn’t want eggs, they wanted milk. Serious
problem developed while trying to coordinate all that between the neighbors and their needs.
So, they started coming up with something that was valuable to everyone and it was used
for trade. This may have been beads, animal skins, grain, or shells. People would trade
the item that was used for trade for the goods they needed. In this way, they would pay for
things and have uniform prices (6 measures of grain for this and 2 measures of grain for that).
When paper money and coins came about, the paper was a note to trade in and exchange
for gold or silver coins. However, there was more paper money than the silver or gold
that it could be exchanged for. The coins became more valuable than the paper, because
they were made of the rare metals and they were honored most places. They were heavy to
carry and so they had their drawbacks.
Several steps leading up to our current monetary system:
• No money
• Bartering
• Trading Common Items (Shells, Beads, Skins, or Grain)
• Paper Money and Coins
Paper money was different from each bank and was not always honored from bank to
bank. It reminds me of arcade tokens. The only place you can use them is at the arcade that
issued them. You use them all while you’re there, and you just end up with a bunch of ski ball
tickets that are worthless anywhere else.
The money system became very confusing and there was no consistency or regulation.
Then, in 1861, the US Treasury printed the first greenbacks. They could not be
exchanged for gold or silver and lost their value. After several attempts and improvements,
they came up with a system that limits the amount of notes that can be produced each year
and makes them difficult to counterfeit. The kind of notes we have today are backed by the
federal reserve and cannot be traded in for silver or gold on demand. However, people have
become accustomed to this form of money and as long as people have faith in the value of
the dollar, there will be value in the dollar.
Problems with Current Monetary System:
• Electronically Figured and Moved (We never see it)
• Abstract Concept
• Disconnection with Money
• Hard To Keep Track Of It (So Many Accounts and Cards)
• Able To Spend Money We Don’t Have
With the invention of modern computers, on line banking and credit and debit cards, most of
our money is really not paper at all, but it is electronically figured and moved. Most
transactions today don’t even involve currency at all, but are electronically debited from one
account and deposited to another.
This convenient way of  keeping track of our money can also make it seem to be an endless
supply. Since we don’t see it disappear, it doesn’t seem concrete. It’s an abstract thing,
rather than real dollars that we can feel and touch. We have cards and numbers and
checks that we can produce money with whenever we want to buy something. We tend to
lose track and lose responsibility as well as losing touch with how much we actually have.
Many people have no clue what their bank account balances are. They don’t even balance
their checkbooks. They just spend with their cards and when a card doesn’t go through, they
spend with another card. This lack of responsibility comes from a disconnection with
our money. We can’t see how much we have and we lose track.
Accounting software can help to solve this problem and keep track of the many accounts that
we have. It is important to find a program that is easy to use and will track all spending
and income from each source. It should also track the debts we have and the credit we
have available. This way, we can get a handle on how much is really there. It’s better to be
realistic than to live in a fantasy world where money is created out of cyberspace and
magically deposited into an account somewhere beyond this dimension.
If you can’t find a program that is easy to use, you won’t use it…
This is really important when looking for a program. It may be worth the extra money to invest
in a good program that you can stick to for years to come. The money you will save by being
on top of your finances will pay for the difference in price.
Most people have tried to budget and have given up. It is imperative to have a budget in
order to get out of debt. Even a simple record of the money coming in and going out can help
a family to focus on what’s most important, financially. This may involve peeling back the
layers of hurt surrounding money and financial issues, but it’s worth it to face the problems
and move closer to your goal of becoming debt free.
Making a budget doesn’t have to take hours each month if you use a computer
program to keep track of the expenses and income. Looking at our past habits will give
us a more realistic view of our future. Even a simple ledger can help to organize our
expenses and income into manageable categories and if set up right will allow us to record
information month after month and compare how we are doing with other months.

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Tags: accounting, currency, dollars, exchange, federal reserve, finances, money