Struggling to make your mortgage payment? Not yet late but soon likely to be? A short sale can be your best way to avoid foreclosure, whether you are 30/60/90 days late in your payments or even currently in foreclosure. Before proceeding with a short sale, you should know:
- The type of loan and type of property will determine what remedies a lender may have if the homeowner fails to make the agreed upon payments. The available remedies, the homeowner’s overall current or potential future financial strength, the lender’s cost in acquiring the loan and any shared-loss or similar agreement if the loan was acquired by purchase or merger, are some of the many factors that the lender may consider in deciding how to proceed when a loan is in default.
- Homeowners worried about foreclosure may be susceptible to predatory “rescue” scams which may cost you money with no results, result in the loss of your home entirely, or involve you in a fraudulent scheme. Working with a trusted professional real estate agent such as Andrew Robb is the best solution.
- Damaging the property or removing fixtures such as sinks, toilets, cabinets, air conditioners, and water heaters may result in liability to the lender for “waste.” In other words, the lender may be able to sue you for damages if you have physically abused, damaged or destroyed any part of the property.
CONSIDER ALL YOUR OPTIONS BEFORE A SHORT SALE:
- Loan modification – The lender may agree to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified or the loan term extended.
- Refinance – If the lender will not agree to a loan workout or modification, the homeowner may be able to refinance the loan with another lender. This may prove challenging if your home value has dropped.
- Deed-in-lieu of foreclosure – The lender may allow a homeowner to “give back” the property. This option may not be available if there are other liens recorded against the property.
- Loan workout – The lender may allow a specific amount of time for the home to be sold and the loan to be paid off. The lender may also allow a buyer to assume the loan to purchase the property even if the loan is non-assumable.
- Bankruptcy – If you are considering bankruptcy as an option, consult with an attorney that specializes in bankruptcy cases.
- Foreclosure – Only you and your attorney can decide if foreclosure is the best option. Ask your attorney about the possibility of a deficiency lawsuit after foreclosure. Assuming all statutory requirements are met, the Arizona anti-deficiency statutes may limit the lender’s remedy to foreclosure, even if the amount due to the lender exceeds the value of the property. Also, seek professional tax advice about the consequences of a foreclosure.
IF YOU DECIDE TO PURSUE A SHORT SALE, CONSIDER THE FOLLOWING:
- Contact Andrew Robb – I will work with your lender to prepare your short sale package, list your property at fair market value and work to delay the foreclosure, all with at no cost to you. I am only paid a commission if your home sells and this comes from your lender’s net sales proceeds in the transaction. You do not pay me anything.
- Determine short sale eligibility – I will do this for you. Generally, you must prove that you are financially incapable of paying the loan and the lender is convinced that it will fare better by agreeing to a sale for less than the outstanding loan amount than foreclosing.
- Determine the amount owed on the property – I will do this for you. All debt and costs must be factored in before determining whether a short sale is feasible. Consider the delinquent loan, home equity loan if any and other loans recorded against the property, past due homeowner’s association fees, unpaid property taxes and closing costs. If you have more than one loan on the property, be aware that a short sale will require the approval of all lenders.
- Determine fair market value of the property – I will do this for you. We must prove to the lender that the home is worth less than the unpaid loan balance.
- Consult legal counsel – The importance of competent legal counsel to help you determine whether a short sale is the best option and to
advise you during the short sale process cannot be over emphasized. - Understand that short sale may not discharge the debt – Even if a lender agrees to a short sale, the lender, the VA or the FHA may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation. This outstanding personal obligation could result in a subsequent collection action. For example, a lender may accept the short sale purchase price to “release the lien” on the property as
opposed to agreeing to accept the purchase price as “full and final settlement of the debt” on the property. I work to ensure the terms of any short sale agreement release the lender from pursuing a deficiency judgment and obtain any debt forgiveness agreements with the lender in writing. - Obtain tax advice – A short sale in which the debt is forgiven is a relief of debt and may be treated as income for tax purposes. The Mortgage Forgiveness Debt Relief Act of 2007 created a limited exemption to allow homeowners to pay no taxes on debt forgiveness; however, only cancelled debt used to buy, build or improve a principal residence or refinance debt incurred for those purposes qualifies for this tax exemption.
- Impact on your credit score – The impact of a short sale on your credit score depends upon a variety of factors, including late or missed payments. A short sale may appear on your credit report as “pre-foreclosure redemption,” “paid in full for less than full balance” or other similar term.
- Waiting period to buy again – Your ability to qualify for a loan to purchase another home after a short sale will likely be impacted by a short sale and there will typically be a 2-year waiting period before you can purchase another home.
- Home Affordable Foreclosure Alternative (HAFA) – The HAFA program was designed to give homeowners different alternatives to a foreclosure, which include financial incentives for completing a short sale.
