Make Payments? Walk Away? Short Sale? HELP!!
Key points to ponder.
Make Payments? Walk Away? Short Sale? HELP!!
Trying to get answers from the bank, friends, relatives about what to do? The answers are very hard to find! Where to turn, what is best for my situation?
Here are some of the top questions I am asked by sellers concerning short sales in Ohio:
Q. Do I qualify for a short sale?
A. If you cannot make payments or are in imminent danger of not being able to make payments, or if you are insolvent, generally the answer is yes. There is no specific program to qualify for a short sale unless you have an FHA loan (HUD PFS Program) . Each hardship must be evaluated by the lender.
Q. Do I have to be late?
A. No! Late last year banks began to change their longstanding policies due to the rising tide of failing loans. Some investors such as Ginnie Mae will require 31 days late, but that means missing one payment. Now there is even an FHA guideline allowing loans immediately after a short sale IF YOU HAVE NOT BEEN LATE ON ANY PAYMENTS (and FHA will make an exception if you have been forced to be late by your investor).
Q. Do I have to have my home approved for a short sale by the lender?
A. Not if you have a conventional loan. You will just need a listing agreement, short sale package and purchase agreement, as well as supporting documents. For FHA, you must be approved in the HUD Pre-Foreclosure Sale (PFS) program to determine if you are eligible for a short sale.
Q. How do you get paid?
A. You do not pay me. I do not charge a fee beside my commission, and the bank pays that. The bank will also pay taxes, closing costs and some other miscellaneous fees.
Q. How long does a short sale take?
A. Generally 90-120 days. Two weeks has happened with easy cash deals, but it is rare. Short sales can be up to a year if complicated by bankruptcies or bank takeovers, such as Countrywide to Bank of America. I have had cash deals close in about 45-60 days. It depends on the lender(s) and the financing.
Q. What will a short sale do to my credit score?
A. I have seen as low as a 50 point deduction when a seller keeps payments current, and everywhere in between up to 300 points if payments were severely in default and other bills were late too. So it could be the same as a foreclosure, depending on how other bills were paid/not paid.
Q. Why not just walk away?
A. Good question, with a few answers. 1) If you cannot make your payment, a short sale is the best way to honor your word to the best of your current ability. 2) A short sale will be with you for a few years. A foreclosure will be with you forever. Even though it falls off your credit score after 7 years, there are some industries and government agencies that will not hire you if you have a foreclosure in your past. Job applications ask if you have ever had a foreclosure. A short sale does not have these consequences. 3) A short sale allows you to leave a good memory of your name in your neighborhood, rather than an ugly vacant house that devalues the neighboring homes.
Q. What are all my options?
A. I recommend that you speak to an attorney or an accounting professional to see what is best for your situation. A short sale is not the best choice for everyone. In some cases, a foreclosure may even be the best choice for you - the answer will depend on your finances, businesses, and comfort level. You may be able to rent your home and keep it until the market improves.
Q. Why is the bank willing to do a short sale?
A. Foreclosure is a very lengthy and expensive process for the bank. It can cause the bank to lose up to 60% of the value of the property. The banks usually are happy that an agent was willing to bring an offer and help them make as much money possible on the transaction, opposed to leaving a vacant property that loses value and must be maintained in the process.
Q. What if I want to modify my loan and/or keep my house?
A. Please contact your lender for the paperwork needed for a loan modification, and don't delay. If you want to keep your house, pursue that option immediately. There are other options if you wish to keep your house - for example, you may wish to speak to an attorney for options involving bankruptcy. If you want to keep your house, a short sale is not right for you. However, if you are concerned that you may not qualify for a loan modification and would like to avoid foreclosure, a short sale can be attempted at the same time, so no time is lost in case of loan modification failure.
Q. Should I stop making payments?
A. NO. I do not recommend that you stop making payments. If you are in foreclosure, generally the lender will not accept partial payments, and if the bank will not accept your payments, please seek legal counsel to do what is best in your particular circumstances. In some cases, the investor on your loan will require you to be 31 days lates to qualify, but do not guess - let the lender tell you what is required and check with multiple sources before stopping payments.
Q. Can my wages/savings be garnished by the bank to pay back any deficiency?
A. The loan was secured by the house, so the short answer is no...but the bank does not have to agree to a short sale if they know you have the means to pay back the deficiency. They may ask for a sum of cash, or they may require an unsecured promissory note. Many times we can negotiate the amount and terms of these notes. Again, please speak to an attorney or an accounting professional to determine what is best for you.
Q. What happens to the deficiency?
A. While some banks will ask for a promissory note or money at closing, each situation is different, depending on type of loan and investor. I have personally negotiated requests for promissory notes in a number of cases with very positive outcomes. Occasionally if the seller is able to bring money, it has to happen. Generally if the seller does not have money, the bank realizes that and does not ask for money at closing.
Q. Will I owe taxes on the shortfall/deficiency?
A. If this was your primary residence, you will be covered under the Mortgage Debt Forgiveness Act of 2007, which has been extended to 2012.
When you file your taxes the year following a short sale, you will fill out form 982 and show your information about your short sale.
Great post about FHA Lending Guidelines after a short sale:
http://activerain.com/blogsview/1394035/fha-lending-guidelines-after-a-short-sale-hreu-cdpd-short-saleContact an Ohio short sale specialist today to learn what will be the best choice for you.
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Email: dawn@dawnsold.com
My cell, 330-990-4236 is where you start if you wish to prevent foreclosure.
A foreclosure stays with you forever. A short sale goes away in a few years.
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Dawn Maloney, REALTOR® | RE/MAX Commitment | (330) 990-4236 | www.DawnSold.com
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