Many times I hear Hemet homeowners ask if I can "Help save my home from foreclosure?" or as a Hemet REALTOR® can I "Stop the foreclosure?"
I wish I could just answer "Yes" to every one of the times I am asked...but there are limitations and never any guarantees. There is only one guaranteed way to stop a foreclosure in Hemet California and that is to bring the arrears current - and most Hemet homeowners who ask me these sensitive questions just cannot afford to do that.
I explain that as a REALTOR® I am recognized by Freddie Mac, the Premium Mortgage Insurance companies (PMI), The Veterans administration (VA) and the Federal Housing Administration (FHA) as well as other related mortgage and loan companies to be qualified to negotiate a repayment program on behalf of the Hemet homeowner for the back interest and other late charges that have been tacked on the loan. This is a process know as "Loss Mitigation".
There are limitations though. No one, other than the actual lender has the ability to renegotiate the entire loan. If I were to do this, this could actually put the insurance standings of the mortgage companies in jeopardy which could then create a huge financial los for the mortgage companies.
I explain that short of making financial arrangements to pay the loan current - one way or another, that a "short sale" is likely to be the best scenario. Many people have heard the term "short sale" but very few actually understand what a short sale actually is. Unfortunately this goes for seasoned Hemet REALTORS® as well.
I go on to explain to the Hemet homeowner that a "short sale" is often referred to as a "short pay" or a "discounted payoff". This type of sale requires all of the lenders and lien holders to agree to a sale price that will leave the lenders and lien holder ‘short' as the net payoff will be less than what is actually owed. Each mortgage company, mortgage insurance company and lien holder must be on board and accept less than a full payoff otherwise the home will go to auction and be lost to foreclosure.
Not only does the lender have to accept less than a full payoff, they have to cover the costs of closing the transaction which includes commissions, title, escrow and other closing costs.
So Why Would a Hemet Homeowner Want to Participate in a Short Sale?
The biggest reason Hemet homeowners want to sell their home and list if for sale in the MLS as a short sale situation is so that they can maintain some control on the process, leave their home with dignity and protect their credit...to some degree.
CREDIT
Every homeowner in default must realize that missing or paying a mortgage payment late is a significant blow to their credit score. By the time the lender files a Notice of Default (NOD) the good credit train has already left the station. So the big question is how can a short sale salvage a credit score? Once a NOD has been filed, the credit bureaus pick it up as "Foreclosure", which again is another major ht to the credit score. The only real impact a short sale can have on a credit score is how the final solution is handled. As a loss mitigator I can negotiate with the mortgage lender and hopefully have them report either "Paid in Full" or at least "Paid as Agreed".
Although this may not seem like much today, when it seems like the whole world is caving in around the distressed homeowner, in a year or tow when they find themselves on their feet again and ready to make another significant purchase - this could make all the difference in the world.
CASH OUT
Every Hemet homeowner must know going into a short sale situation that it is against the law for them to receive any money from any of the participants - this includes the REALTORS®, lenders, the buyer or anyone else 
associated with the transaction. If the loan is federally insured then this is a Federal offence and I for one do not want to go to jail for any Hemet homeowner - so if you are the Hemet homeowner in preforeclosure, then I am sorry to say that you will not receive any money from a transaction that does not pay off your mortgage in full first.
HARDSHIP
The other issue that a Hemet homeowner must grasp is that they will have to come up with documents that will substantiate their hardship and current financial situation. The mortgage companies are not cooperating in Short Sales just because a Hemet homeowner is upside down and the home is worth less than what is owed. If a Hemet homeowner can afford the real estate then the Hemet homeowner must pay for it.
In order to successfully put together a comprehensive short sale package that stands a chance of getting approved the Hemet homeowner must write a hardship letter. I'll address the details of a good hardship letter in a follow-up article.
The Hemet homeowner must be prepared to support their position with verifiable documentation including 2 to 3 months of recent bank statements, 2 to 3 months of recent pay stubs as well as a year or two of recent tax returns, including all schedules.
TAX LIABILITIES
My understanding of the current law is the lender has the option to report the "forgiven debt" (the amount the bank accepts as ‘short') to the IRS as taxable income with a 1099 form. If the lender does this, then the IRS treats this deficiency balance as income and adjusts your taxable income and tax rate to include this as part of your taxable income for the year.
The good news is the President of the United States recently called on Congress to pass a pending law that would forgive this tax liability. I first wrote about the legislation back in June in an article I called, "Is That Congress I See on the Big White Horse?" The other option for avoiding this tax is by appealing directly to the IRS. They have their own forms and procedures for this and if you find yourself facing this type of tax obligation my STRONGEST advice is to seek a qualified tax professional who has experience in this area. Again, I am neither a professional tax advisor nor an attorney.
As a service to the Hemet homeowners who put their trust in me, I do my best to negotiate with the mortgage lender for them to not report the deficiency balance to the IRS. Again, there are no guarantees, but I try on every short sale I work with.
DEFICIENCY BALANCE
The laws are complicated and vary from state to state; however in California a mortgage that was used to purchase real estate cannot pursue a deficiency balance against the Hemet homeowner in the case of a short sale when a non-judicial foreclosure is pursued (absolutely the most common). On the other hand a second mortgage with cash-out to the Hemet homeowner can be pursued as a deficiency balance and this debt can be both litigated (judgment entered) and sold for pennies on the dollar to those who want to pursue collecting these obligations.
Again, I must emphasize that I am NOT an ATTORNEY and I strongly suggest anyone with concerns on this topic consult with their own attorney.
What I can say on the subject is that when I am involved in a short sale resolution that I again pursue a remedy where the mortgage lender will agree in writing to not seek to collect any forgiven debt.
The Loss Mitigation process is much more complicated than can be described in this short article; however an overview of the Short Sale process will at least put the Hemet homeowner in the right prospective of what can and cannot be accomplished...and what the consequences may be.
If you are a homeowner who is in the preforeclosure process and would like some straight shooting conversation about your situation, please feel free to contact me at (951) 443-6259 or go ahead and send me an email with your contact information to TheHouseSeller@GMail.Com.
On the other hand, if you are a Hemet or San Jacinto homeowner if trouble with your mortgage, please contact me right away for a confidential no obligation appointment where we can sit face to face. I will provide you wit a free copy of my new book, "What You Need to Know About Foreclosure and How You can Stop It".
Homeowners throughout Riverside County, the Inland Empire and elsewhere in Southern California -
Please call me as well, and perhaps I may have a solution for you as well.
Now Have a Blessed Day,
John Occhi, Hemet CA REALTOR®
Mission Grove Realty
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This blog and the contents written here is the intellectual property of John Occhi, Hemet California REALTOR®. The views and opinions expressed are just that - views and opinions of John Occhi and those who comment. Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance.
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