Short Sale Program Guide

What is a Short Sale?

A short sale occurs when the homeowner sells their home for less than the amount owed to the Lienholder(s) (mortgage company, bank, credit union, government agency, etc.). Multiple Lienholder(s) are present in cases where there is a subsequent equity line of credit. When the payoff is not met, there is a deficiency. In some cases, the Lienholder(s) allow the Homeowner to sell their home without pursuing a promissory note. A deficiency occurs after a foreclosure when the home sells at auction for less than what is owed.

There are many reasons why Homeowners may seek a Short Sale – financial hardship, a medical or family crises, loss of the primary financial contributor to the household, military transfers and the home is devalued due to a declining market. Most often, this occurs when home values decline and the homeowner is unable to sell their home for the amount that is owed to the Lienholder(s).

A Short Sale is not a guarantee. You must go through the Short Sale process, go through a review phase and get the permission of the Lienholder(s). Not everyone gets the approval of the Lienholder(s) to process a Short Sale. Also, it is imperative to process the Short Sale in a timely manner and as quickly as possible, especially when facing possible foreclosure due to non-payment of the monthly mortgage note in excess of 90 days (typically this is the amount of time before the Lienholder(s) can begin foreclosure proceedings in most states).

There are a few things you should know: Urgency is key! Most Purchase Agreements are accompanied by a Short Sale Addendum with a deadline for the buyer to have received “written Lienholder(s) approval” and you do not want to risk going past that deadline date.

Also it is imperative that you have an experienced REALTOR® that has your best interests in mind – one who will seek the highest value possible for your home. Accepting an offer that is too low has risky consequences, thus you want to try and get as close to market value as possible. For Buyers, you want to be leery of homes listed as a Short Sale on the market that are significantly below fair market value as often times the price is reduced markedly low in an effort to get an offer to submit to the bank for the purpose of canceling a foreclosure sale date and initiating the Short Sale.

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Steps in a Short Sale:

First you will need to put your home/property on the market “For Sale”, preferably at fair market value. This is important as you will want to show the Lienholder(s) that you have made every honest effort to sell this home for the highest amount possible or at fair market value. Your REALTOR® can and most often will provide the Lienholder(s) with a marketing report with subsequent marketing updates – such as their providing Professional Photography – Solar Lighting – Virtual tours – 3D Walk Thru’s – Open Houses – Feedback Reports from Agents that have shown the property – How often the property is being shown by providing a local MLS showing report, etc.

Next, you need an Offer to Purchase that has been “Ratified” (meaning all parties have agreed to all the terms written in the signed and fully executable Purchase Agreement). In many cases, you cannot move forward without this. However, some Lienholder(s) and on a case by case basis will order an Appraisal and even accept your documents prior to receiving an offer, so it is always best to ask and certainly will not hurt.

There will be several documents that you must submit in order to be reviewed by your Lienholder(s) for consideration of a Short Sale. As time is of the essence, be sure to get this documentation to your REALTOR® in a timely manner. Most of the time, you will be unable to submit the documentation until you receive a ratified offer for the property. So, it is best to have the most up-to-date documents prepared in the event that you receive an offer. You will want to submit everything as quickly as possible and your REALTOR® will at this time request an Appraisal /BPO to be conducted as soon as possible.

There are many Lienholder(s) that will tell you to hire a REALTOR® to handle the Short Sale as there are so many variables and you want to ensure that you have a Short Sale Expert processing your Short Sale. Do not be afraid to interview the REALTOR®. You do not want to be 2-3 months into the Short Sale and find out that the REALTOR® you hired is not as proficient in Short Sales as you had previously thought and worse you are now facing a foreclosure.

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What do I need for the Short Sale Package?

There will be several documents that you must submit in order to be reviewed by your Lienholder(s) for consideration of a Short Sale. As time is of the essence, be sure to get this documentation to your REALTOR® in a timely manner.

Items required include:

Lienholder(s) specific Short Sale Package (aka. Uniform Borrower Assistance Combination Package) which includes the following:

  • A REALTOR®’s Submission Checklist & Borrower/Homeowner Submission Checklist and Short Sale Disclosure
  • Authorization to Obtain Information Form – also known as a 3rd Party Authorization Form
  • Uniform Borrower Assistance Form (Fannie Mae/Freddie Mac Form 710)
  • An Affidavit of Arm’s Length Transaction (sometimes this is sent by the primary Lienholder at a later time).
  • A financial analysis sheet – where you will list gross earnings, expenses and assets. Additional financial documents will be required such as Federal/State Tax returns x last 2 years, W-2s, most recent pay stubs/Checking Account/Savings Account/Business Account/All other bank statements x last 2 months). If Self-Employed, you will be required to submit a Profit & Loss Statement (x last 3 months) in addition. If retired, you will submit your Social Security and/or Disability Award Letter, or Retirement/Pension Award Letter that shows income received and how it is disbursed.
  • Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower
  • An Occupancy Affidavit
  • Some Lienholder(s) may request a copy of your driver’s license, social security card, recent mortgage statement and secondary mortgage statement if applicable, Property/Homeowner’s Hazard Insurance Statement, Property Tax Record and/or any delinquent utility or Homeowner Association Invoices.
  • Hardship Letter – You must write your statement to the Lienholder(s) explaining why you are in a financial hardship.
  • Your REALTOR will request via your Settlement Agent a copy of the Seller's Closing Disclosure to send to the bank. This form replaces the preliminary HUD effective October 3, 2015. Please refer to the new TRID Guidelines in my blog.

There may be other documents requested. If you are in the military and transferring to another duty station – your Lienholder(s) may request copies of your “official military orders” and other military documents.

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Are there options in lieu of a Short Sale?

Of course, there are a variety of programs available to help you resolve your delinquency and keep your home.

You might be eligible to refinance your loan and may be able to lower your interest rate and thus your monthly payment amount to more manageable terms. Some Refinancing programs do not require an Appraisal. Ask your REALTOR® to review these options if you wish to keep your home. And in most cases, you can skip 2 months of payments allowing you to catch up on other delinquent accounts/bills.

You may be able to qualify for a temporary or permanent loan modification. The terms of your mortgage are then “modified” which may include a reduced interest rate thus lowering your monthly payment. If you can tolerate the terms for 3-4 months during a “Trial Period” – often your primary Lienholder will allow for a more permanent and manageable solution.

You may qualify for a reinstatement if you can show that you will get a large sum of money on a p[articular future date – this is often used to avoid foreclosure. You can request a forbearance plan where you can make reduced mortgage payments or no mortgage payment for a specific period of time.

You may qualify for a repayment plan. This is where your total past due amount is divided into several payments that get added to your regular monthly payment and allows you to become current without having to put down a lump sum of money. In some cases, your delinquency can be added to the backend of the loan allowing you to start over.

If you do not wish to keep your home, and cannot sell for what you owe the Lienholder(s) – you can request the Lienholder(s) permission to proceed forward with a Short Sale. In some cases, relocation assistance can be provided to assist you in transitioning into your next home.

As a last resort, you may want to consider a Deed-in-Lieu of Foreclosure. A Short Sale is always a better option than this, but when this is your only option, it is far better than walking away and allowing your home to foreclose. Important to note – you must not have multip0le liens. And relocation assistance may be available upon request on a case by case basis.

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Loan Modification Programs:

If you are not eligible for a refinance, reinstatement, repayment, or forbearance plan based on the information you provided to your Lienholder(s), and you wish to keep your home, you may be interested in pursuing the Home Affordable Modification Program (HAMP). If you are not eligible for HAMP, you will be evaluated for a non-HAMP Fannie Mae loan modification. This is for Homeowners that were financed with non-VA loans. HAMP is part of the Making Home Affordable program (MHA), which was established in conjunction with the Hardest Hit Fund program (HHF) under the Troubled Asset Relief Program (TARP), and an extension of the Emergency Economic Stabilization Act of 2008. HAMP was designed to help struggling homeowners avoid foreclosure by modifying the terms of their loan to a level that is manageable. This provides the borrower with a more affordable payment by adjusting their interest rate, extending the term period, and reducing or forbearing the principal amount.

Home Affordable Modification Program (HAMP) along with the entire Making Home Affordable Program is set to expire December 31, 2016. The last day to submit your application with the modification effective date must be on or before September 30, 2017. The Hardest Hit Fund (HHF) has been extended to 2020.

If you are in the military or are a Veteran and have a VA Loan – you may be able to qualify for the VA Interest Rate Reduction Refinance Loan (IRRRL), commonly known as the VA Streamline Refinance, lowers your interest rate by refinancing your existing VA home loan. Not only can you lower your interest rate, you may be able to extend the terms of your loan (for example if you have already paid for 10 years of payments, they can extend out for another 30 year mortgage) thus lowering your overall monthly payment. Most of the VA IRRRL, depending on the Lender you choose, do not require an appraisal. So, if you find yourself in a negative equity situation and do not wish to proceed with a Short Sale and want to keep your home, this may be a viable option for you.

The program allows you to refinance your VA loan without having to furnish the documentation typically required by a bank or mortgage company, including income and employment verification, bank statements/paystubs and credit score verification, and an appraisal of the home. This option is only available to military and veterans who are refinancing a VA loan.

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Military, Veterans and the VA IRRRL:

If you are in the military or are a Veteran and have a VA Loan – you may be able to qualify for the VA Interest Rate Reduction Refinance Loan (IRRRL), commonly known as the VA Streamline Refinance, lowers your interest rate by refinancing your existing VA home loan. Not only can you lower your interest rate, you may be able to extend the terms of your loan (for example if you have already paid for 10 years of payments, they can extend out for another 30 year mortgage) thus lowering your overall monthly payment.

Most of the VA IRRRL, depending on the Lender you choose, do not require an appraisal. So, if you find yourself in a negative equity situation and do not wish to proceed with a Short Sale and want to keep your home, this may be a viable option for you.

The program allows you to refinance your VA loan without having to furnish the documentation typically required by a bank or mortgage company, including income and employment verification, bank statements/paystubs and credit score verification, and an appraisal of the home. This option is only available to military and veterans who are refinancing a VA loan.

In order to qualify for a VA Loan, a veteran must have served 181 days during peacetime, 90 days during war time, or 6 years in the Reserves or National Guard. You may also qualify as the spouse of a service member who was killed in the line of duty.

Other qualifications include:

  • Be current on your mortgage with no more than one 30-day late payment within the past year.
  • Your new monthly payment for the IRRRL must also be lower than the previous loan’s monthly payment. (Except when refinancing an ARM to a fixed rate mortgage.)
  • You must not receive any cash from the IRRRL.
  • You must certify that you previously occupied the property.
  • You must have previously used your VA Loan eligibility on the property you intend to refinance.
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Finding the Right Short Sale Expert

no1

When you find yourself facing a possible foreclosure, seek the advice of a qualified REALTOR®, preferably one that is well versed in Short Sales and has the patience and fortitude to bring about a successful real estate transaction.

no2Rebecca Keeney is a highly skilled REALTOR® and Associate Broker with Berkshire Hathaway HomeServices Towne Realty. She has been successfully processing Short Sales since she became a REALTOR® in 2007.

no3Rebecca Keeney - REALTOR® will provide you with a Market Analysis of your property, taking into account all types of real estate transactions from the traditional sale to area Short Sales and Foreclosures.

no4Rebecca Keeney – REALTOR® has worked with various Banks/Loan Servicing Companies/Credit Unions and is well versed in the procedures of each. She will send you a Short Sale Package and help you gather all paperwork needed to begin.

no5Rebecca Keeney – REALTOR® is patient but very thorough. She and her staff will follow up routinely to make sure that your file is processed in an expeditious manner and that the Lienholder(s) have all required documentation.

 

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[For details on our Marketing Program that yields results! - Contact Rebecca Keeney or refer to our Marketing Page on this website.]

no6In order to effectively process a Short Sale, you need an experienced REALTOR® - one well versed in all aspects. There are many critical errors that can be prevented – such as

The wrong Appraisal ordered (VA Sellers require a VA Appraisal and an approved NOV (Notice of Value) from the Veterans Administration before an Approval Letter can be issued.

Knowing what to do when there is a Secondary Lien, or IRS Tax Lien, or subsequent lien(s) attached to the property. Every Buyer wants to ensure that they are purchasing a clear and marketable title absent of any clouds or title defects. So, although you can convey title with an existing lien, Buyers will not want to close without a clear and marketable title. This is a very delicate situation that requires extensive knowledge and hard work. It can possibly delay closing and has the potential to cause the Buyer to walk away.

Sometimes the Appraisal / BPO may not fall in line with the offer that was presented to the Lienholder(s). When this happens, you need an experienced and sharp REALTOR® who thinks proactively and is prepared in advanced to submit a thorough and well planned “Value Dispute” to be submitted to the Lienholder(s) or Veterans Administration (if Seller has a VA Loan) or any other 3rd Party.

Maintaining a strong rapport with the cooperating Agent/Broker is vital to a successful transaction. As delays may occur, you will want to have a strong line of communication with the cooperating Agent/Broker and you will need to remain flexible.

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What is a Value Dispute? Why is this necessary?

Every Appraisal / BPO is unique and one Appraiser may offer an entirely different opinion than another. And the Appraisal / BPO may be contain errors – it happens. When this happens, you need a Short Sale REALTOR® with the knowledge to effectively process a well thought out “Value Dispute” – documentation that disputes the appraised value such as complete market analysis while detailing the uniqueness of your property. There are many different scenarios and every property is unique. Examples of possible errors include:

The Appraiser / BPO Agent/Broker may fail to give the property what is called “Functional or Economic Obsolescence”. Differences in the age, condition, location, and utility of each property can affect the appraised value.

When communities are developed, the buildings/homes may not adhere to proper design/standards – setbacks, floor plans, or poor site design. When this happens, depreciation is caused by a loss of building utility – this is known as “functional obsolescence.” The building/home has reduced usefulness due to poor design, thus the appraised value must also be reduced.

Examples include buildings/homes that do not adhere to the surrounding area and are considered an over-improvement, or vice versa – a building/home that is too small with less features than those around it – this is called an under-improvement.

Another example is multiple buildings/homes are damaged by an adjacent golf course that is too close to the property line and this causes significant damage – an example of poor site design.

 

© 2001 - 2015 Reliance Network and Berkshire Hathaway HomeServices Towne Realty. All rights reserved. US Reg. Copyright TX-5-910-991, TX-5-910-992, TX-5-910-993, and TX-5-910-994. © 2015 An independently owned and operated franchisee of BHH Affiliates, LLC. Berkshire Hathaway HomeServices and the Berkshire Hathaway HomeServices symbol are registered service marks of HomeServices of America, Inc. ® Equal Housing Opportunity . Berkshire Hathaway HomeServices Towne Realty is an affiliate of Towne Bank.

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