Short Sale:

Under Water?

This term has nothing to do with swimming. It is vernacular for real estate that is not worth as much as the mortgage against it. Another vernacular term for the same thing is upside down. Someone can be under water or upside down and still be able to make his monthly payments as long as his source of income is intact. If that is the case the best thing he can do is stay put until the market in real estate improves as it must eventually do before selling. But what if there is pressure?

Pressure can come from a variety of issues. In this economy people are losing their jobs, being pressured by his employer to make a job transfer without the employer agreeing to pay for it, or having their hours and wages reduced, making it more difficult to pay their bills, sometimes especially the mortgage, which may have been an adjustable mortgage that adjusted upward beyond the homeowner’s ability to pay. Illness may have forced the homeowner to choose between paying for life saving medical procedures and the mortgage. A marriage may be on the rocks. When the family separates during or after the divorce, there may be inadequate income to sustain two households in the manner in which one household was maintained, forcing a two sided downsize. Statistics show one in seven divorcing couples are forced to sell the homestead to make ends meet for both spouses and the offspring. Of those many homes may be under water. Statistics also show that marriages involved in the financial pressures that bring about short sales are candidates for divorce. (For this reason I have also qualified as a Certified Real Estate Divorce Specialist by the Financial Divorce Association, a nonprofit association of judges, lawyers, accountants, financial planners, financial divorce specialists, and real estate agents who teach each other the issues facing divorcing clients and the best interdisciplinary resolutions to achieve as mutually financially sound, pain-free and equitable outcomes as expeditiously as possible.)

When a home is underwater and the owner is under pressure to make payments, what should be done?

Until recently I have said  first step if you are a Colorado resident is contact the Colorado Foreclosure Hotline 1-877-601-HOPE or log onto www.coloradoforeclosurehotline.org. However most homeowners' loans fortunately are among the Fannie Mae and Freddie Mac secondary market and as recently as September 9, 2009 there was a big game-changer in your favor that makes your loan servicer your best friend. The Foreclosure Hotline is a nonprofit organization set up with the Colorado Foreclosure Prevention Task Force, a consortium of government, industry and nonprofit community groups to present a unified front in combating the growing problem of foreclosures in Colorado’s residential market and is a network of 26 nonprofit, HUD-approved housing counseling agencies across Colorado. You should also read the following article for some good advice on what to do :.http://www.chicagotribune.com/features/chi-restate-foreclosure_1108nov08,0,6813807.story .  The most recent annual report of the Hotline says “Four out of five clients who meet with a housing counselor successfully avoid foreclosure.”

The report cited the following outcomes for people whom the Hotline helped:

Brought mortgage current 15%

Mortgage refinanced 4%

Mortgage modified 7%

Received Second Mortgage 1%

Initiated forbearance/repayment 10%

Deed-in-lieu 2%

Short sale 23%

Referral to housing agency 4%

Entered into debt management 5%

Referred to legal 2%

Withdrew from counseling 2%

Mortgage foreclosed 17%

I help with the most frequent solution, short sale. If the Hotline cannot help guide you into one of the more sanguine choices, it is time to contact me.

I have special expertise and training recognized by the National Association of Realtors with the certification as a SFR, or Short sale, Foreclosure Resource professional to help you more ably than a Realtor® who is not an SFR.

If you are a short sale candidate, hiring me is not as easy as hiring most other Realtors® because your situation requires you to do much more than merely be a passive client who expects the broker to do all of the work. I will expect you to fill out forms, provide information neatly and completely, sometimes repeatedly periodically, and to write letters that are a little humbling. I will usually ask you, if you have not already done so, to go to an attorney who specializes in bankruptcies, who also has short sale experience. This is because you need legal advice along with the real estate services I will be performing. My real estate services will be different from anything you have experienced real estate brokers to do typically. Generally it will be my job to contact the lenders on your behalf and negotiate with them to accept the payment of a lesser amount than what you owe.

But I negotiate for more than that for you. There is more than the short payoff of your loan that is possible to negotiate, and I will be the person in most situations that will negotiate in your behalf. First of all, Colorado is a recourse state. What that means is unless I can negotiate with the lender in your behalf after the short sale you will still owe them the money that was unpaid and they can immediately make something by selling your debt to a collection agency. However with your help, and often with the pressure that you have seen a bankruptcy attorney who I can help make visible in the negotiation process, I can often negotiate to your advantage. I can do so without a bankruptcy attorney’s name to use, but I have found it makes it that much easier when there is one. On the other hand the bankruptcy attorney cannot usually effectively carry on the negotiations without a real estate professional carrying a substantial part of the burden, since most of the process involves getting the lender to accept a real estate transaction that the real estate agent is likely to have the best handle on.

Another slant on what a good broker can do for you is provide you and your lawyer with the most up to date policy memoranda by the "investor" secondary market which is the rule setter for virtually all lenders. This can result in you having the best strategy for your given situation. For example on December 16, 2009 FHA advised lenders that borrowers who are current on their loans and fully satisfy the lender making the agreement for the short sale (that is getting the current lender to waive its right to recourse for the balance) if the borrower is also current on all other obligations, the borrower will be eligible for an immediate FHA guaranteed loan on another property. This may mean that you can do a short payoff on one property, move to your intended new location and immediately own another property eventhough you are making a short payoff. Knowing this information should make a real difference in your life.

Good bankruptcy attorneys don’t always tell you the only thing you should do is file for bankruptcy. Sometimes the shorts sale is the solution that makes the most sense for your situation. Sometimes it isn't’t. The attorney will help you sort that out, generally after getting all of the real estate related details from a reliable real estate agent. The National Association of Realtors proffers the SFR is a more reliable source than a Realtor® who has not been so certified.

You will also need some tax advice and your CPA should be consulted to make sure if I am successful in negotiating away your debt that you will have a satisfactory tax outcome. Some taxpayers may be required to pay income tax on forgiven debt if the lender sends them a 1099 as lenders are likely to do. The Debt Relief and Stabilization Act as well as another section of the Internal Revenue Code provide exemptions that could exempt the taxpayer from being taxed for the forgiven debt. It is desirable to know in advance what all of the outcomes are likely to be when formulating a plan.

In an effort to promote short sales and reduce foreclosures, the Obama administration formulated the Foreclosure Alternatives Program. It provides that loans that have been insured or supported in a secondary market by FNMA have the following policies apply which the lender can take advantage of on a case-by-case basis. There is a $1,000 payment to the lender or its loan servicer, another $1,000 to a junior lender if there is one, for releasing its lien, and even $1,500 walkaway money for the borrowers. It provides for the lender to allow 90 to 360 days delay in prosecuting the foreclosure to have the short sale take place. Since most loans are supported in the secondary market by FNMA it is likely that this program may be elected by the lender, depending on the lender and the case work that I can send to the lender, which depends in substantial part on what the borrowers provide me with.

I have 116 lenders in my file, and there are 116 slightly different policies about when the lender will elect the FAP program and when they won’t. What does it mean to you if you are the borrower? It means you get to live there while you are either not making payments or hardly making payments until I get the home sold, and then you get $1,500 in a respect worthy way to leave on good terms. It also means as you will learn below, FNMA will let you buy another home in two years if you otherwise maintain good credit worthy practices. The other way, bankruptcy and foreclosure you get to stay without making payments too, but the implications of how you will be treated by the credit institutions will be different by lenders as well as FNMA or other secondary market participants.

FNMA provides that if you are foreclosed you will not be eligible a new loan for five years but if you go through a short sale you will be eligible after two years. Experts say there is no difference between a short sale on your FICO credit score and a foreclosure. For more on this topic see http://ezinearticles.com/?Short-Sales-and-How-They-Affect-FICO-Credit-Scores&id=3103865 . This being the case some people argue that it may take more than two years to repair the borrower’s credit and get it high enough to get another loan. If someone has otherwise impeccable credit history it is possible to get another loan within a two to three year period. I have participated in making those deals happen.

If you want to be considered for a short sale please complete the confidential short questionnaire and click send.

Have the following original and one copy of each of a letter you write addressed to each lender you have signed notes with that covers the following points:

You are sorry to be in the situation that requires this letter.

These are your hardship circumstances that you are facing

You have exhausted all other options you can think of

If the lender doesn’t agree to a short sale despite your desire to make payments as agreed you fear that because you will be unable to do so given the above circumstances, unfortunately the property will end up in foreclosure

If you have been to see an attorney, especially a bankruptcy attorney, be sure to mention that, but rather than pursuing bankruptcy, that you would rather cooperate the best you can to help the lender make the best out of a bad situation since you regard your original promise when you signed your note as important.

Are there any court cases pending which affect the title to the property you want to sell or do you expect any court cases to be pending before the closing on the sale of the property you want to sell? Court cases include but are not limited to quiet title actions, actions for specific performance, divorce, legal separation, bankruptcy and appeals.  Answer this question in the form that follows.

If the answer to the preceding question is yes, please provide the names of the parties, case number, filing date, type of case, names of the attorneys and where the case is filed. ( If you have copies of any court orders, injunctions, restraining orders, etc., affecting the title to the property you want to sell, please provide them at our first meeting.