A Homeowner’s guide: Short Sales and preventing Foreclosure Pt3 (Selling your home)

Other solutions

If none of the solutions listed on the article above helped you solve your problem you still have other options.

Beware, however, that the following solutions have credit, legal and tax ramifications. The credit ramifications I can explain them to you in detail on a one on one meeting. If you would like to know about your tax and legal ramifications, seek professional advice from a CPA and/or attorney.

The other options you may have are:

1. Short Sale

A Short Sale is basically as the name says it a sale short of what is owed to the lender on a loan. A short sale will not stop the foreclosure process BUT most lenders will stall the foreclosure process in order to give the borrower a chance to sell the home. In a short sale the borrower’s lender agrees to accept a payoff which will be less than the balance currently owed on the loan.

Doing a short sale is not as simple and without implications as every agent jumping on the “short sale band wagon” makes it appear to be. Many of these agents may be telling you “Short sale your property now and walk away owing nothing more to your lender and avoid getting foreclosed on,” this is simply NOT TRUE. If your home’s value is so low that the difference between your home’s value and your current mortgage debt is great, your lender will be less likely to agree to a short sale.

There will be a lot of documentation requested from you in order to proceed with the short sale. Basically you will go through a similar process as applying for a loan, you will be required to provide similar documentation like W-2’s, paystubs, banks statements, etc. Your lender will want to see that keeping your home is a hardship to you and your family. Simply saying “my house is worth less than the current loan(s) on the house and I don’t want to pay any more” will not be acceptable to most lenders for a short sale.

If you have already listed your property as a short sale, keep in constant contact with your REALTOR® and make sure that when he gets an offer, the buyers is preferably pre-approved.

If you are a buyer understand that your purchase process will be a little more time consuming than a regular purchase BUT you will be getting a great deal if your REALTOR® did the homework for you before putting in an offer.

The reason many and most lenders accept a short sale is because it makes financial and business sense on their books and portfolio. Lenders are in the business of lending and servicing loans. They are not in the business of property management or selling homes or taking properties back through foreclosure.

They much rather lose some money now than lose a lot more money later by going through the foreclosure process or adding another REO property on their books and having to pay property taxes, insurance and maintenance on these properties.

Before you jump to the decision of doing a short sale, read part 4 of this Homeowners guide to preventing foreclosure.

2. Deed-in-lieu of foreclosure

As a second to last resort you may be able to “give back” voluntarily your property to your lender. Obviously you are loosing your home and you credit will be hit very hard BUT not as bad as when you do a foreclosure. You can qualify for this if you are currently in default and you don’t qualify for any of the other options and you were unsuccessful in selling your home before the foreclosure and also if you don’t have another FHA mortgage in default.

Before you jump to the decision of “giving back” the property to your lender, read part 4 of this Homeowners guide to preventing foreclosure.

3. Foreclosure

This is the last option you will ever want to take but if needed it is there. Once you have been through the process of a foreclosure your credit will be so damaged that your possibilities of buying a home one or two years later are almost none existent. The foreclosure will stay on your credit for 10-12 years from the date filed (see my posting titled “How long will collections or other derogatory information stay on your credit report?“).

Before you jump to the decision of letting the home go on “foreclosure”, read part 4 of this Homeowners guide to preventing foreclosure.

For all options what precaution should you take?

Make sure you get any and all “promises” in writing
Don’t sign any papers you don’t fully understand
Check with a lawyer or your mortgage company before entering into a deal involving your home
Beware of any contracts or transactions where you are not formally released from liability for your mortgage debt.
Contact your own attorney for legal counsel and advice

Before making an important decision as a short sale or foreclosure you must read these other articles from the “Homeowner’s guide to preventing foreclosure”:

Homeowner’s guide: Short Sales and Preventing Foreclosure Pt4 (The ramifications)

Comments

16 Responses to “A Homeowner’s guide: Short Sales and preventing Foreclosure Pt3 (Selling your home)”

San Jose CA broker linked to FRAUD claims over $2 million : My Home is My Investment on October 29th, 2007 10:43 AM

[...] Latino home buyers, which were the company’s main target for business, hit the company with lawsuits accusing them of falsifying their loans applications, providing them misleading information about the true cost of subprime loans and of course failing to translate documents into Spanish. Now most, if not all of them are facing foreclosure. [...]
Taxing Short Sales and Foreclosures : My Home is My Investment on November 1st, 2007 11:45 AM

[...] It is surprising to many that one can loose a home by selling it as a short sale or letting the bank foreclose on you and still be liable for payment of income tax on the amount the lender lost during the transaction (Read the: “Homeowner’s Guide: Short Sales and Preventing Foreclosure“) [...]
Home affordability in San Jose and California, loan limits on December 1st, 2007 12:42 PM

[...] at all that these homes are fixer uppers, unfinished remodeled homes, a Bank Owned property, a short sale and one offers seller’s paid closing cost and another has structures on the property without [...]
Opportunity for Buyers in a Slow Real Estate Market San Jose California / Bay Area on March 5th, 2008 11:54 PM

[...] be seen as really gloomy. A market with an ever increasing number of unhappy sellers, unsold homes, short sales failing to sell because of a lender’s inexperience or lack of market knowledge, foreclosed homes [...]
How to buy a Short Sale or Pre-Foreclosure property - San Jose California on April 2nd, 2008 11:03 PM

[...] Unable to refinance or to keep up with the rise of their monthly mortgage payments, they decide to sell their homes at a loss; this is called a short [...]
Kris on April 5th, 2008 6:49 PM

Re: comments on “Latino home buyers, which were the company’s main target for business”
First of all foreclosure hit everyone not only Latino!!
Other issue very important here. Blaming businesses targeting Latinos and “falling to translate docs into Spanish” is a outrage. Do we live in USA, English speaking nation?
Should a blind person facing foreclosure blame lender because he couldn’t see documents?
How long the rest of us will be discriminated?
Ney on April 7th, 2008 11:17 AM

Kris,
I think you misunderstood the message about Latino home buyers being the main target. That is simply link to another post that talks about a San Jose real estate agent who focused mainly on Latino families and took advantage of them, according to the accusations.
I suggest you read it and you will understand it better.

I agree with you Kris, 100%, foreclosures have hit hard on homeowners of all ethnic background. It has also afected all other aspects of our economy as well, not only homeowners.

Regarding the non-English speaking buyer, well there are Latino families that can afford to buy a home and are a presence in our economy. Just because they cannot read English, does not mean that they should be prevented from buying a home. There are Spanish translated documents that should have been provided to these families.
Kris on April 7th, 2008 2:07 PM

If this is a case that i misunderstood, i apologize. I just see many cases where some people blame others because they do not speak english.
I do not understand why you say “There are Spanish translated documents that should have been provided to these families” My question is Why Should? Why they should not learn English? Are we going to translate documents into any language? We are limiting ourselves if we do not speak this language.
I am helping a lot of people in foreclosure. It means I should blame others because they do not speak my native language? No, I have learnt English to be able to live here and do what I want to do.
Foreclosure hit hard everyone, one or the other way, I agree with you. Let’s not blame each other but help each other. This way we can do more.
Ney on April 7th, 2008 6:28 PM

Kris,
As you may agree there is plenty of blame to go around. I’ve always said the blame can be placed from top to bottom: greedy wall street investors, lenders allowing exotic loans not suitable for homeowners, underwriters looking the other way when someone did not really qualify, appraisers that inflated values just to get more work from mortgage brokers, mortgage brokers charging excessive hidden fees & not counseling their clients & over qualifying their clients as well, real estate agents convincing their clients to buy and sell several times in a short time span just to make a quick buck, buyers thinking that homeownership is a right & not understanding that is actually a responsibility and seller looking to squeeze as much money out of buyers as they could.

But we get nowhere by trying to pin point who should take the blame, you seem to agree with me in the cense that it is not time to sit here and feel bad for ourselves, let take action, learn from our mistakes and move one.

As far as the documents….well, like I said before, the fact that a family cannot fluently communicate in English should not be a reason why they should not be able to buy a home and in order to prevent misunderstandings & lawsuits, there are documents that have been translated in order to facilitate communication and understanding. The reason why so many Spanish speaking families blame their agents or mortgage brokers is because they did not look after their best interest, they did not counsel them, and they did not tell them that they did not qualify to buy a home. Instead they painted a beautiful future for them, telling them that they could refinance in 6 months for FREE, telling them that they could buy a $700K home with payments as low as $2000, telling them that they were getting down payment assistance when in fact it was a third party loan from a private lender charging them outrageous fees and interest.

These types of scenarios are the ones that the translated documents were created for, to prevent non-English speaking families from being taken advantage of.

Now of course, not all of them are victims, I know some where looking to get rich in real estate but that is the exception.

Kris, thank you for your comments.
Shane on May 7th, 2008 9:05 AM

I have a home i bought in 2005 i refinanced in 2007. I lost my job and cannot continue to pay the mortgage and the value has gone down 100k and i only pay the nagative amortization. I am thinking about doing a short sale, my question is since i refinaced it already would i have to pay taxes on the difference. This is the only home i own its my primary residence.
Ney on May 7th, 2008 1:28 PM

Shane,
I notice that you work for Foreclosure Bailout Specialist in Santa Ana, CA or may be that is your “company.”

Are you simply trying to get free advertisement on this page or is your question legit?
If your question is legit, I would’ve thought that working for a so called “Foreclosure Bailout Specialist” you would know all the “ins and outs” of a foreclosure and its consequences.

As you may or may not know, no Realtor can give you ANY legal or tax advice because we are not lawyers nor CPA’s.

With the new law that was passed at the end of 2007, many homeowners could be excempt from paying the tax consequences of doing a short sale. Here is the link for that post:
http://sccrealestateuncensored.com/2007/mortgage-forgiveness-debt-relief-act-2007/

Of course there are limitations to this and homeowners that refinanced taking money out of the property may not qualify for this excepmtion and may have to pay taxes over the loss the lender will incurr unless they are insolvent. However Mr. Shane from Foreclosure Bailout Specialist in Santa Ana CA, you should seek tax advice from a CPA for advice on your specific personal situation.
Tax Relief for Short Sales & Foreclosures signed by the President (H.R. 3648) : San Jose-Santa Clara County Real Estate UNCENSORED on September 12th, 2008 2:45 PM

[...] worth less than the actual balance of the current mortgage(s) and the homeowner decided to do a short sale, deed the property back to the lender or simply wait for the lender to foreclose on the property, the lender ended up loosing tens of [...]
Erase Your Debt and Increase Your FICO Credit Score fast and easy….I DONT THINK SO!! : San Jose-Santa Clara County Real Estate UNCENSORED on September 12th, 2008 2:56 PM

[...] these techniques work on everything from inquiries, late payments, missed payments, charge-offs, foreclosures, liens, judgments and bankruptcies. “No situation is beyond repair” they claim. And how much [...]
Project Lifeline Aims to Help SOME Homeowners Facing Foreclosure : San Jose-Santa Clara County Real Estate UNCENSORED on October 10th, 2008 12:36 PM

[...] help those borrowers who simply don’t want to continue to live in their home because they are in properties worth less than their current mortgage balance because they may have bought it with little or no money [...]
Foreclosure scams grow rampant in todays Real Estate market : San Jose-Santa Clara County Real Estate UNCENSORED on October 10th, 2008 2:01 PM

[...] homeowners facing foreclosure or a short sale are constantly receiving phone calls, emails and unsolicited mail offering a solution to their [...]
Avoiding FORECLOSURE!! : San Jose-Santa Clara County Real Estate UNCENSORED on April 28th, 2010 5:30 PM

[...] Homeowner’s guide: Short Sales and Preventing Foreclosure Pt3 (Selling your home) [...]