We live in a foreclosure bubble right now. Suddenly everyone is an REO (Real Estate Owned) or Short Sale expert. The sad reality is that many individuals such as real estate agents, as well as some attorneys and CPA’s, do not really understand the in’s and out’s of Short Sales & Foreclosures to the point of giving out information that is not only incorrect but dangerous. I have included some bullet points that can shed some light on differences between Short Sales & Foreclosures…

1.] Current Employment

Foreclosure; employers can and do check credit…may create challenges.
Short Sale; not reported on credit report…would not create an employment challenge (However, late payments are reported & may provide challenges).

2.] Future Employment…
Foreclosure; creates challenges as it is highly detrimental. Employers often require a credit check on job applications.
Short Sale; not reported on a credit check and is not a challenge.

3.] Security Clearance…
Foreclosure; Those working in sensitive areas such as police, military, CIA, or any job that requires a high security clearance will almost certainly be transferred or terminated out of that position.
Short Sale; typically, does not create a security clearance issue.

4.] Deficiency Judgment…
Foreclosure; no negotiating with the lender…lender has the right to pursue a deficiency judgment in Nevada.
Short Sale; it may be possible to convince the lender to give up its right to pursue a deficiency judgment against the borrower.

5.] Deficiency Amounts…
Foreclosure; house sits vacant, goes through BPO and auction process…in a declining market values may decrease which can create a higher deficiency.
Short Sale; Typically, the homeowner stays in the home, so property remains in better condition. House is often sold sooner at a higher market value, resulting in a lower deficiency.

6.] Fannie Mae Loans (effective 5/21/2008)…
Foreclosure; homeowners who lose their home to Foreclosure are ineligible for a Fannie Mae loan for 5 years.
Short Sale; homeowners who negotiate and close a Short Sale will be eligible for a Fannie Mae loan in 2 years.

7.] Investor Loans…
Foreclosure; investors who lose a property to Foreclosure are ineligible for a Fannie Mae loan for 7 years
Short Sale; investors who negotiate and close a Short Sale will be eligible for a Fannie Mae loan in 2 years.

8.] Mortgage Loans…
Foreclosure; borrowers who lost a property to Foreclosure will have to disclose this on a 1003 loan application. This could and will affect the interest rate.
Short Sale; no similar question or declaration on the 1003 applications in regards to a Short Sale.

9.] FICO Score…
Foreclosure; FICO scores will drop anywhere from 200-300 points. A Foreclosure will remain on the credit report and as a matter of public record for 10 years.
Short Sale; not reported on the credit history. They are typically reported as “paid in full, settled”…still a derogatory, but not as damaging.

Short Selling Your Home; What is Needed…What is Required?…

Engaging Your Real Estate Professional…

1.] Are they “Short Sale Certified”?
2.] Do they have a Real Estate Team?
3.] Short Sale Package.
A.] Financial statement showing income & expenses.
B.] Last 2 years tax returns.
C.] Last 2 months bank statements.
D.] Last 2 pay stubbs.
E.] Hardship letter.
F.] Letter of Authorization giving the RE agent authority to speak to lender.
G.] Very important to have every page copied and prepared.

Department of Treasury; Guideline Changes as of 11/30/2009 that will apply to the Home Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternatives (HAFA) which is part of HAMP.

1.] Streamline the approach by utilizing uniform guidelines

2.] Provide a venue where;
A.] Loan modification is attempted first under timed constraints.
B.] If borrower does not qualify for a loan modification or fails the trial period, the property will be recommended for Short Sale.
C.] Loans that will qualify under this program;
*] Property is borrower’s principal residence.
*] Mortgage is first lien mortgage originated on or before 1/1/2009.
*] Mortgage is delinquent or default is foreseeable.
*] Current unpaid balance is <$729,750.00 on a single family residence (SFR).
*] Borrower’s total monthly mortgage payment exceeds 31% of borrower’s gross monthly income.

3.]If the lender accepts the Short Sale, according to the guidelines…there will be no recourse.

Important Website for More Information:
www.IRS.gov and click on the Mortgage Debt Relief Act of 2007.
www.HUD.gov and click on Avoiding Foreclosure page.
www.MakingHomeAffordable.gov for more information on President Obama’s plan
www.Freddiemac.com/avoidforeclosure

**Importance of good Legal & Tax Advice**  This element I cannot stress enough…totally empowering.  Prior to going forward with a  Short Sale or allowing you real estate to be Foreclosed upon, this is one of the smartest and most empowering things you can do to insulate yourself from further disaster.  Know your rights!

Many “Short Sale” transactions are successfully completed without the aid of an attorney, however I always counsel my clients to seek legal advice from either an asset protection or a bankruptcy attorney.  Forward thinking individuals will understand the importance of mapping out a strategy to insulate themselves properly from potential deficiency judgments.

Guidelines are changing at a rapid pace.  New guidelines from the Department of Treasury could possible change the face of “Short Sales’ in a dramatic way.  It is important to understand the laws of your respective state and how this can affect your “Short Sale” transaction.  In Nevada, we are a recourse state, with the laws affecting individuals in various ways depending on the type of transaction it is…whether it is a “Foreclosure“, “Short Sale“, “First Trust Deed“, or “Second Trust Deed“, it is a minefield to navigate.  Being a Certified Short Sale specialist, I understand how difficult this can be for the individual who is in trouble financially.

A good attorney, who is experienced in this area can structure your assets and protect you, creatively, within the confines of the law.  Understand your rights.  Empower your financial well being.  Get good legal advice prior to making a decision on how to move forward with these types of real estate transactions.

The Law Offices of Gary Fales & Associates is the type of firm that will give you strong direction.  They will work hand in hand with you to plan an exit  strategy that makes sense…an empowering move…

The housing market is chaotic and under water in most areas of the country. “Short Sales” make a viable choice to avoid “Foreclosure” on your home.

1.] In Nevada where everyone is under water, is is very rare that the second mortgage will “Foreclose” on your property. However, you need to be cognizant of when submitting for the “Short Sale” process…both lenders must approve the sale. Occasionally, the second lender will attempt to collect a “Deficiency” against you in court, since the second mortgage is an unsecured debt.

2.] In a “Short Sale”, the real estate agents get paid by the lender. The seller pays for nothing.

3.] If you have any idea that you will need to do a “Short Sale” in the near future, do not attempt to pull out cash from your property, as this will be viewed as fraud. Not only will you not get approved for the “Short Sale”, but you might face criminal indictment.

4.] You always want to avoid “Foreclosure”. In the state of Nevada, if you “Foreclose” on your property, the lender has the right under the law to file a “Deficiency Judgment” within 6 months after the real estate has been sold. You also want to avoid “Foreclosure”, because it stays on your credit for a minimum of 7 years. Under Fannie Mae & Freddie Mac guidelines, you will not be eligible for a loan for 7 years. With a “Short Sale”, it is 3 years!

5.] One of the key things to successfully navigating through the “Short Sale” process is your real estate agent. Do your due diligence. Ask for a referral. Find out who is certified as a “Short Sale” specialist. Interview them. Ask them to lay out a plan of action. Do not be afraid to ask pointed questions. Remember, you are relying on them for everything. A “Short Sale” is a very complicated process and mistakes are easily made. Mistakes that can jeopardize your chances of the lender accepting your proposal, or worse yet…you losing a buyer.

The decisions you make regarding your financial future can be impacted directly not just by your hardship, but by your real estate agent and those who advise you. Do your research. Do your due diligence. Avoid “Foreclosure” at all costs. This is Empowering!