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!

Financial stress is a common problem if you are forced into a frugal lifestyle due to personal crisis such as a death in the family, loss of a job, divorce, mounting credit card bills, etc…If not controlled, this can lead to depression, feelings of fear and anxiety, as well as insecurity.

How you deal with these types of feelings during a crisis can be a critical factor in deciding the outcome. If you recognize any of these feelings in yourself, you need to get help. Talk to a friend, a loved one, a counselor, your doctor, or your pastor….but talk to someone. Often times a listening, unbiased ear will give you insight and solutions.

The first thing you must understand is that there are always solutions. It is just a matter of sitting down, doing proper planning and goal setting as well as getting that much-needed emotional support from friends and family. Bringing this all together will enable you to start anew, build on a new outlook and elevate your self-esteem.

You can negotiate directly with the creditors or you can hire a professional to negotiate for you. It is not uncommon to negotiate down to as much as 60% of what you owe.

Payments can be made or if you have access to some capital, you can make a lump sum payoff. I recommend using the services of a professional negotiator to instigate a debt settlement plan. Be aware that when you settle for less than the amount you owe, it is likely that your credit will get damages. if you are in need of a loan, an auto purchase, or a lease, you should complete those prior to debt settlement. By doing this, you insure that you have the best rates for your loan prior to your credit getting damage.

One thing to realize when it comes to credit and your FICO score. That number is only good when you need it. Credit scores can get repaired. With proper planning, you can avoid having to obtain a loan with damaged credit and insulate yourself from this aspect of debt relief. Once you have your debts cleared, you can begin to repair your credit.

Financial stress and the related problems that accompany it is a common problem, especially in our current economy. Do not be a victim…get help. Empower yourself through these challenges and create a new destiny…create a new you.

What is a Beacon or FICO score?  How is it used by creditors to determine your credit worthiness?

Fair Isaac Company created the Beacon FICO score which is the most commonly used rating to determine credit worthiness and financial strength.  Your credit score is the number one criteria used to determine what interest rate you will be charged on your mortgages, loans,
and credit cards.  It is calculated based upon the information available in your credit report.  Your credit report is used to determine your eligibility to receive credit, along with other strategic information that each creditor analyzes to determine your risk as a borrower.  Your
financial health depends on obtaining and maintaining good credit.  It is a good idea to periodically check your credit report to verify your rating and to insure that no one is fraudulently using your name and social security to get credit.

Beacon FICO scores range from the lowest of 350 to the highest of 850.  Generally speaking, a credit score below 620 is an indication of a more risky situation.  When the socres drop below that level, you will see higher interest rates, stiffer terms, and more rejections of credit applications.

Debt relief through credit counseling and a debt consolidation loan is a way to increase your credit rating.  At Credit Capital Solutions, a licensed and bonded company, we provide credit repair, a well as loan modification services.  Through our unique business model and our long history of experience, we are very successful in assisting clients to repair their credit score.

Contact us for a free, private, and discreet consultation…many individuals have moderate to severe credit problems…especially in this economy.  Be proactive…we can help…we can Empower you!