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!

With the housing market implosion and the dramatic rise in Foreclosures and Short Sales, it is vital that you pick an experienced real estate agent who really understands the Short Sale process.  This can play a major role in the successful closing of your Short Sale transaction.

Here are some key bullet points to bear in mind when researching prospective agents and their individual “team”…yes I said their “team”.

**Having a team is an important aspect of being able to provide the level of service that should be expected by each client.  This is due in part to the nature of the Short Sale process.  Banks are so overloaded that they cannot keep up with the amount of files being handed to them each day.  A good Short Sale agent will need to frequently check with the loss mitigation department for status updates as well as follow up to make sure they received all the documents for the Short Sale package.  Sometimes this requires multiple calls in a given day.

**How many listings does your team have?
**How long have you been in the business?
**Do you have a “system” in place to handle your Short Sale business?
**Are you a “Certified Short Sale Specialist“?
**Do you have a checklist of items I need to prepare for the Short Sale package?
**What happens if I get a Notice of Default?  (NOD)
**Do you have a list of Attorneys and CPAs that I can contact for council?

These are some important questions that you as the consumer should ask.  If the agent in question does not have a system in place and cannot be the “source of the source”, you may want to continue searching for another agent.

Here are some important websites that you as the potential seller should read and review:

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

These are all sites where you as the potential Short Sale client should spend some time and do research prior to meeting with any professional.  This will give you some basic knowledge that will not only guide you through the Short Sale process, but will empower you as you make your choice of professionals to guide you through this mine field.

Do your due diligence.  Do your research.  Empower yourself through this process.

Undergoing the hardships and stress of losing your home can be overwhelming.  There are a number of options to consider no matter which direction you choose…

Some important things you should be prepared to avoid if you find yourself considering foreclosure…beware of foreclosure scams:

*Scam artists often target homeowners who are struggling to meet their mortgage commitment or anxious to sell their homes.  Recognize and avoid these.

*Research HUD…get assistance from a HUD-approved housing counselor is free.

*Beware of anyone who asks you to pay a fee in exchange for a counseling service or modification of a delinquent loan.

*Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.

*Never make a mortgage payment to anyone other than your mortgage company without their approval.
Research your options.  Discuss loan modification with a qualified loan modification expert.  Get pre-qualified to see if loan modification is right for you. If you do not meet the lender’s criteria for loan modification, then short sale is probably a good option to consider.  Retain the services of a real estate agent who specializes  in listing short sales.  An experienced agent will take control of the situation and deal with the lender directly, thus removing the stress away from the homeowner.  Selling your house short will do less damage to your credit than letting your house go to foreclosure.  Under Fannie Mae and Freddie Mac guidelines, when you foreclose on a home, you will not be able to qualify for a mortgage for seven years.  If you do a short sale, the time frame decreases to three years.

Before you make a decision that can potentially make a major financial impact on your life, it is important to understand the basic principals of loan modification, short sales, and foreclosure…due your due diligence…do your research…Empower yourself.