Short Sale / Modification

SHORT SALE

In many cases, a short sale is a dignified exit strategy where the borrower
can sell the home and avoid the negative impact of foreclosure on their
credit report and return to a better financial position”
Jerry – Bank of America

Considering a Short Sale

Banks are committed to helping you keep your home. However, if you believe that youʼll continue having trouble paying your mortgage, selling your property or giving it back now may be right for you. If you owe more on your mortgage than your house is worth, you may be able to sell your home for less than you owe, avoid foreclosure, and make a fresh start. Lenders will require the borrower to prove they have an economic or financial hardship preventing them from being able to pay the mortgage amount.

Selling your home for less than you owe is called a Short Sale

We may be able to help you sell your home for less than the balance of your mortgage loan if you are having trouble making your payments and can no longer afford to keep the home. As your agent, Iʼll work with you throughout the selling process to list your home at fair market value to help it sell faster. In many cases, you will be able to stay in your home while it’s for sale.

This process is very similar to a regular sale, except when receiving offers, offers must be sent to the bank for approval, the bank may counter offer the buyer. Once a contract is accepted and all the required documents are received, the bank normally responds within 21 days. Once there is an agreed upon price, the standard sale and closing process will occur. If you qualify to sell your home for less than you owe through the Home Affordable Foreclosure Alternatives (HAFA) program, you may receive financial assistance to help with relocation expenses anywhere from $5,000 to $45,000 paid to you upon escrow closing or at move-out.

Short Sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between parties. In California legislation was passed to preclude deficiencies after the short sale is approved. Lenders on 1st and 2nd loans are not permitted to pursue any deficiencies after the short sale closes escrow. (SB 931, SB 458 – California Code of Civil Procedure 580e). However, a short sale may result in a negative credit report against the property owner. A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower.

Requirements of a Short Sale

Exactly what you will need to provide your mortgage company varies from program to program and from servicer to servicer, but they all require documentation on your loan, your finances and circumstances. To maximize your options, you will need gather the required information as quickly and completely as you can. You will need to download and copy several forms from your lenders website and submit along with the following:

  • monthly mortgage statement
  • information about other mortgages on your home, if applicable
  • two most recent pay stubs for all household members contributing toward the mortgage payment
  • last two years tax returns
  • completed tax authorization 4506T
  • if self employed, the most recent quarterly or year to date profit and loss statement
  • documentation of income you receive from other sources (alimony, child support, social security, etc.)
  • two most recent bank statements
  • a utility bill showing homeowner name and property address
  • unemployment insurance letter, if applicable
  • account balances and minimum monthly payments due on all your credit cards
  • information about your savings and assets
  • a letter describing your circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness etc.)

MODIFICATION

Loan Modification Program (HAMP)

If you are employed, but are still struggling to make your mortgage payments, you may be eligible for the HAMP.  This program is designed to lower your monthly payment in order  to make them more affordable and sustainable for the long term by adding delinquent interest, escrow items and foreclosure fees (if applicable) to your unpaid principal balance, which is re-amortized over a new term. This will bring your account up to date immediately and change the term of the mortgage note for a fresh start at managing your payment. FHA, VA & RHS guaranteed mortgages are eligible, subject to agency guidelines.  Borrowers who are in foreclosure, in pending litigation involving the mortgage, are currently performing under another workout arrangement, or who are in bankruptcy are eligible.  Other qualifications are: the home must be the borrower’s primary residence, the loan balance must be $729,500 or less, and, the mortgage must have been originated prior to January 1, 2009.  HAMP trial periods along with other mortgage and borrower eligibility requirements do apply and it is critical that you understand the process.

Alternative Loan Modification

An alternative loan modification is designed to help borrowers facing financial hardship that may not qualify for the HAMP, but are still interested in pursuing options that will prevent foreclosure. This can be achieved through this program which will typically modify the terms for a shorter time period, some borrowers may have a fee associated with getting an ALM.   Unlike HAMP modifications, which the government reports on monthly, the ALM is done privately by lenders using different criteria and methods. The majority of alternative or private sector modifications reduce borrowers payments, by reducing interest rate. Eligibility for alternative modification programs is based on investor guidelines and by meeting specific income and hardship requirements.

Home Affordable Refinance Program (HARP)

Is negative equity keeping you from refinancing your mortgage?  This government program is designed to help underwater homeowners save money by refinancing their mortgages.  Fannie Mae and Freddie Mac recently loosened their HARP guidelines in order to allow even more to qualify for the program.  You may be eligible if you are current on your mortgage, your loan was purchased by Fannie or Freddie prior to May 31, 2009, the current LTV (loan to value) ratio must be greater than 80%, and,  you have paid on time for the last six months (and eleven of the previous twelve months). You may be eligible for HARP without income verification if you can show that you have assets equal to twelve months of mortgage payments (principal, interest, tax’s, insurance and any other fees). These assets can be in the form of a variety of liquid assets: cash, stocks, bonds, mutual funds, vested retirement accounts, and money market funds. This program has been extended through the end of December 2013.

Foreclosure Prevention Option (HAFA)

If you can’t afford your mortgage payment and it’s time to transition to more affordable housing the HAFA program might be right for you. The goal is to sell your property and settle your mortgage debt if you owe more on your mortgage than your home is worth.  Completing a HAFA short sale completely releases you from your mortgage debt after selling the property where the difference is guarenteed to be be waived. This federal government program streamlines the short sale process and offers financial assistance to help you with relocation and moving expenses. You may be eligible to receive $3,000 – $30,000 in relocation assistance at closing. If you are not the primary resident you may request that the tenant receive the $3,000 in HAFA relocation assistance, any additional amount above $3,000 will be paid to you. There are certain eligibility requirements that qualify homeowners for this program.

The qualifying criteria varies from program to program, I am available to discuss details of each program to determine which one may be the best solution for your situation.

Contact your Mortgage Company

A large number of mortgage companies have agreed to participate in the Home Affordable Modification Program (HAMP).  Mortgage companies with loans owned by Fannie Mae and Freddie Mac are required to participate. If you have questions about these programs please call the Homeownerʼs Hot Line at 1-888-995-HOPE (4673).  If you need help working with your mortgage company, or believe you have been wrongfully denied for a modification, call the hotline and ask for “MHA Help”.

What to Expect from the Making Home Affordable Program

Getting help through the MHA program requires some effort. Homeowners who prepare are far more likely to get a more positive outcome. So expect to spend some time at www.MakingHomeAffordable.gov learning about your options, your eligibility and the steps you must take to apply for assistance. Learn all that you can and become familiar with the features of the programs offered. Find one you think best fits your situation best. The time you spend on this site could pay dividends for your future as a homeowner.

What to Expect from your Mortgage Company

Some of the effort that will be required of you is a commitment to assist your mortgage servicer in every way you can. Your mortgage servicer wants to find a solution to keep you in your home. Giving you a loan modification brings them lower returns but the cost is far less than a foreclosure would cost them. So your mortgage servicerʼs biggest concern is weather you can comfortably pay the new modified payments. In addition to a standard initial package of documents most servicerʼs require, the more information you can provide to assure them that you can afford the new payment, the easier it will be for them to review and evaluate your application for a modification.

What to Expect from a Housing Expert

If you decide to work with a HUD approved housing counselor, you can expect they will work as your advisor and advocate. As your advisor your counselor needs as much about your situation as you can provide to assist you in choosing what MHA program best fits your financial situation. As you enter a process that can sometimes be overwhelming. It may be in your best interest to engage a housing expert to help along the way. Let a HUD-approved housing counselor help you understand your options, prepare your application, and work directly with your mortgage company.

  • there is no charge to work with a HUD-approved counselor
  • a HUD-approved housing counselor will talk to you about your situation and help you decide what options are best for you
  • a counselor will explain what documents you’ll need to provide to your mortgage company and may be able to contact them on your behalf
  • a housing counselor can help you make a budget that will show you how much to meet your monthly mortgage payment and other expenses
  • counselors are available 24/7 at 888-995-HOPE (4673)

What You Will Need

Borrower eligibility is based on meeting specific conditions including investor guidelines and approval to be considered for a loan modification. Exactly what you will need to provide varies from program to program and from servicer to servicer, but they all require documentation on your loan, your finances and circumstances. To maximize your options, you will need to gather the required information as quickly and completely as you can. You will need to download several forms from your lenders website and submit along with the following:

  • monthly mortgage statement
  • information about other loans on your home, if applicable
  • two most recent pay stubs for all household members contributing toward the mortgage payment
  • last two years tax returns
  • completed tax authorization 4506T
  • if self-employed, the most recent quarterly or year-to-date profit and loss statement
  • documentation of income from other sources (alimony, child support, social security)
  • a utility bill showing homeowner name and property address
  • unemployment insurance, if applicable
  • account balances and minimum monthly payments due on all credit cards
  • information about savings and other assets
  • provide evidence of a financial hardship and the circumstances associated (job loss, divorce, illness, etc)
  • submit all required information included in the banks financial packet
  • You must stay on top of the entire process, don’t expect the approval is moving along on it’s own

Beware of Scams

Unfortunately, and far too often, homeowners looking for mortgage assistance end up victimized by a scam artist. Know the warning signs to protect yourself, your money, your family and your home.