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FREQUENTLY ASKED QUESTIONS

Short Sale FAQ

 

WHAT IS A SHORT SALE?

A short sale in real estate is selling property for less than is owed on the property.

For example:
Loan amount: $450,000 - Market Value of $375,000. In the above example the property is at a minimum upside down $75,000. In order to get the bank to take an offer at $375,000, a team of experts who specialize in negotiations with banks and marketing of short sale properties to the real estate community are needed. That is exactly the expertise of NextGEN.

 

HOW LONG DOES A SHORT SALE TAKE?

Banks can take up to 60 days to give an official approval of an offer once it is received. This process can be improved with clear communication by your representative. Open and consistent communication improves the process. We ensure that the required paperwork from the bank is correctly filled out which increases acceptance by over 45%. Some banks will destroy an application that is off by even one item. Our team ensures that your paperwork is correctly filled out the first time, so you have the greatest chance of acceptance.

 

HOW LONG UNTIL I HAVE TO MOVE OUT?

The bank is required to let you know they have filed the notice of default with the county recorder’s office of the county you live in. The majority of banks file after you have become 90 days late on your mortgage or 3 consecutive mortgage payments. From this time, the earliest a sale date can be set is 90 days from the notice of default. So you may not have to move out until 90 days after your third missed payment.

 

WHAT ARE THE CONSEQUENCES OF DOING A SHORT SALE?

Completing a successful short sale will mean that you will not have a foreclosure reported on your credit record. This also means on loan applications where it asks if you have had a property foreclosed upon, you will be able to answer no. This is one of the single best consequences of doing a short sale. By requesting a short sale with your lender or having a team such as NextGEN do the work for you, the number of calls you get from your lender will be reduced by over 50%.

 

WHAT HAPPENS IF IT DOESN'T WORK?

If your property does not sell as a short sale, it may end up being foreclosed upon by the bank.

It is of the utmost importance to get the bank an offer to review as quickly as possible. Then your lender can decide how to best help you and if to accept the offer you have received. It is for this reason that you need to have a real estate team who specializes in short sales to present to the bank on your behalf.

 

WHAT KIND OF INFORMATION WILL THE BANK ASK FOR?

Each bank has its own separate set of forms that must be filled out completely. In fact, if you have two loans, the amount of information can be different between both banks. The types of information that can be asked for are as follows:

  • Signed Hardship Letter
  • Copies of last several paychecks for all owners of the property
  • Copies of P&L statements if you are self-employed
  • Complete Financial Form-Each bank has their own standard
  • Copy of Tax Returns
  • Copy of Bank Statements
  • Copy of investment Account Statements
  • Copy of Listing Agreement
  • Estimated Net Worth Sheet
  • Identification of liens of property
 

Our team will guide you through all of the requirements regardless of which bank and what form is required.

 

WHAT IS A HARDSHIP LETTER?

A hardship letter is a statement of how you and your family got behind on your payments. Bankers are people too. They need to know what happened in order to help you out in the best manner possible.

 
Events that should be included in a hardship letter are as follows:
  • Loss of Job
  • Loss of overtime or income
  • Family issues - pending divorce, medical bills or other family issues
 

This is one of the crucial pieces of information that the bank uses in order to make its decision. It is important what you write is truthful and explains what happened to you completely.

 

 

WHAT IF I HAVE DECLARED BANKRUPTCY?

Bankruptcy can delay a sale of your home at a trust sale. Your bankruptcy attorney may have additional advice for you. The NextGEN team is proficient in communicating with your legal representation.

 

If you have declared bankruptcy, please let your NextGEN specialist know. Just give your NextGEN specialist your attorney’s information so we may be in contact with them.

 

WHAT EFFECT WILL BANKRUPTCY HAVE?

Bankruptcy can delay the sale of your home. Please refer to your legal representation for detailed questions on bankruptcy.

 

WHAT DO I DO WITH THE LETTERS FROM THE BANK?

Read, review and get a copy of them to your NextGEN representative. These letters contain many different pieces of information. It is critical to review all letters as they may have legal consequences. Banks can send you letters including the following:

     

  • Loan Modification – The lender can modify your loan making the payment more affordable for you and your family.

  • Loan Forbearance – This is a temporary adjustment by the bank of the requirement to pay your mortgage. The lender can do this for reasons such as health, job, or family issues. The amount that you do not pay is generally added to your loan balance or spread out over multiple payments.

  •  

 

WHAT ABOUT PEOPLE OFFERING TO BUY MY HOUSE IF I JUST SIGN THE DEED OVER TO THEM?

Unfortunately, there are many individuals out there who do not care about helping homeowners in time of need. They in fact only care about being able to profit from your situation. Our recommendation is that you make sure to have a real estate professional look at everything prior to signing an offer from one of these individuals. If the person has a legitimate offer, they won’t mind who reviews the offer.

 

SHOULDN’T I JUST CALL MY LOCAL REALTOR WHO MARKETS IN THE AREA?

You need a team to represent you. A single agent alone does not have the time, expertise or training necessary to complete a successful short sale transaction. The team needs to have a Loss Mitigation Specialist on staff, just as NextGEN does. The team specialist should be able to tell you up front if they can help you and what they are going to be doing for you.

 

SHOULDN’T I JUST CALL MY LOCAL REALTOR WHO MARKETS IN THE AREA?

Unfortunately, 99% of real estate professionals are not trained on how to handle a property that is worth less than what is owed (i.e. Short Sale). They are not trained in negotiation. They are not trained to deal with the banks and the banks representatives.

 

Agents need to have specialized training in order to complete this process. This prevents further action by the bank against you. In addition, agents need to have a deep understanding of the process and must be able to explain the value to the bank of working with the homeowner.

 

ARE ALL SHORT SALES THE SAME?

No. It would be great if they were as it would make things easier for homeowners. Any team who has helped both buyers and sellers of short sale properties will tell you that not all short sales are created equal. Success on short sales depends on a variety of reasons:

  • Uncooperative banks
  • Inadequate disclosure by the seller
  • Poorly prepared buyer
  • Banks delays
  • Poor communication by listing agent with bank
  • Buyers back out
  • Sellers fails to cooperate

 

WILL THERE BE ANY TAX CONSEQUENCES TO DOING A SHORT SALE?

Often no, under Federal and California law. In a short sale, lenders issue the client a 1099-C for the amount the lender lost due to the deficiency. The income on the 1099-C is called "Discharged Debt" or "Phantom Income." Under the Mortgage Debt Relief Act taxpayers are generally able to exclude income from the discharge of debt on their principal residence. California law conforms in large part to the federal law for discharges that occurred in tax years 2007 through December 31, 2012. We recommend that each of our clients consult with a CPA regarding tax liability and an attorney for legal liability prior to the close of a transaction. For many clients we are able to provide attorney and CPA review of short sale approvals free of charge. Borrowers should familiarize themselves with the IRS form 982 prior to deciding to pursue a short sale.

 

http://www.irs.gov/individuals/article/0,,id=179414,00.html

http://www.ftb.ca.gov/aboutFTB/newsroom/Mortgage_Debt_Relief_Law.shtml

 

CAN THE BANK ISSUE A 1099-C AND REPORT MY CREDIT AS PAID LESS THAN AGREED?

Technically no, but at times they do it anyway. Homeowners should keep the 1099-C this is issued as proof that the lender "wrote off" that loss by essentially "giving you the difference of the purchase price and amount owed as income." The bank should report "paid in full" to the credit bureaus if they accepted partial payment of the note through the short sale and also sent you a 1099-C (income to you) for the difference. Talk with a Real Estate attorney for more clarification on this subject. If needed, your attorney should contact the bank at a later date about "fixing" the bank's oversight.

 

CAN THE BANK SEEK A "DEFICIENCY JUDGEMENT" FOR THE AMOUNT THEY LOSE BY ACCEPTING A SHORT SALE?

In most states yes, but SB931 recently signed into law by Governor Schwarzenegger protects California homeowners from collection attempts by lenders on first liens. Previously, mortgage holders who accepted short sales of real property and received less than the full amount of debt owed could pursue their borrowers fro the deficiency. Many lenders granted waivers of the deficiency after a short sale but that outcome was not assured from the onset. Now with the passage of SB931 into law, if the mortgage holder agrees in writing to a short sale on the property in California, it is required to accept the sales proceeds as full payment and discharge any remaining claims if it is a first lien. For second liens, the lender may still choose to pursue delinquency judgment in some instances. The thing that you should know is that very few lenders will seek a deficiency judgment due to the cost of obtaining a judgment. There is also the fact that borrowers probably can't pay it anyway. If a lender continues to pursue the deficiency after the close of a short sale, the borrower may consider offering a settlement to the bank. The bank may be more willing to take a minimal amount than to take the borrower to court. Check with an attorney and make note of the statute of limitations in your jurisdiction.

 

WHY SHOULDN’T I JUST LET THE HOME GO TO FORECLOSURE?

Your credit! Foreclosure is probably the worst damage your credit can suffer. You will have to disclose the fact that you had a foreclosure every time you try and purchase a new property. No matter how long ago foreclosure occurred, you will always have to disclose. You can still receive a 1099 for the difference in the foreclosure sales price and the amount owed. In some cases this can increase 50% by the time the property goes to foreclosure.

 

WHY IS HAVING A TEAM WORKING FOR ME IMPORTANT?

Specialization. You don’t go to a regular dentist for oral surgery, you got to a specialist. Teams have specialist in each area. NextGEN’s team has administrative personnel, loss mitigation specials, buying specialists and showing specialists all trained to handle all aspects of short sales. Teams cost no more than a single agent and you get more people for the same price.

 

WHAT DO YOU COST?

The bank decides. Since the bank is losing money on the transaction they will decide what our team gets paid. The most important thing in this process is you the homeowner. We hope to help you now and with future real estate purchases.

 

IS IT BETTER OR WORSE IF I HAVE TWO LOANS?

It depends. Having two different loans makes the short sale process more difficult. It depends on how each bank views the transaction. It also depends on the level of communication delivered through your representative.

 

IS COMMUNICATION IMPORTANT? DO I STILL HAVE TO KEEP CALLING THE BANK?

Yes, communication is important! No, no calls are necessary, we’ll handle the bank! The number one reason for foreclosure is a lack of communication. You have a job. Our job is to communicate with your lender and take care of you. We get authorization to speak to the lender on your behalf. We take care of the communication and make sure you stay informed of what is happening.

 

HOW DO I KNOW WHAT IS GOING ON?

The team at NextGEN communicates with you at a minimum of once every week on Friday via email. We’ll update you more often during escrow. You may also receive verbal communication from our team.

 

WHY SHOULD I DO A SHORT SALE?

The main benefit of a short sale is that in many instances you can still stay in your home payment free during our negotiations with your lender (if a Notice of Default has been filed and the bank will not accept payment, NextGEN does not advise clients to ever stop making payments as this could lead to foreclosure) A short sale will also show your mortgage(s) as "paid in full" ( or 'Paid as agreed' or 'Paid for less than is owed') vs. "foreclosure." The amount of loss to the bank is usually less in a short sale, thus the amount of any 1099 "income" to the homeowner in a short sale is less. If you allow your home to go to foreclosure, there is no one there to help you pick up the pieces as you struggle with bad credit for the next 5-7 years. Foreclosure can remain on your credit record for up to 10 years, whereas a borrower who completes a short sale will be able to buy again in 2 years.




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