Short Sales in Nutley NJ-Should I sell my home this way?

What is a short sale? Let’s start off with some questions and answers below.

1) What is a short sale?

A short sale is a situation where a distressed seller must sell their house for less money than the mortgage balance. A short sale is suitable for mortgage holders whose financial situations command that they liquidate their interest in the property and who are not able to qualify for other other modification options. Simply put a short sale is when the value of the property has dropped below the current mortgage balance owed.

2) Will my bank allow a short sale?

Banks want to avoid foreclosure too. A foreclosure cost the bank lots of money and data has shown that when a bank receives a property through foreclosure it is in worse shape compared to other options because of unhappy owners who leave the property a mess or in damaged conditions. A short sale helps the bank preserve losses and helps the mortgage holder preserve their credit and financial situation. If you are in a hardship situation your bank would much rather do a short sale than foreclose on your property.

3) I have an FHA loan. Will my bank do a short sale?

Absolutely a bank will do a short sale on an FHA loan. In fact FHA has introduced the Pre-Foreclosure Short Sale Program or PFS that will pays the seller up to $1,000 at the closing just for finishing the short sale. This program was designed to help you transition to more reasonable living costs without the impact of foreclosure.

4) Do I have to be late on my payments to do a short sale?

It is not necessary to be delinquent on your loan to get approved for a short sale. There are more details below on the requirements for short sale but it is important to know that a short sale can be done due to the value of the property declining below the mortgage amount or when the home owner has met with tough times. Basically you don’t need to be late just in a hardship situation. A reason for NOT approving a short sale is: You don’t like the neighbors. A real hardship is what is required for a bank approved short sale.

5) Do I have to pay a tax on my short sale?

New laws have been passed that prevent lenders from sending you a 1099 tax form. In 2007 President Bush signed The Mortgage Debt Relief Act that alleviates taxes on a short sale loss. It was common practice for banks to deliver a 1099 tax form to the to the former home owner that ordered the seller pay a tax loss. This has been temporarily stopped and has become a huge benefit for sellers in a distressed situation. The Mortgage Debt Relief Act has been extended through 2012. It is important to consult a certified accountant in regard to your personal situation because not all short sales are protected. For example investors selling an investment home through a short sale are not exempt from paying this tax.

6) How long does a short sale take?

A good short sale package is designed to get quick results. Many unknowing realtors will fumble a short sale out over 9 months to beyond a year and often times fail to produce an approved short sale. An experienced short sale real estate professional will quickly complete the short sale procedure and have your property sold in approximately 60 days from time of contract. Completing a short sale is difficult and it takes intelligent agents who will finish the short sale in a timely manner.

Before a short sale you should look at a few other options.

A short sale is when a seller must sell their property and the proceeds are less than the amount owed to pay off the mortgage. A short sale is desirable for sellers whose financial picture or circumstances requires that they liquidate their property and they have run out of other loss prevention options. A short sale happens when the property value has declined below the balance of the loan.

Knowing your options before a short sale is important to know. Occasionally if you have defaulted on your mortgage it is “curable” and there is a strong option that you are able to replace lost salary or reduce your costs.

Special Forbearance – A special forbearance is a written repayment agreement between you and your mortgage company that involves of a plan to reinstate your mortgage after it has fallen behind. Some variations are settlement over a time period, a cutback of your monthly payment for a brief time, or a strategy for you to resume complete monthly payments while delaying the missed payments. What your bank is doing is letting you get caught up with you payments.

Loan Modification – Modification of your loan is a permanent change to your mortgage. It also allows your loan to be reinstated and provide a monthly payment that you can pay for. Loan modifications open up a number of options such as decreasing your interest rate, or extending the time for you to pay back the mortgage by re-amortization of the balance due. It’s similar to applying for a new loan but not all will get approved for a modification.

Combining The Above – It is possible that your mortgage lender will combine strategies to accomplish a preferred end result. Each and every bank is a little diverse on how they run these situations. The purpose of mitigation is to keep you owning your house and assist you in recovering from a adjustment in your monetary condition.

So what happens when there is no way of helping you recover and keeping you in your home? When loss mitigation is not a viable option or cannot work you are headed toward a possible foreclosure. There are however options for you instead of letting your home go into foreclosure.

Deed-in-Lieu  – Deed-in-lieu of foreclosure is simply giving your property to the bank by deeding to them. Basically you hand over your house to your lender. This may sound like a viable option as opposed to a foreclosure but there are some things you need to know.

1) A deed-in-lieu as far as your credit report is concerned is just as bad as a foreclosure.

2) Lenders don’t really want your home. It becomes an asset that they have to deal with and selling properties is not what they like to do. Many banks will not allow a deed-in-lieu and want you do do a short sale instead.

Short Sale – A short sale allows you to sell your home and use the proceeds from the sale to pay off part or most of your mortgage. In most situations your lender is willing to accept less than the amount of the mortgage balance. As previously stated this option is for home owners whose financial state of affairs requires that they sell their home.

Here are some of the reasons your lender will do a short sale:

A declining home market – This cause does not examine your credit or your financial state. This is when you are just upside down in your home and owe more than it’s worth. Don’t forget a short sale means you must sell your home. This does not apply if you want to move because you don’t like your neighbors.

The Mortgage is in or Near Default Status – This is the reason for most short sales. There was a time when lenders would not do a short sale if all the payments were current. Banks have now realized that in many cases it makes sense to do a short sale before the payments are in default.

The Seller has Faced Bad Times – This is a short sale situation where there is a real hardship the home owner is facing. A hardship letter is required in all short sales explaining the reason you are in need of a bank short sale. Sometimes a hardship letter can go over the top. It’s good to know the guidelines for writing a good hardship letter. Your hardship letter should always point out that you seek a short sale so that you won’t have to do a foreclosure. Some examples of a hardship are: (Illness, Death, Divorce, Unemployment)

You must also think about your assets when submitting for  short sale. Your lender is going to require you to fill out a financial statement listing your assets. If your lender decides you have an abundance of money they might not grant the short sale because they feel you have the ability to repay the deficient amount. Often times in this situation your lender will still allow a short sale but they might require you to pay back the shortage with a promissory note. This can still be a good solution for a seller who must sell their property and has the ability to pay back a reduced amount of their mortgage loan.

Negative Amortization – Some finance programs that were formed prior to the housing bubble were designed with a negative amortization. This means that each month the amount the borrower pays is not enough to cover the interest on the loan. This is a legitimate situation for a short sale.

Aggressive Secondary Financing – During the housing boom some home lenders were making second mortgages up to and even over 0 LTV. This is another situation that will be considered when requesting a short sale. Second and Third mortgages get a little tricky when doing a short sale but we have experience in dealing with these tough situations.

A short sale is not an easy process but a good real estate agent can take away much of the burden. Do a little research and find the correct agent for your predicament. Most agents do not understand the short sale process.

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About Matthew DeFede

Nutley Real Estate Agent

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