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Dear Homeowner, we understand that you are facing some tough decisions about your financial future and that includes the decision to sell your home. Due to your current situation and/or the market conditions in your area, you may need to sell for less than you owe. To sell your home, you need a short sale. As a short sale specialist, Ron Huggins and his team will be able to assist you through the process. We can help you get out of this overwhelming and difficult situation! You can walk away from this with minimal impact to your credit, without the stigma of foreclosure and without tax consequences. In under two years you could be able to purchase another home!

Foreclosure vs. Short Sale
Short Sale F.A.Q.

What is a Short Sale?

A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. See also deed in lieu (of foreclosure).

Foreclosure vs. Short Sale
Knowing Your Options.

A short sale if accepted by the lender is a much better alternative than foreclosure. You will not have a damaging foreclosure mark on your credit, may not have to bring any money to closing even if your home is “underwater,” may avoid bankruptcy, not need to make any extensive repairs, and could qualify for another home in much less time than if you allowed the bank to foreclose.
Important Note: If you are facing a scheduled foreclosure date, be sure to let your agent know. Please also provide them with any paperwork sent to you regarding the foreclosure.

Issue	Foreclosure	Short Sale
Future Fannie Mae Loan - Primary Residence	A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years and then would be eligible.	A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years (sometimes even less) and then will be able to purchase a property that is Fannie Mae backed investment.
Future Fannie Mae Loan - Non Primary	An Investor who allows a property to go to Foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years and then would be eligible.	An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years and then will be able to purchase a property that is a Fannie Mae backed investment.
Future Loan with any Mortgage Company	On any future 1003 mortgage application, a prospective borrower will have to answer "YES" to question C in Section VIII that asks “Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years? ”. This answer will affect future interest rates for up to 7 years from foreclosure.	There are no similar declarations or questions regarding a short sale on the mortgage application and therefore would be no reason to disclose that information.
Credit Score	Score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years. Credit scores are important to qualify for a loan in the future.	Only late payments on mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A short sale’s affect can be a brief as 12 to 18 months and your credit could be back to normal.
Credit History	Foreclosure will remain as a public record on a person’s credit history for 10 years or more and will higher chances for obtaining loans.	There is no specific reporting item on a credit report for ‘short sale’. The loan is typically reported ‘paid in full, settled’. thus giving your credit report a stronger value than a foreclosure would.
Security Clearances	Having a foreclosure on your record is just under having a criminal record when it comes to security clearances. Employer’s that have high security clearance have rights to dismiss employees with a foreclosure on their record.	A Short Sale on its own does not challenge most security clearances. Officers in the military may be adversely affected by a short sale in certain cases.
Current Employment	Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. Employer’s that have high security clearance have rights to dismiss employees with a foreclosure on their record.	A short sale is not reported as such on a credit report and is therefore not a challenge to employment and not needed to be disclosed.
Future Employment	If future employers do credit checks a foreclosure is the worst strike to have on a credit report.	A short sale is not reported on a credit report and is therefore not a challenge to employment and no need to be disclosed.
Deficiency Judgment	In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.	In some successful short sales it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner. This happens more times than not.
Deficiency Judgment (amount)	In a foreclosure the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment.	In a properly managed short sale the home is sold at a price that should be closer to fair market value and in almost all cases will be better than an REO sale resulting in a lower deficiency. Short sales homes are usually better taken care of will demand a stronger value.

Short Sale F.A.Q.

- How much time do I have?
Do I have to start now?
- It is best to begin a short sale when you realize you can no longer afford the mortgage, so that your property can be marketed properly and you can receive a high offer. The earlier you start, the higher our likelihood of success. Remember that your lender requires a purchase offer to review your eligibility for a short sale and it may take a few weeks to get a solid offer.

- Do I need to be in default to qualify for a short sale?
- NO, more and more lenders are considering short sale requests from homeowners who are not in default. However, you must be experiencing a financial hardship that points to imminent default if you are unable to sell.

- What will happen If I do nothing?
- If you do nothing and are not making your mortgage payments, your lender will foreclose. You will have a foreclosure on your credit report, be liable for any deficiency, and/or subject to a taxable event.

- Will I get any money when the property sells?
- NO, for the majority of loan types you are not allowed by your lender to receive any proceeds from the sale of your home. If you have an FHA loan, you may qualify for their pre-foreclosure sale program that does have a selling incentive.

- What if I file bankruptcy?
- Filing bankruptcy will not stop the foreclosure process, just delay it. The property will eventually be discharged from bankruptcy protection and be back in the foreclosure process where it was when bankruptcy was filed. For further bankruptcy information, please seek the advice of legal counsel.

- What is better on my credit – Foreclosure or Short Sale?
- Please consult your own financial advisor or the credit bureaus directly for the answer to this question. From experience only, we can say that foreclosure is much more damaging to your credit. A short sale will most commonly be listed as “settled debt” and is much less harmful to your credit.

- Will I be liable for my lender’s financial loss?
- Depending on your situation you may or may not receive a deficiency judgment or taxable event. It is best to consult an attorney for advice regarding any debt liability. Now, there have been recent changes in the law that reduce homeowner tax liability. Find more information on IRS web site regarding The Mortgage Forgiveness Debt Relief Act and Debt Cancellation. Most tax consequences have been done away with for primary loans on primary residences. Regarding deficiencies – you can have your agent request in the negotiations a full release of lien and that your lender consider the debt settled or satisfied. The bank has the right to ask you to sign an unsecured note or to ask you contribute money at the time of closing. Be sure your agent negotiates the best outcome for you.

- What other advice should I seek?
- Be smart. Always seek professional advice from a qualified attorney and an accountant specializing in Short Sales/Pre-Foreclosure Sales.

- Why do lenders or banks accept discounts?
- A Lender or bank takes a discount or agrees a short sale because it saves them money. It gets bad debt off their books so they can reinvest that money by giving out another loan to a customer. On average a Lender loses between $30,000 to $80,000 on each property that they take back as a bank owned property. In many cases a short sale is necessary in order to get you out from under your mortgage debt. By doing a short sale, you will be able to take a large bite out of the money you owe to your mortgage company, so that you are no longer liable for the entire amount.

- Will every lender or bank allow a short sale?
- The answer is no. The majority of the lenders do short sales however; there are a select few that do not do short sales.

- How do I know what type of loan I have?
- Knowing what type of loan you have is crucial to the process. There are often specific short sale requirements unique to each loan type. You can find this information by looking at your mortgage statement, the settlement papers from when you originally purchase the property, or by calling your lender.

- Will Lenders or Banks do short sales if the mortgage is current?
- Some Lenders will entertain taking a discount when a homeowner is current on their mortgage however they typically require the property to be listed for sale by a licensed real estate agent.

- How long do I need to be in default before I can start a short sale?
- This depends on the Lender. Some Lenders require a property to be 90 days in default before they will entertain a short sale offer; other Lenders will entertain a short sale even if it is not in default.

- Can the owner of the property also be the listing agent?
- Good Question! There is absolutely nothing wrong with that set up. The agent owner or agent spouse is not a financial beneficiary of the short sale by virtue of her commissions, therefore there is no conflict. BEWARE however. There is a small chance that some Lenders could take issue with it and reduce the owner’s side of the commissions accordingly.

- What is required to process a short sale?
- Every Lender or Bank has its own set of required information and some may even have a set of paperwork specific to them. But, in general, most banks require at least the following: A handwritten hardship letter, financial statements, 2 years tax returns, 2 months bank statements, 2 months paystubs, and that you have the property listed for sale at fair market value. Throughout the process additional paperwork may be requested. So, be sure to keep everything handy.

- What is the process?
- The steps and process of a short sale can be broken into 9 main steps. The most important parts of the process for you are to help in the beginning to gather the paperwork required and to help list and sell your home. As your short sale is negotiated, you will be provided regular updates throughout the process.

- How long does a typical short sale take?
- Depending on what state you are from, this answer will vary. For example in the State of Connecticut a short sale typically takes between 2 to 4 months. The short sale time-line is subject to your Lender or Bank. Many banks are overwhelmed right now with short sale requests. However, most do have an understandable review process. Unnecessary delays can be avoided by not sending incomplete short sale packages. Incomplete offers are often passed over or rejected. Your file is then closed and you would have to start over from the beginning. It is very important to be sure you provide everything required by your Lender and requested by the person helping you negotiate.

- Can 2nd Mortgages or junior liens be discounted?
- Yes, absolutely. In fact, if the first mortgage is being asked to accept a discount, they will require that all other lien holders discount as well in order to give short sale acceptance.

- Can IRS tax liens be negotiated?
- Yes, absolutely. Tax liens can be released from a property or reduced and paid at closing. Please consult the appropriate tax professionals for more information.

- Do I need to call my Lender?
- No. You are not required to call your lender. However, in certain instances it is often helpful to the process for you to call.

- What is an Authorization to Release?
- This gives the people negotiating on your behalf permission to talk with your lien holder(s).

- A foreclosure sale date has been scheduled for my property. Can I still short sale my property?
- Yes, absolutely. However, certain immediate steps may be necessary to get the foreclosure date postponed. You need to quickly complete the package of required forms, get your property listed right away, and cooperate wholly with your agent. A 3-way call to your lender may also be necessary to speed up authorization. There are no guarantees that there is enough time to get a postponement.

- Will the foreclosure process stop when we submit a short sale offer to the lender?
- No. The foreclosure clock will continue to tick. Postponement requests can be made if necessary. Your Lender will only postpone foreclosure proceedings if they are certain a buyer will perform.

- When should a default property that needs a discount be listed?
-Immediately. The Lender typically will not stop or slow down a foreclosure unless a property is listed for sale by a licensed real estate agent.

- I am not going to list the property that low…my neighbors’ house just sold 2 years ago for $50,000 more than that.
- We understand. However the market has changed and every property is different. There has been a reduction in the average value of comparable homes in your area and you must sell your home right away to avoid a possible foreclosure. To do this requires that you list your home at a price that will sell. Understand that Buyers will always look for the best deal. If your property is priced higher than competing homes, Buyers will pass it by.

- I do not want to advertise the home as a short sale, pending foreclosure, or any other negative ownership conditions.
- We understand. Depending on your circumstances it may not be necessary to advertise your situation. However, you need to list the home at a price that is below what you owe. That means that all offers you receive must be contingent upon approval of a short sale. Most are an MLS (Multiple Listing Service) guideline requiring that such contingencies be fully disclosed. The remarks must, at the very least, include that the sale of the property is “subject to third party approval.”

- Will all offers be contingent?
- Yes. It is likely necessary to list your home for an amount that is less than you owe on your mortgage and not enough to cover all other associated fees. To sell requires short sale approval from your Lender or Bank. That makes all offers received subject to your Lien Holder(s) approval of a short sale.

- I want my lender to consider the debt paid in full at closing. Can I include this request in the contingency?
- Yes. However, not all lenders will honor such requests. If this is important to you, be sure that a special stipulation clearly defining your request is included in all purchase offers.

- Do we have to have a purchase offer to get short sale acceptance?
- Yes. Most lenders require that a short sale offer be submitted before they will even accept a short sale package, order an appraisal, and make their review. They typically will not spend the time and resources to review your situation unless they know that a buyer will perform.

- How will the short sale of my home affect the property values of my neighbors?
- Should your neighbors have their property appraised in the next few months, their appraiser will use recently sold comparables to determine value. Appraisers generally do not include any ‘distressed’ sales, like the sale of your home, in their evaluation. In the long run the average property values in your neighborhood will not be damaged by the short sale of your home as much as they would if the property became bank-owned. Vacant foreclosure listings that sit for long days on market and then sell at heavily discounted prices are much more damaging to neighborhood home values.

- I cannot afford to make any repairs…
- When you are listing your property make sure your real estate agent adds the remarks “home to be sold AS-IS”. By doing this, Buyers will be aware that you cannot or will not make any improvements on the property. Be sure that your agent clearly expresses this to the Selling Agent and protects you in negotiations.

- Can an immediate family member buy the home and I stay living here?
- Typically not. The foreclosing lender will not allow anyone to purchase the home through which you could become a direct beneficiary of the property and potentially re-sale for a profit. Furthermore, by allowing you the privilege of a short sale you are required to relinquish all use and benefit associated with the property.

- My situation has changed and I can afford the monthly payments. Do I have other options?
- Yes. Be sure to research your options. Your agent may be able to assist you further.

- My situation has changed and I am making enough money to rent but not enough to pay my full mortgage, but I still need to do a short sale to sell my property. Should I save the extra money?
- Yes, absolutely. You will need money for moving expenses. Also, in some rare instances you can offer a good faith payment to your lender to encourage them to approve your short sale.

- Can I make any money on the sale of my property?
- A homeowner cannot accept money from the sale of their home if a Lender accepts a short payoff or a short sale. However, there are exceptions to this statement; for example an FHA (Federal Housing Authority) insured loan will allow a homeowner to receive $1000.00 when taking a short payoff.

- Will I need to bring money to closing?
- In most instances you will not. A short sale is designed to assist the homeowner. All items due and payable at closing are meant to come from the Buyer’s funds. You will generally not have any out-of pocket costs to pay real estate commissions, closing costs, or any other items due and payable at closing.

- Do I have to pay any processing fees or real estate commissions if the short sale is not successful?
- If a ready, willing and able buyer is not found and the Foreclosing Lender does not accept “an acceptable offer” then there will be no expenses due from the seller/homeowner. Make sure your real estate agent disclosed that the sale is “subject to lien holder(s) approval or 3rd party approval” so that you are protected.

- I may file bankruptcy. Will this affect the short sale?
- Yes. If you file for bankruptcy protection you Lender or Bank will be unable to discuss the terms of your short sale until the bankruptcy is released or discharged. A bankruptcy puts an “automatic stay” on any credit/debt collections which include negotiating a short-pay of your mortgage(s). Any pending foreclosure sale dates will be postponed as foreclosure is also a credit collection. Be sure that you inform your agent immediately upon making this decision. If you choose to file, please provide your agent with any paperwork involving the property that you receive from the Lender of bankruptcy trustee. For further information, please consult with a bankruptcy attorney.

- What happens if the Bank or Lender counters the current offer?
- The Buyer will need to either increase their offer to meet that number or your agent will need to find another buyer that meets your Lender’s requirements.

- Will filing bankruptcy STOP foreclosure?
- No. Filing bankruptcy will not stop the foreclosure process, just delay it. The property will eventually be out of bankruptcy protection and be back in the foreclosure process where it was when bankruptcy was filed. For further bankruptcy information, please seek the advice of legal counsel.

- How does a bankruptcy affect my credit?
- Bankruptcy will stay in your credit reporting agency files for ten years. Now, declaring bankruptcy doesn't necessarily mean that the door to future credit will be forever closed to you. If you take the proper steps after declaring bankruptcy and also manage your credit responsibly, you can rebuild an improved credit reputation in a few years. Please consult a credit counselor or a major credit bureau for more information.

- How many years after filing bankruptcy can I buy a house?
- You will not have to wait 10 years to be considered for a home loan. However, do expect to wait at least five years and only then will a lender consider your loan application if you have stayed current on your bills after the bankruptcy.

- How many years after a successful short sale can I buy a house?
- There are new loan programs designed to help people who have recently had to short sale their home. You can apply for a home loan in as little as two years provided you have maintained your credit with good payment history, kept your debt-to-income ration within lending guidelines, and have verifiable income.

- If I let the bank foreclose on my house, how long until I can purchase another property?
- Unfortunately, there is no specific answer for it except to say that it could be a considerable amount of time (more than the 2 years on a successful short sale). Most lenders view your financial history as an indicator of what you will likely do in the future. If you missed several months of mortgage payments leading up to your foreclosure, then a lender will see you as a likely candidate to default on a future loan -- in other words, you are a big risk.

- Will I receive a 1099 if my mortgage lender takes a discount?
- Yes it is an IRS code. The IRS code states that “a reduction of debt is a taxable event.” However, the Government has passed the Mortgage Debt Forgiveness Act. It states that for a certain period of time, some homeowners with primary loans on primary residences may be exempt from receiving a 1099. Please consult a credit counselor or a major credit bureau for more information.

- Can I do a short sale on more than one property?
- Yes. You may short sale more than one property.

- Someone told me that I can file as “insolvent” if I receive a 1099 from my lender?
- There are certain tax codes that enable someone in a financial hardship to be exempt from any tax liability outside of the exemptions already allowed in the Mortgage Debt Forgiveness Act. Please consult with a tax accountant for more information.

- Will the Bank or Lender pursue a deficiency judgment for the amount they lost from the short sale?
- If you do not have a non-recouse loan your lender can pursue a deficiency. This does not mean that they will. You can have your agent request in the negotiations a full release of lien and that your lender(s) consider the debt settled or satisfied and paid in full. The bank could ask you to sign an unsecured promissory note or to ask you contribute money at the time of closing. Be sure your agent negotiates the best outcome for you.

- What if my lender requests a promissory note or money at closing?
- Your lender can make such requests. Whether or not you choose to agree must be a personal decision based upon your financial situation. Keep in mind that any amount requested by your Lender or Bank will likely be much less than they could potentially pursue from you as a deficiency judgment if the property were foreclosed upon.

- Will I need an accountant?
- We always recommend that everyone in your situation seek the advice of an accountant or other tax professional.

- Do I need an attorney to represent me?
- It is always important to seek legal counsel when making these types of decisions.

- I am behind on property taxes…
- These can be negotiated into the buyers offer and paid at closing. The payment of taxes owed will simply be another reduction in the amount paid to your Lender. Please note: if the Lender forecloses on your property, this is an expense they will have to pay.

- I have not paid my HOA dues…
- We will negotiate a discount for all current and past HOA dues and have them paid at closing from the funds to your Lender.

- Can I rent the property?
We cannot advise you to or not to rent the property. Please consult a real estate attorney before making this decision.

- The property is vacant. Do I have to keep the utilities on?
- No, however it is advisable to do so. A home shows better when the lights can be turned on and the lawn is watered.BR>
- When should I move out?
- Different loan types have requirements regarding occupancy that could affect your eligibility for a short sale. Before making the decision to move, be sure that you have talked with your agent and your Lender about your plans.

- Can I take anything with me?
- Anything that you are going to take from the property needs to be clearly disclosed to any Buyers viewing the property. Be sure to leave all fixtures that traditionally remain in the sale of most homes, in working order.

- The property is in bad condition…should I do anything?
Extensive repairs or clean-up will be considered by potential buyers and reflected in the list price. Should some clean-up be necessary to assist in the sale of the home, your agent will make that request and work that out with you.