Jared Kallen

DelrayShortSale.com
BocaShortSale.com
Free Short Sale Help for Homeowners in Delray Beach & Boca Raton  

Frequently Asked Short Sale Questions

Q: Should I do a Short Sale or do nothing and let the bank foreclose on the property?

A: Before you decide to abandon your property and let it go into foreclosure, you should try to short sell first, even if the current market value is less than half of what you owe on the mortgage. Most lenders agree to accept it as a full payment and forgive any remaining loan balance. It costs you nothing to try to do a short sale as your lender pays all your closing costs including the real estate commissions. There is a good chance your lender will agree to settle it, cancel the difference and will not pursue deficiency against you.

However, if you are not satisfied with the results i.e. the lender does not agree to forgive and wipe out the deficiency, you can always cancel the short sale, at any time, without any penalty or obligation and pursue other options. We have extremely high short sale approval rate with 80-90% successfully closed depending on the lender and the seller financial situation.

A: The Short Sale approval letter will address if you are fully released from all liability to repay the difference to your lender. Most lender waive the rights to pursue any deficiency in the future. Our goal is for you to be fully released from all liability to your lender and settle it forever. At the time when you signed the mortgage, you most likely signed a promissory note (The Note). This note is your personal guaranty to repay the loan to you lender. Whether you are released from the promise to repay the loan depends on your circumstances, your financial situation, your lender and its investors who backed your loan.

Upon receiving the short sale approval from your lender, your attorney will review the approval and advise you of any liabilities that you may have after the closing. If the terms and conditions of the short sale approval are not acceptable to you, do not sign it, we will go back to your lender and will try to re-negotiate. You also have the right to cancel the short sale and pursue other options.

A: Short Sale is a Real Estate sales transaction contingent upon the successful negotiations with sellers mortgage lenders and its investors, lien holders and/or other third parties to agree to sell the property for less than the total amount owed. Generally, a homeowner owes more on the mortgage than the house is currently worth.

1.) Short Sales help reduce Foreclosure rates. 2.) Stabilize market values. 3.) Minimize losses to bank. Banks prefer short sales because short sales make more financial sense to a bank than a foreclosure. In most cases, banks receive more money through a short sale than a foreclosure. Foreclosure process is very costly and time consuming to a bank. By the time a property is fully foreclosed/ repossessed, there may be damage due to lack of utilities, vandalism, etc. and the value goes down. Most banks are willing to work with short sales if the seller is in some kind of legitimate and verifiable financial hardship and a reasonable offer is submitted.

A: A Short Sale applicant should have some kind of uncurable financial hardship that has caused him to miss mortgage payments or is about fall behind. There are many reasons for Short Sales. Examples of financial hardship include: Job loss/ unemployment, death of spouse, business failure, reduction of income, sudden illness/ medical emergency, divorce, increased property taxes, forced relocation, bankruptcy, military service, natural disasters or any event that changes the homeowners financial ability to continue making mortgage payments. Note: loss of equity is not considered a hardship.

A: If a Short Sale Seller has liquid assets/ high income/ high credit score/ too much savings/cash, the lender may determine the seller did not provide sufficient proof of legitimate financial hardship, the lender may still allow the short sale to proceed, but the seller may be asked to financially contribute to the deal, bring cash to closing or sign a promissory note. The bank may agree to cancel most of the shortfall but not all of it. In most cases, the problem is with the 2nd mortgage, that may require 10% of the loan balance to settle it but there is almost nothing left for them from the proceeds of the short sale, as the 1st lender usually is not willing to share more than $3,000 with the 2nd lender.

If the homeowner is current on the mortgage payments, there is a 50/50 chance the bank will agree to do the short sale. Most lenders require the homeowner to be 31 days behind on mortgage payments to be considered for the short sale but there are some exceptions.

The national average short sale approval rate is about 10%. Ours is 80-90% depending on how many lenders are involved. There can be no assurance that your short sale will be approved. However, if you list your property with us, there is a 90% chance the deal will successfully close. We have extremely high short sale approval rate (9 out of 10 closed). Our experience, connections, marketing, pricing and negotiation strategies is the key.

A: There is no specific answer to this question. Short Sale process can take as little as 2 months or could go for over a year depending on who the lenders are and how quickly the buyer is found with a reasonable offer. 4-6 months is the average timeframe to complete a short sale process: 1 month marketing time (finding a buyer), 2-3 months for bank review/approvals, 30 days to close the deal.

A: We represent the property seller, not the bank.

A:The Bank (Short Sale Lender).

A: No. Our fees are negotiated directly with your lender and are not paid out of your pocket. Our fees are only collected if there is a successful closing and are paid out of the proceeds of the sale. Different lenders have different guidelines as to how much they will pay.  You will not be responsible for any real estate commissions or legal fees that your lender does not agree to pay.

The new law no longer requires taxpayers to pay federal income tax on the forgiven debt, provided the property is their principal residence only (not an investment property) and the loan was used to buy, build or improve the property. Mortgage Forgiveness Debt Relief Act was signed by President Bush in 2007 and extended by President Obama through 2012 called Emergency Economic Stabilization Act of 2008. The new law eliminates the homeowners liability for paying taxes on the cancelled/ forgiven debt. This Act ensures that any deficiency written off as part of the Short Sale will not be treated as taxable income. It applies to debt reduced through mortgages, refinancing, home equity lines of credit as well as short sales qualify for the examption, if the forgiven debt was used to buy, build, or improve the principal residence. The law applies to debt forgiven in 2007, 2008, 2009, 2010, 2011, 2012. The limits are $2 Million for married couples and $1 Million for a single person or married filing separately. Your lender will issue a 1099 form to write off the loss and send one copy to the IRS and the seller after the short sale is completed.

Use IRS Form 982 with your tax return, http://www.irs.gov/pub/irs-pdf/f982.pdf

Sellers who do not qualify for the above exemption may qualify and claim Insolvency . Basically, you are insolvent when your total debts exceed the total value of your assets. When the debt is cancelled, some or all of the cancelled debt may not be taxable to you.

*You should speak to a professional tax accountant to determine the amount of tax consequences from the short sale, if any.

A: Yes, 20-100 points depending on how many payments have been missed, but not as much as foreclosure would. Many sellers are able rebuild their credit within 1 year provided all other bills are being paid on time. Short Sales are not reported on a Credit History, Foreclosures are reported on Credit Report (200-300 point loss), and stay there for 7-10 years. Foreclosures are public record items, Short Sales are not. Foreclosure is one of the most credit devastating items one could have on their credit report besides bankruptcy. A short sale settles your mortgage debt on the credit report. The loan is typically reported as paid in full, settled or paid as agreed. There is no specific reporting item for a short sale. The negative points on your credit are from missed or late mortgage payments.

A: Yes, but finding a lender may be difficult. Fannie Mae guidelines may allow you to buy another home immediately, if you were never late more than 30 days. Generally, someone who is late on the mortgage payments and does a short sale, will not qualify for government backed loans for 2-3 years (Fannie Mae: 2 years, FHA: 3 years). You will have to find a small lender or a group of investors whose loans are not backed by the government, do not sell loans to government and do not have to follow their guidelines. Finding a lender may be difficult but is possible.

A: Yes. The first lender will offer some money to the 2nd lender (3k-10k). However, in some cases, the 2nd lender may ask for additional funds, that we will negotiate at a substantial discount for the seller. We may also ask the buyer to pay part of the sellers closing costs that the sellers lender does not agree to pay. This is sometimes necessary because the foreclosing lender (1st lender) is usually not willing to share more than $3,000 with the 2nd lender.

Q: Short Sale Process Overview. How to do a Short Sale? 1.)

A: You will be asked to sign a listing agreement so we can start marketing your property right away, 3rd party authorization form to share information with your lender(s), write a hardship letter briefly explaining your situation to your lender (samples available), provide some financial information to justify your hardship: bank statements , pay stubs , income tax returns , unemployment benefits, etc.. (forms available). *or a letter of explanation if not available, for example: I dont get any bank statements because I dont have any bank accounts,I dont get pay stubs because I am self-employed, etc..

A: Its up to you. Many of my short sale seller clients choose to not have a sign displayed on their property for privacy and confidentiality reasons. However, if you choose to have a sign on the property, it will be a regular sign and will not say Short Sale on it. We do have to mark it Short Sale in the MLS, though.

A: There is over 90% chance for the short sale approvals if you only have 1 mortgage and a legitimate financial hardship, and 70-80% if you have 2 or more mortgages. I have listed many short sale properties over the past 5 years and so far only about 5% have been lost to foreclosure.

*There can be no assurance that your short sale will be approved.

A: Yes. A homeowner can continue to live in the property until the short sale is completed (closing).

A: No. Lenders will not allow the seller to profit from the short sale while they are losing money at the same time. The closing settlement (HUD-1) must state: Proceeds to Seller: $0.00. However, some lenders may offer the homeowners some incentives/ moving allowance or relocation assistance for doing the short sale.

A: No. A short sale must be an arms-length transaction. The property may not be sold back to the seller or the sellers family member and the seller is not allowed to receive any compensation from the buyer.

A: Banks require the property to be listed with a licensed real estate agent. Banks prefer to work with professional REALTORS specializing in Short Sales to ensure the property receives necessary marketing and proper exposure, instead of dealing directly with unlicensed individuals.

A: Pricing a Short Sale property aggressively from the start is the key. The asking price for a Short Sale property should be at Fair Market Value based on the comparable properties sold in the last 3 months, in the same area.

Issue: Cash Investors/ Offers Too Low/ Foreclosure Scam.

Once you miss a couple of mortgage payments, you will start receiving solicitations from investors/ flippers offering you help. Do not do business with any unlicensed individuals or investors promising to save your house from foreclosure. They have their own interest in mind, not yours. Do not accept offers that are substantially below fair market value. Banks are not stupid, they may take 10 to 20% less than the appraised value, but they will not take cents on the dollar. These offers will only tie you up for several months and most likely will be rejected by the bank, consequently you will end up being foreclosed on, as there may not be enough time left to find another buyer. Investors place 100s of low offers on 100s of properties, hoping that 1% or 2% will come back approved. You do not want to be a victim of their scheme.

A: We have closed a short sale for $400,000 where the seller owed $900,000 to bank, another one sold for $65,000 where the seller owed over $300,000 to bank. How much the bank will accept, typically has nothing to do with the outstanding loan balance. It is about the value of the real estate today, which is based on bank appraisal or a BPO.

A: No. Most banks allow only one offer to be sent, at a time. The seller selects and accepts/signs the highest and best offer that will be sent to bank for approval. The seller has the right to accept, reject or make a counter-offer to any offer received, so does the bank. If the 1st offer does not work out for whatever reason, we will continue sending other offers until one of them comes back approved and the buyer can close the deal.

A: Yes. You are the legal owner of the property until the foreclosure is final. You can try to do the short sale even though the property is in advanced foreclosure until the property is sold at auction or goes REO (converts back to the lender), then your redemption period usually ends but you still have 30 days to move out. In Illinois, you would have to miss at least 3 mortgage payments before the bank can initiate foreclosure proceedings against you. The final stage of foreclosure is Auction Sale. Do not wait til the last minute. You should plan ahead and list the property as soon as possible in order to allow extra time for marketing/ collecting offers/ bank review/approvals, and continue showing the property for back-up offers until the primary offer comes back approved by the bank. Its possible to get the last minute short sale approval from the lender just before the property goes to auction.

A: Change them back. You are the legal owner even though there is a foreclosure pending. Many banks send out asset preservation companies to secure properties that appear to be abandoned, by changing locks, boarding up windows to prevent damage. Contact us and we will check on the foreclosure status to determine if you still own the property or not..

A: Short Sale is designed to get rid of the property while Loan Modification helps you keep the property. You need to decide what you want to do, whether you want to keep the property or not. You should only apply for the Short Sale if you do not intend to keep the property. If you want to keep the property but need some assistance from your lender, you should request a Loan Modification that may lower your interest rate or payments. Short Sale process will be stalled if you apply for a Loan Modification or file for Bankruptcy during the Short Sale.

A: Yes. The homeowner (not the bank nor the listing agent) is responsible for maintaining, securing and preserving the property condition. If your electric bills are not getting paid, your property could get severely damaged.

A: Your lawyer will find a closing location as close to the property as possible.

Q. Do I have to attend the closing?

A: No. The seller is not required to attend the closing. The seller can pre-sign the closing docs prior to closing. Closing documents can be mailed to the seller even out of state, including a pre-paid Fedex return envelope provided with detail instructions included.

A: Foreclosures are sometimes more profitable to banks than short sales if they have some kind of guaranteed loss protection plan or are insured against potential loss.

1.) Aurora Loan Service, Ocwen and ING - very unrealistic and difficult to deal with.
2.) Current market value substantially below $100,000.
3.) Seller wants to price the property above my recommended broker price opinion.
4.) Too many mortgages or liens on the property: IRS liens, building code violations.
5.) Lack of cooperation from the seller or tenant/ no access/ eviction.
6.) Seller tries to sell to a family member or illegally profit from the short sale.
7.) Damaged, stripped, destroyed or vandalized properties. The property must be in livable condition (if only minor repairs are needed, its ok).

CONTACT JARED KALLEN, P.A. TODAY AT 561-860-4404
FOR A FREE NO OBLIGATION SHORT SALE CONSULTATION