Frequently Asked Questions
It is understandable to have questions when coping with a new and challenging situation, especially when a home is at stake. The reality is that millions of homeowners across the country are finding out that they have more questions than answers. We hope that the following information will help you better understand the circumstances. If you have further questions not addressed below, or would like additional information resources, feel free to Contact Us.
Should I let my house go to foreclosure or try to do a short sale?
FORCLOSURE VS. SHORT SALE?
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ISSUE |
FORECLOSURE |
SUCCESSFUL SHORT SALE |
|
Future Fannie Mae Loan...
Primary Residence
(effective May 21, 2008) |
A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years |
A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years. |
|
Future Fannie Mae Loan...
Non Primary
(effective May 21, 2008) |
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 |
An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years. |
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Future Loan With Any
Mortgage Company |
On any future 1003 application a prospective borrower will have to answer YES to question C in Section Vlll of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will affect future rates. |
There is no similar declaration or question regarding a short sale (at this time). |
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Credit Score |
Score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years |
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 sales’ affect can be as brief as 12 to 18 months. |
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Credit History |
Foreclosure will remain as a public record on a person’s credit history for 10 years or more. |
Short sale is not reported on a credit history. There is no specific reporting item for ‘short sale’. The loan is typically reported as ‘paid in full, settled’. |
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Security Clearances |
Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA, Security, or any other position that requires a security clearance in almost all cases clearance will be revoked and position will be terminated. |
A Short Sale on its own does not challenge most security clearances. |
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Current Employment |
Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is ground for immediate reassignment or termination. |
A short sale is not reported on a credit report and is therefore not a challenge to employment. |
|
Future Employment |
Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment. |
A short sale is not reported on a credit report and is therefore not a challenge to employment. |
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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 pursuit a deficiency judgment against the homeowner. |
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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 close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency. |
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Independent Brokers Realty strongly advises you to seek the appropriate professional legal advice, tax advice and investigate the consequences of either a Foreclosure or Short Sale.
Information provided by The Distressed Property Institute, LLC. The Distressed Property Institute, LLC assumes no responsibility nor guarantees the accuracy of this document. |
HOW LONG DOES A SHORT SALE TAKE FOR A SELLER?
TOTAL TIME CAN RANGE ANYWHERE FROM 30 DAYS TO SIX PLUS MONTHS DEPENDING ON YOUR BANK AND REALTOR. COMMUNICATION AND FOLLOWUP IS KEY ALONG WITH THE CORRECT SHORT SALE PRICING. GIVE ME A CALL TO INQUIRE ABOUT LISTING YOUR HOME AS A SHORT SALE WITH AN EXPERIENCED SHORT SALE AGENT LIKE MYSELF 239-642-2000 DAVE KASTER, REALTOR, GRI, CDPE
DOCUMENTS USUALLY NEEDED FOR A SHORT SALE INCLUDE BUT NOT LIMITED TO: (FINANCIALS - LAST YEAR TAX RETURN, 2 MONTHS BANK STATEMENTS, 30 DAYS MOST RECENT PAYSTUBS OR UNEMPLOYMENT VERIFICATION, P AND L FOR SELF EMPLOYED, UTILITY BILL WITH PROPERTY ADDRESS, BUYERS PROOF OF FUNDS, SALES CONTRACT (PROVIDED BY REALTOR), LISTING AGREEMENT (PROVIDED BY REALTOR), RECENT COMPARABLES SOLD AND LISTING HISTORY (PROVIDED BY REALTOR) AND PRELIM HUD I SETTLEMENT STATEMENT (PROVIDED BY CLOSING AGENT), AND ANY OTHER ADDITIONAL DOCUMENTATION
Do I qualify for a short sale?
The qualifications for a short sale include any or all of the following:
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
What is a mortgage modification?
A mortgage modification is a process through which your mortgage lender changes any or all of the following:
- Your interest rate
- Your principal balance (through a reduction)
- Your loan terms (example: from an adjustable to a fixed rate)
This process can allow borrowers to stay in their property when they can no longer afford their current mortgage payments.
Why would a lender modify my mortgage?
Lenders have realized that in some cases it is better for them to work with current borrowers to lower payments or possibly improve terms in order to keep homeowners in their properties. The average foreclosure can cost a lender from 35-50% of the value of a property, so keeping borrowers in their homes is a good option for everyone.
What do I need to qualify for a mortgage modification?
According to the Making Home Affordable Web site (www.MakingHomeAffordable.gov), you will need the following information for your lender to consider a modification:
- Information about your first mortgage, such as your monthly mortgage statement
- Information about any second mortgage or home equity line of credit on the house
- Account balances and minimum monthly payments due on all of your credit cards
- Account balances and monthly payments on all your other debts such as student loans and car loans
- Your most recent income tax return
- Information about your savings and other assets
- Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources
If applicable, it may also be helpful to have a letter describing any circumstances that caused your income to reduce or expenses to increase (job loss, divorce, illness, etc.)
How do I qualify for a mortgage modification?
The first call you make should be to your lender, have the information above ready to discuss with them and call your customer service line to ask them what options you have available. If the person you speak with does not understand what you are asking, you can ask to be referred to one of the following departments (different lenders have different names for these departments):
- Loss Mitigation
- Mortgage Modification
- H.O.P.E.
Prior to contacting your mortgage lender you can quickly complete an eligibility test at www.MakingHomeAffordable.gov. This test will let you know if you are eligible for a modification through the government-sponsored Home Affordability and Stability Program (HASP). For a list of mortgage lenders and servicers, visit www.HopeNow.com.
What if I don’t qualify for a mortgage modification, can’t afford my home, and owe more than it’s worth?
You are not alone and foreclosure is not the only option. If your mortgage lender or servicer will not work with you to reduce your payment, you may want to consider a short sale. Agents like me, with the Certified Distressed Property Expert® Designation, have undergone extensive training in how to process and negotiate short sales. A short sale allows you to sell your home for less than what you owe and avoid foreclosure. Speak to your market expert to see if you may qualify.
What is a Home Affordable Refinance?
If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a Home Affordable Refinance. This will allow you to refinance your home and often lower your payments.
What are the qualifications for a Home Affordable Refinance?
According to the resources released by the government, following are a list of qualifications:
- You are the owner occupant of a one- to four-unit home
- The loan on your property is owned or securitized by Fannie Mae or Freddie Mac (see Useful Links)
- At the time you apply, you are current on your mortgage payments (you haven’t been more than 30 days late on your mortgage payment in the last 12 months, or if you have had the loan for less than 12 months, you have never missed a payment)
- You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house
- You have income sufficient to support the new mortgage payments, and the refinance improves the long-term affordability or stability of your loan
