All About Lake Havasu City AZ Short Sales (Also known as Pre-Foreclosure Sale) Copyright © 2008 by Michele R. MichaelsImportant Disclaimer: Brent DeWitt and Michele Michaels are real estate agents, not attorneys or CPA´s. The following information is general, and accurate to the best of our knowledge. However, WE STRONGLY RECOMMEND AND ENCOURAGE YOU TO SEEK PROFESSIONAL ADVICE PERTINENT TO YOUR INDIVIDUAL CIRCUMSTANCE FROM A QUALIFIED REAL ESTATE ATTORNEY FAMILIAR WITH THE LAWS OF ARIZONA, AND A QUALIFIED CPA FAMILIAR WITH REAL ESTATE TAX IMPLICATIONS IN THE STATE OF ARIZONA AND IRS CODES RELEVANT TO A SHORT SALE TRANSACTION.
We highly recommend Arizona real estate attorney Carlton Casler. Mr. Casler will meet with you in person or via telephone, gather all pertinent information, and provide you a written opinion letter that will thoroughly explain your rights, responsibilities and options so you can make an informed decision. Mr. Carlton´s fee is a flat $499. See http://www.caslerlaw.com/. If your current tax accountant is proficient in real estate tax implications, seek his/her advice. If not, ask for a referral.
Part One Introduction - Alternatives To Foreclosure - Short Sale Defined - Why Short Sales Happen - Seller Benefits - Buyer Benefits - Lender BenefitsPart Two Seller Eligibility - Seller RequirementsPart Three The Short Sale Process - Timeline - Possible HurdlesPart Four Understanding the "Numbers"
Part Five Short Sale Myths
Part Six Buyer TipsPart Seven Seller TipsPart Eight Be "Agent Aware"Part Nine Short Sale Information UpdatesPart Ten Questions and AnswersPart Eleven Arizona Dept. Real Estate Short Sale Advisory
Part OneIntroductionNothing stays the same...markets, business models, and your kid's shoe size are in a constant state of change. Those who recognize this fact and stay ahead of the curve by educating themselves are in position to reap the benefits of our changing world.Most real estate agents know what a short sale is, but very few know how to successfully work them. Nationally, only one out of ten short sales close successfully. Lenders are most often blamed; however, the truth is that the agents involved in the short sale transaction have not educated themselves (and their clients) properly and are to blame for most of the failures. Most of the public knows very little about short sales other than hearing or reading the term in the media. Be careful what you read and hear; myths and inaccurate information abounds, especially on the internet!Final note before we proceed: Take this lesson slow and easy. We realize the information can appear overwhelming to many at first glance. It's okay to breeze through at first and read the parts that interest you most. Then go back and read the rest as you like. Sellers and Buyers will be interested in different sections. We do, however, recommend that if the reader is a potential buyer...get a good handle on all the info before you decide to attempt purchasing a short sale. Investing a couple of hours for homework in order to save tens of thousands of dollars makes good sense. Alternatives to ForeclosureOwners have options when they can no longer make mortgage payments. 1. Do nothing - this will most likely result in losing the home to foreclosure with the attendant credit damage.2. Payoff/Refinance - not possible for most owners who have missed payments or who have little or no equity.3. Reinstatement - bringing the loan current by paying entire default amount (missed payments, attorney fees, late fees, taxes), plus interest.4. Loan Modification - occasionally the current lender will agree to refinance the debt or extend the terms of the loan to allow an owner to catch up at a more affordable level. The owner must be able to prove to the lender that the problem that caused the delinquency has been fixed. 5. Forbearance - Lender may agree to arrange a repayment plan based on the owner´s financial situation. Sometimes this may involve a temporary payment reduction or even suspension of payments. The owner must prove ability to meet the new payment plan requirements.6. Partial Claim - Obtaining a 2nd to include back payments, costs and fees. Must qualify with good credit, adequate equity in the property, and ability to make payments.7. Deed In Lieu of Foreclosure - Give the property back to the lender instead of the lender foreclosing. Lenders usually require the property be well maintained, with all payment and taxes current. Most likely will impact credit negatively. Cannot be done if there is a second loan with a different lender than the first, or any other liens. Lenders are currently not very cooperative with this alternative.8. Bankruptcy - This option can liquidate debt and/or allow more time to pay. Will impact credit negatively.9. Short SaleShort Sale Defined A short sale is a transaction where title transfers (owner sells to buyer); where the sale price is insufficient to pay the total of all liens such as mortgage(s), back taxes, HOA arrears, etc., plus costs of sale; where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies; AND WHERE THE LENDER(S) AND LIEN HOLDER(S) AGREE TO SETTLE FOR LESS THAN WHAT IS OWED. Lender pays all costs of sale. The seller receives no funds at closing. Why Short Sales HappenShort sales happen most often during real estate downturns when values have declined. Owners who purchased or refinanced at or near the market peak may be caught in an "upside down" position if they need to sell. "Upside down" means the owner owes more than the property is currently worth (also known as negative equity). Seller Benefits A short sale has potential benefits if an "upside down" owner must sell due to a hardship and does not have funds to cover the difference between what is owed and what the property will net at closing.1. Selling short has a significantly less negative impact on credit. a. Some lenders will even report a short sale as "Paid In Full." b. It is much easier to rebuild a good credit score in a much shorter time when a foreclosure is avoided. c. Mortgage Lenders currently will not approve a home loan within 5 years of a foreclosure. Foreclosure negatively affects qualifying for other types of credit such as an automobile loan. A foreclosure damages credit more than a bankruptcy.2. Selling short avoids the Foreclosure Process and legal fees.3. Lender(s) often agree to not pursue deficiency judgment(s). A deficiency judgment is a judgment against the owner for part or all of the lender(s) loss.4. Potential tax consequences are typically less in a short sale than with a foreclosure.Buyer Benefits1. Short sales provide the opportunity to purchase a property significantly below Fair Market Value. It is not unusual for a short sale property to be purchased for less than comparable REO´s (bank-owned/foreclosure listings). 2. Many short sale listings priced similar to REO's are in better condition than REO´s. The owner is often still maintaining the property, whereas most foreclosed owners ceased maintenance once they realized foreclosure was a reality in their future. REO´s have typically been vacant for 4- 6 months or more before they are even listed for sale. Most banks spend little or no money to properly maintain a property. 3. Herd mentality drives many REO sales. REO´s often receive multiple offers and a bidding war ensues. 4. Some of the better properties are offered as short sale listings. In some markets short sales currently represent 20-50% of the area inventory. The Lake Havasu City short sale inventory grows daily and it is estimated that 20% of Havasu's inventory will be short sale listings by late 2009. To eliminate them as possibilities is not a smart buying decision, especially if the buyer has a flexible move date.5. Many buyers are using FHA financing, which narrows the field of property choices because of FHA rules on property condition. For example, FHA will not lend on a pool home if the pool is empty, or if the home has "livable" defects. Commonly, short sale listings are in better shape, thus FHA "lendable" versus many REO listings.Lender BenefitsWhy would lenders consider allowing a short sale? Very simply, if the "numbers are right" the lender's short sale loss is less than what it would be if the property went to foreclosure, forcing the bank to sell as an REO at a later date. Lenders are eager to avoid the significant internal costs involved in taking a property to foreclosure and selling it at a later date. Lenders are eager to get the "bad paper" off their books as soon as possible if the "numbers" make sense.Back to top
A short sale is a transaction where title transfers (owner sells to buyer); where the sale price is insufficient to pay the total of all liens such as mortgage(s), back taxes, HOA arrears, etc., plus costs of sale; where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies; AND WHERE THE LENDER(S) AND LIEN HOLDER(S) AGREE TO SETTLE FOR LESS THAN WHAT IS OWED. Lender pays all costs of sale. The seller receives no funds at closing.
Why Short Sales HappenShort sales happen most often during real estate downturns when values have declined. Owners who purchased or refinanced at or near the market peak may be caught in an "upside down" position if they need to sell. "Upside down" means the owner owes more than the property is currently worth (also known as negative equity).
Seller Benefits
A short sale has potential benefits if an "upside down" owner must sell due to a hardship and does not have funds to cover the difference between what is owed and what the property will net at closing.1. Selling short has a significantly less negative impact on credit. a. Some lenders will even report a short sale as "Paid In Full." b. It is much easier to rebuild a good credit score in a much shorter time when a foreclosure is avoided. c. Mortgage Lenders currently will not approve a home loan within 5 years of a foreclosure. Foreclosure negatively affects qualifying for other types of credit such as an automobile loan. A foreclosure damages credit more than a bankruptcy.2.
Lender(s) will require the following documents when submitting a request for a short sale:1. Hardship letter detailing the hardship2. Financial statement3. Copies of last two pay stubs or letter of explanation (i.e. unemployed)4. Copies of last two bank statements or letter of explanation5. Copies of last two years´ tax returns or letter of explanation6. Most recent mortgage statement(s)7. Listing AgreementAdditionally, your agent will put together the "sales" part of the package, which includes8. Purchase Agreement9. Buyers Pre-approval letter 10. Letter authorizing your lender to speak to your agent or escrow officer11. HUD 1 Statement prepared by escrow officer (see item 6 below)12. Property comparables13. Value Slope Analysis14. Any additional information on current market conditions that support the validity of an offer where the agent knows the "numbers" are right and the lender should allow the short sale.SECRET: Sellers - NEVER submit a Seller Short Sale package directly to a lender without first talking to your real estate agent, your attorney, and your tax accountant. Back to top Part ThreeThe Short Sale ProcessThe short sale process begins before the listing goes into the MLS. Listing Agents proficient in short sales know how to gather the required documents, price the home, and determine what numbers are likely to "fly" with the lender. We´ll pick it up at the point of offer submission(s). SECRET: establishing and substantiating true Fair Market Value is KEY to the successful short sale. 1. Offer(s) are presented to the seller for approval, rejection, or counter-offer. Even though the seller will receive no funds at the closing, the property still belongs to the seller, so the seller must approve the offer.2. An accepted offer is included in the Short Sale package and submitted to the lender. SECRET: Many lenders receive 100-150 Short Sale packages a day! Employees are overwhelmed and underpaid. If the package is "properly stacked and complete," the lender is more likely to process the file in a timely fashion. Be patient. 3. Upon receiving and processing the package, lender orders a BPO (Broker Price Opinion) to determine current Fair Market Value. A BPO is a price report generally completed by a local real estate agent using recent sales of similar properties in the neighborhood.4. Agent verifies receipt of the short sale package and the BPO order. (Lender will not discuss the offer until the BPO is in.)5. When the Lender receives the BPO, the file is assigned to a Negotiator.6. Negotiator reviews the BPO, Offer(s), and the Estimated HUD 1. A HUD 1 is an itemized list of the funds paid at closing, including loan fees, points, title and escrow fees, commissions, seller concessions, etc. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet." 7. Negotiator accepts or rejects the offer. Expect an initial rejection: "Offer is too low." Do not take this personally; the job of the bank employee is to recover as much as possible for the lender. A competent listing agent "knows the numbers" and will negotiate accordingly. 8. Buyer(s) given opportunity to improve the offer(s). 9. When an offer meets lender requirements, lender issues Letter of Acceptance instructing seller and buyer to proceed and close within 10-30 days. The Letter of Acceptance may include terms that seller or buyer may want to counter. Seller and buyer should have their attorneys and/or tax accountants review the Letter of Acceptance if there is ANY DOUBT what the terms mean. SECRET: Lenders usually fax the Acceptance Letter to the Listing Agent; however, occasionally they will mail the letter directly to a buyer or seller. BUYERS and SELLERS: NEVER sign and return this letter to the lender without consulting your agent. 10. Expect the Lender's Letter of Acceptance require Seller and Buyer to close within 10-30 days. Buyers' lender must be in a position to draw loan docs and fund quickly.SECRET: Some individuals get upset with lenders for the lengthy, drawn-out process, and resent lender instructions to "hurry to closing" after the lender has "finally made a decision." Stop and consider: the seller is getting out of a nasty situation; the buyer is getting a property below Fair Market Value; the Lender(s) is typically losing anywhere from ten thousand to well over one hundred thousand dollars per short sale. It pays to keep things in perspective. Timeline (Approximate)First 2-6 weeks: Lender receives and processes package, orders BPO, assigns file to NegotiatorFollowed by 1 day - 4 weeks: Agents, Negotiator, Seller and Buyer agree on price and termsFinally 10-30 Days - Proceed to ClosingSecret: Different lenders have different levels of competency dealing with short sales. Some have become proactive and are adding staff to Loss Mitigation departments and streamlining the process. Some are so overwhelmed with foreclosures they barely have staff available for short sales. Changes occur constantly. Possible HurdlesSome short sales close, from start to finish, in as little as 45 days. They are the exception. Typically, expect 90-120 days to close. On rare occasions, a complex short sale may take up to 6 months to close. It helps to remember that the average front line negotiator at the bank is handling 100-150 files.Most often, a short sale involves more than one loan. If the 1st and 2nd loans are with the same lender, the process is easier. If the loans are with different lenders, the process as described above will have to be repeated with both lenders simultaneously. An added complexity for the listing agent is negotiating with the 1st lien holder on their allowed payoff to the 2nd lien holder. Don't let this be a cause for alarm, as well-trained agents anticipate this and know what to do. Just realize this scenario may add another week to the negotiating timeline.Even if two loans against a property are with the same lender, the loans may be with different divisions at the lender and require the same work as two different lenders. Sometimes the mortgage payments are going to a servicing company instead of the lender. If this is the case, the servicing company must also agree to the short sale, possibly adding another layer to the timeline.During the boom, many people bought property with less than 20% down, which usually required insuring the loans. Mortgage insurance companies also need to agree to a short sale. Some lenders in 2nd position, most HELOC (home equity line of credit) lenders, and many mortgage insurance companies will require the seller agree to an unsecured note to cover some of their loss before they will agree to a short sale. Amount and terms for these notes are almost always negotiated "down" from the lender's or mortgage company's first demand, again adding a layer to the negotiating timeline.Hopefully, the agent who fills the BPO order for the lender is local and competent, and has determined an accurate current Fair Market Value. Be aware, however, that some lenders are actually using BPO companies who complete the order without ever seeing the property, using electronic information only. If the agent negotiating the file determines the lender is working off an inaccurate FMV, add another week or two to the process. Be sure, the bank negotiator will not tell the agent what the BPO came in at, but a savvy agent can usually figure it out very closely by establishing a good rapport and asking the right questions.Back to top Part FourUnderstanding the NumbersDifferent lenders have different policies governing their short sale process. Different markets also influence the numbers. However, some basic guidelines can be applied to the numbers that will work for the bank. The following information does not cover all the potential complexities, but will give you a good handle on how the process works.Understand the banks are more interested in current Fair Market Value, NOT what is owed. The bank assumes they will suffer a loss in a short sale. Bottom line, the bank wants to know four numbers:1. What's the current FMV2. What's the mortgage balance total (1st, 2nd, HELOC,etc.)3. What's the total of any other liens plus cost of sale (title fees, commission, tax liens, etc.)4. What's the offerStep One: As we learned above, the bank will order a BPO upon processing a package. The BPO sets the FMV lenders will use. The offer must be negotiated to within a certain percentage of the BPO before the lender(s) will agree to the sale. Various types of loans have different guidelines as to what is an acceptable short payoff.Step Two: Lender(s) will look at the HUD 1 Settlement Statement prepared by the escrow officer to ascertain suggested partial payoffs to each lien holder and determine their loss.Step Three: the primary (1st) lender will use internal formulas to determine costs of carrying the loan if they refuse the short sale, proceed to foreclosure, take the property into inventory, and sell it three to six months later. If the loss is less by accepting a short sale than going the foreclosure route, the1st lender will usually agree to the short sale. Step Four: As stated above, various types of loans have different guidelines as to what is an acceptable short payoff. 1. Lenders in 1st position usually agree to a short sale if the net payment they receive is within 85-90% of the FMV as reported in their BPO. Remember, the 1st lender usually has to agree to share some of the short sale purchase funds with other lien holders. Lien holders would have no motivation to agree to a short sale unless they receive some funds. 2. Second lien holders typically want a short payoff of 10% of the second loan balance. Sometimes a lesser amount can be negotiated. Look at this like jealous siblings. If the second lien holder sees that the 1st is not losing much compared to what the 2nd is being asked to forfeit, they may dig in their heels and require more before they will agree to the short sale. Conversely, if they see the 1st taking a big hit, they may be agreeable to less than a 10% payoff. The listing agent will be negotiating between the lenders. 3. HELOC lenders are tougher. This type of loan has terms similar to revolving credit (credit cards). Even though the property securing the loan may go away (through foreclosure), the loan stays in place and the lender can more easily pursue the borrower for payment. Most HELOC lenders begin negotiations with a 50% of the loan balance payoff demand, but may negotiate down to as low as 20-25%. As with the 2nd lender, they will be more flexible when they see the 1st taking a heavy hit.As a matter of negotiating to short sale acceptance, a second or HELOC lender may require the seller to share in the loss. As mentioned above, this might be in the form of demanding the seller liquify some assets to bring additional funds to the table. If the seller has no assets, lenders may require the seller sign an unsecured note to pay off part of the loss. Amounts and terms of these unsecured notes are subject to negotiation, and ultimately, the seller must agree to them or face foreclosure. The lenders don't want the foreclosure. Therefore, very manageable terms can usually be worked out. A last number (less important than true current FMV) that you should be familiar with is loss severity. Loss severity is the percentage of loss the lien holder will suffer against the loan balance by allowing a short sale. Lenders in first position typically respond favorably to a loss severity between 20-30%. Acceptable loss severity may be more in harder hit markets such as Las Vegas and some parts of Ohio and Florida; however, lenders having loans secured by Lake Havasu City real estate typically fight loss severity greater than 20% UNLESS current Fair Market Value on a particular property indicates they have little choice.None of these guidelines are written in stone; they change with market conditions. Pressure from more foreclosure properties coming on the market have the greatest influence in deeper discounts allowed by the lenders. Remember, it's a changing world...Back to top Part FiveShort Sale MythsToo much disinformation is out there regarding short sales. Some of the inaccuracies come from real estate agents. A bunch comes from late night infomercials that want your money to learn how to buy at 50 cents on the dollar with no money down. Myth - Lenders are so desperate they will accept any offer on a short sale.Truth - Lenders would rather work toward a possible solution with the homeowner first. If that is not possible, lenders will use their internal guidelines in accepting or rejecting a short sale offer.Myth - Lenders will sell "short" at 50% of the list price.Truth - Lenders may suffer a loss severity of 50% of the loan balance in accepting a short sale; however, they will NOT agree to an offer of 50% of the FMV (usually very close to the list price if the listing agent is competent). They would be much better off to foreclose and sell the property as an REO. Remember, the lender is discounting their loan to current market value. This discount can range anywhere from 5% to 50%, depending on market conditions in different parts of the country.Myth - The lender will not accept a short sale if the client is not behind on their payments.Truth - Many tier one bank employees will tell a caller that this is true; however, short sales have closed when the seller did have a valid hardship, but had not yet run out of money. Lenders recognize, if the numbers are right, the short sale today may be a better option than allowing the loan to go through the foreclosure process, then getting up to 30% less later. A savvy listing agent recognizes the file has to be moved to the RIGHT person who understands the numbers and has authority to accept. Myth - The lender will only accept a full FMV (fair market value) offer. Truth - The lenders have internal guidelines that allow them to accept up to 15% off the current Fair Market Value. They obviously won't tell us this when the offer is submitted. Agents negotiating the file need to know who to talk to and how to get them to understand the numbers (short sale Net vs. foreclosure Net).Myth - The lender will not accept $60,000 net on a $100,000 loan. Truth - Yes, they may. As mentioned, the lender does have internal guidelines that lower level mitigators use to determine if they can accept a 'vanilla' short sale. In cases where the loss severity is great, as in this example of 60% of the original note, lower level mitigators will turn us down all day long. A senior loss mitigator or AVP may be able to sign off on that same file right over the phone. They key is showing the value has decreased significantly and the alternative (foreclosure) will result in a greater loss severity. Myth - A second position lien will sign off on a short sale, even if they are offered $0. Truth - How great that would be! If you held a second lien and you were going to get wiped out at foreclosure, would you sign off on a short sale and release your lien if you were offered $0? No way. Listing agents must pull a PR (preliminary title report) and look over ALL liens on title. If there are any lien holders that cannot be tracked down, you may not be able to do the deal, even if the first is jumping for joy and wants to complete the short sale. Remember that taxes and HOA dues are liens that will need to be satisfied. In most cases the first lender will allow delinquent taxes and HOA dues to be paid in full; however, some lenders will require the seller to contribute in part to the HOA.Myth - If the negotiator turns down your offer, the bank will NEVER accept that offer. Truth - Even when the numbers are right on, many agents take a turn down as gospel instead of a sign that they are talking to a low level employee at the bank. If you know the values in your area and you know this deal will net the lender more money than a foreclosure, then the agent's job is to "escalate" to a higher level and try to get the file approved. We hear stories of how the bank was stupid and turned down a great offer. If an agent had made the effort to talk to someone at the bank who cares about the bank's success (usually those that are paid bonuses on results and not just a salary) and that can do simple math, you would have probably had an approval on the same exact offer that the 'salary' employee turned down. NO DOESN'T ALWAYS MEAN NO. Also, remember that loss mitigators are trained to say no to the first offer and ALWAYS ask for more money if they are not getting a full payoff. That's their job. Myth - Lenders will not accept a short sale where the buyer is asking for seller concessions to cover closing costs or repairs.Truth - The numbers are the numbers where the bank is concerned. If there is room in the deal for the lender to allow concessions and remain within their guidelines, they very well may accept concessions in the offer.Back to top Part SixBuyer TipsIf you need to move in 30 days, even if you are paying cash, a short sale is probably not for you unless you are following a "back-out" buyer whose offer opened a file and received a negotiator response.If you are the impatient type and want an answer to your offer within a day or two, a short sale is definitely not for you unless you are following a "back-out" buyer whose offer opened a file and received a negotiator response.If you have a flexible possession date, you want a good bargain, you are willing to get your ducks in a row, you want access to all the inventory that match your requirements, and you have the patience to deal with potential hurdles along the way, you are a a good short sale buyer candidate.You can ask your agent to locate short sale listings where the bank has the BPO in hand, but the first buyer is out of the picture (back-out buyer who could not perform, changed their mind, got impatient, etc.). This happens often because most short sale buyers and their agents have no clue what they are doing, present a ridiculous lowball offer, get frustrated when they don't get a response from the bank right away, and move on. It's okay! They are clearing the way for you. That lowball offer caused the bank to order the BPO, and having the BPO in the file can shorten the bank's response time by 2-4 weeks. It is possible in this scenario to close within 30 days, as long as your lender is on board with the program.If you are getting a loan, insist on a mortgage company that is competent in a short sale scenario. They need to get you through underwriting in a timely manner, and they need to be able to draw loan docs and fund the loan without delays.Lenders will not consider any offer involving a loan unless the buyer can provide a pre-approval letter stating the loan application is completed, all qualifying factors have been verified (credit scores, assets, income, etc.) and all required buyer documents (tax returns, W-2's) have been submitted. Ask your agent for a sample letter so you know exactly what your lender must address.If you are paying cash, you must attach a letter on your bank's letterhead confirming you have the funds to complete the transaction. Bank statements will not fulfill this requirement.When paying cash, have the funds wired to the title company a day or two before closing. Personal checks take 10-14 days to clear, and may hold up closing.The lender will require the buyer to sign an "AS IS" addendum, so the buyer is well advised to get inspections lined up and completed in a timely manner. All lenders will require the buyer's earnest money be in escrow within 24-48 hours of issuing a Letter of Acceptance. If the money isn't there, expect the bank to immediately withdraw the acceptance.Most lenders will require the buyer's earnest deposit to become non-refundable within several days of date of the Letter of Acceptance. They expect that the buyer has all his/her ducks in a row and is ready to proceed to closing.Most short sales get multiple offers, but banks usually review only one offer at a time. It is up to the SELLER to say which offer gets presented to the bank, and in which order. Remember, the property belongs to the seller right up to the day of auction on the courthouse steps. A buyer's agent cannot demand their offer be submitted to the bank. If the bank is currently reviewing an offer, any following offers will be in back-up position. Many agents do not understand that, unlike an REO, the bank does not own the property, thus the buyers' agent has no say when their offer will be sumbitted. With that said, do not be apprehensive about multiple offers on short sales. Chances are good that most offers have no chance of being accepted. Since you now have enough understanding of the numbers and you have structured your offer accordingly, you are way ahead of your competition.If your offer has been submitted to the bank for review, realize the property will remain active on the market and back-up offers will be accepted. Again, don't let this rattle you. By the time you have read this far down the article, you are WAY ahead of your competition.If you plan to occupy the property, a brief letter explaining why you want this property might give you an edge. We know of one case where a single mom told of her desire to buy a home, how she had saved for the down payment, and how the offer she made was as much as she could afford. Believe it or not, the bank took her offer even though the property had multiple offers. We'd like to think the bank actually had a heart in the decision; we suspect the bank saw her as the safest risk. Back to top Part SevenSeller TipsUnder the category, Seller Benefits, number 4, we mentioned, "Potential tax consequences are typically less in a short sale than with a foreclosure."When a bank takes a property through foreclosure, they issue a 1099A (Abandonment of Debt) at the end of the year to the foreclosed owner for the amount of the bank's loss. This amount became taxable income to the foreclosed owner.When lenders agree to a short sale, they issue a 1099C to the short sale seller at the end of the year for the amount of the bank's loss. The 1099C (Cancellation of Debt) is considered income to the seller and therefore subject to tax. Taxable1099A income from a foreclosure is usually higher than the short sale 1099C income because the loss to the bank is is usually greater with a foreclosure over a short sale.Here is how it works: if the bank lends you $100 and you end up only having to pay back $75, then by keeping the $25 you have to declare that $25 as ordinary income. Borrowing money is not taxable as income. But if you don't have to pay it back, then it is no longer a loan, and instead it is income, just as if you worked for it. However, the Mortgage Forgiveness Debt Relief Act of 2007 was signed into law on December 20, 2007. Prior to this law, forgiven or discharged debt was generally taxable as ordinary income. This new law releases a taxpayer from paying federal income tax on "qualifying" debt forgiven or discharged for a loan on a "qualifying" principal residence. A qualifying principal residence is one that "has been owned and used by the taxpayer as the taxpayer's principal residence for periods aggregating 2 years or more."Qualifying principal debt are loans that were used to acquire the principal residence. The law became effective January 1, 2008 and is good until December 31, 2010. Even though the new law may relieve you from any taxable income, your lender(s) will still send you the 1099C's. Keep them! You may need them to get the lender to accurately report your loan status to credit reporting agencies (see below).What if there is a new second but the original first?The law does not apply to the portion of any debt that exceeds the amount of the original acquisition debt: "If any loan is discharged, in whole or in part, and only a portion of such loan is qualified principal residence indebtedness, subsection (a)(1)(E) shall apply only to so much of the amount discharged as exceeds the amount of the loan (as determined immediately before such discharge) which is not qualified principal residence indebtedness." This new law gives an incentive to short sell a principal residences when the owner is upside down and can no longer make the payments. It will also encourage those with both a principal residence that is upside down and other properties to short sell the principal residence and move into the other residence. This new law does not give relief to flippers that have flops, or investors that over financed, or even homeowners that leveraged up their loans after acquiring the house. You can view the entire text here.Another possible relief for foreclosed owners or short sellers who may be liable for 1099 taxable income is insolvency. Your accountant will file IRS Form 982 to prove your total liabilities are greater than your assets, which will relieve you of the tax liability. Again, ALL short sellers are strongly advised to talk to a CPA competent in real estate, and specifically short sales, prior to listing their property as a short sale.Short sellers, be sure to do three things about 30 days after the sale has closed. First, ask your listing agent to verify that your transferred title shows up correctly in the public records. Second, ask your listing agent to contact the bank to verify your file has been closed. Third, get copies of your credit report from Equifax, Experian, and TransUnion. You can do this at no cost at http://AnnualCreditReport.com. Many banks will try to report your loan(s) as "paid, less than agreed" even though they agreed to report "paid in full" or "settled in full." Understand that the bank agreed to the short sale, essentially modifying the terms of the debt, and wrote off the loss to balance their books and issued you a 1099C. Therefore, they cannot legally report a paid less than agreed. You may try writing the lender yourself and attaching a copy of your 1099C; however, most short sellers have much greater success hiring an attorney to write the letter to the bank. Many attorneys are available to do this at very affordable rates. Banks WILL correct the credit reporting when they are called on it. Make sure they do, as this will have a strong positive effect on your credit rating.Stay in touch with your listing agent. Make sure you give your agent new addresses and phone numbers. Better agents will stay in touch with their short sale clients with wonderful tips for rebuilding credit, keeping your credit within optimum guidelines, leads for affordable rentals, and more. Know that this trying time will pass, and you can count on good agents to help guide you to a bright, new, and better time. It won't be long before you will be a homeowner again, at a terrific price, with a mortgage you can afford!Back to top Part EightBe Agent AwareCongratulations...if you have finished reading this lesson, you know more about short sales than nine out of ten real estate agents!We have spent hundreds of hours learning the basics, honing critical skills, seeking additional knowledge from loss mitigation "insiders," networking with successful short sale listing agents across the nation, and staying in close touch with our 20 year veteran chief loss mitigator mentor to stay current.We are so sad when we see unqualified agents list short sales when they don't have a clue what they are doing. The unsuccessful short sale ends in foreclosure for the client. There is never any guarantee that a short sale will close successfully, for any number of reasons, but we want to be armed with every possible tool to make it happen for our clients if at all possible. We also network with local agents to help each other learn, brainstorm to overcome obstacles, and stay current with all the changes that are occuring.We are happy to assist a buyer's agent structure the offer, educate the buyer, and work together toward a successfull close. We are believers in helping our fellow agents any time we can.Give us a call, or email us with questions or concerns. When you are ready to buy or sell short, we are prepared to help, and we'll do a great job for you.Back to top Part NineShort Sale Information UpdatesThis is where we will post updates as they come in.Oct. 13, 2008: Short sales involving WAMU are still happening, but expect them to take a bit longer to process files and assign negotiators. Lots of chaos at WAMU since they were purchased by JPMorgan Chase on Sept. 27,2008.Back to top Part TenQuestions and AnswersThis is where we will post answers to questions as they come in. Email your question(s)Q. What happens to my short sale offer if another, higher offer comes in a couple weeks after mine, but before I get any response from the bank?A. Your offer "should" stay in place until the lender receives their BPO, assigns a negotiator, and presents you with a counter. The other offer "should" remain in back-up position and not be presented until you have had the opportunity to accept, reject, or counter the bank.Notice I said "should." Listing agents often confuse short sales with REO sales. Banks owning REO listings typically instruct the listing agent to present multiple offers simultaneously, and the bank accepts/counters the one (or two) they like best. This strategy is not good for anyone involved in a short sale. It confuses and delays the process, and can result in lender declines on each offer. Q. What happens when a short sale gets multiple offers before any single offer is presented to the lender? Do they all get presented at once? If not, who decides which offer to present first?A. A savvy listing agent will NEVER submit multiple offers to a lender in a short sale scenario. Remember, the property still belongs to the seller, so the seller gets to decide which offer to accept for submission to the bank. Sometimes the seller will opt to give each bidder the opportunity to present their "highest and best." Other times, the seller will choose the offer most likely to be accepted by the bank, and instruct the listing agent to present that offer.Q. I made an offer on a short sale in CA, but about two months went by and I didn't hear anything from the bank so I withdrew my offer. I was pretty frustrated at the time, but after reading this, I'm wondering if I should have waited a little longer. It was a really nice house, and the price was really good, way below other regular homes for sale in the subdivision and in much better shape than the foreclosures I saw. What do you think?A. Hard to say for sure, but my guess is your offer was the first, and the first guy in line gets to wait the longest. Remember, it is the first offer that causes the lender to open a file and order the BPO. That can take 1-2 weeks, maybe more, depending on the lender and how many packages are in their pipeline. Then it can take 1-2 more weeks for the BPO agent to get the value back to the bank, at which time a negotiator is assigned if the package hasn't been lost in the system. First offer buyers need to be prepared for 4-8 weeks before hearing anything. Then again, some agents actually believe bank employees when they tell the agent they will call back as soon as the BPO comes in. We hear agents complain all the time that they have been waiting for "that call" for weeks. Little do they know that the frazzled employee who told them that has been transferred weeks ago and the file is in Lender LaLa Land. Ya gotta be pleasantly assertive, know the system, and be on top of your game if you want to be a successful short sale listing agent. We call on each of our files at least twice a week. It's the "squeaky-wheel" thing... We'd encourage you to move on and don't look back. If you are still looking, you now know the ropes and there are TONS of great short sale properties out there. If you aren't the patient type, ask your agent to locate short sales that have an open file with a BPO and the first offer has backed out. The process can be much faster in this case.Q. After reading all this, I want to try to buy a short sale. It sounds to me like the listing agent has the biggest job and how good they are pretty much determines whether a deal gets done. I've always thought the best way to go is to hire a buyers agent who works for me instead of going through a listing agent who is supposed to get the most for their seller. I'm confused now. Would I be better off going straight to a listing agent on a short sale property I find? A. Very astute question! You have options. As a buyer, you now know what to expect in a short sale scenario, so you don't really have to rely on a buyer's agent being a short sale expert to educate you on the process and hold your hand, although it would be helpful if they understand short sale math and know how to structure your offer. You'll rely more on your agent to advise you on location and current market value. That being said, it may be helpful to understand that in a "standard" listing scenario, the listing agent has first duty to the seller unless the buyer and seller agree in writing to dual agency which allows the agent to represent both parties. In a short sale, the seller is not getting any money, and the property is sold "as is." Value is dictated by the BPO. Acceptable purchase price is dictated by the bank. The potential conflict between seller's interest and buyer's interest is marginalized. The one exception may be if the lender is demanding an unsecured note from the seller for part of the loss, which may influence the purchase price upward to help insulate a distressed seller. Additionally, banks will not pay "both sides" (the full brokerage fee) to a listing agent who also represents the buyer, so the potential "double-dipping" conflict is not there. The best thing we can tell you is find someone you are comfortable with and who is willing to go the extra mile for you. Be up front with the agent and let them know you are interested in looking at short sales as well as standard listings. If the agent tries to steer you away from short sales, he/she is probably not the agent for you.Q. We are over three months into buying a short sale for cash. We received occasional updates from our agent, then about a week ago we were told the bank had countered our offer. Nothing was in writing, which we thought was strange. We stayed at our original offer price. We then got a call saying the bank had submitted the file to Freddie Mac, and if approved, we'd need to close in about three days to beat the auction date. We want to know why we never got a counter offer in writing, and why we would need to close so soon and not be given the time to do our home inspection.A. Wow, first of all, congrats to the agent and bank negotiator working your file. Getting a file through the lender's system and submitted to Freddie (or Fannie) in under 4 months tells me they are really on the ball. Additionally, the fact that the negotiator even communicated a "counter" tells me the file is being aggressively worked; many negotiators will just close the file and not bother to tell the parties if the numbers don't work on the original offered price. To answer your questions: 1. The lender is not a party to the purchase contract so they cannot generate a written counter offer. What they can do is advise what price will make their internal numbers work in order to get a short sale approval. This info is not in writing. The negotiator for the lender gives this amount to the seller's agent, who advises the buyer's agent, and the seller's agent then gets back to the negotiator with the buyer's decision. In your case, the fact that that the file didn't get "dumped" when you didn't improve your offer tells me the negotiator is well-trained and trying to keep the transaction together. 2. Holding property on the books costs the lender money. If they can get a property off their books prior to rolling into another month, they will try hard to do just that. Since you are a cash buyer and all you have to do to close is get the money wired, that is what they want to happen, especially if the Trustee Sale date is near the end of the month. Lenders feel buyers have had plenty of time to complete inspections and they do not care that the buyer is risking a couple of hundred dollars inspecting a property that may or may not close. Q. My wife and I just read the question and answer above. We are cash buyers in a transaction similar to the one above, except we were told the lender had to get approval from Fannie Mae before we could close. We didn't want to put cash into escrow to close until we had an approval in writing. Well, the home supposedly went to auction on a Friday (agent told us Fannie Mae did not accept our offer). Then the following Monday we were told the property hadn't gone to auction, that it was postponed a month. Our agent is waiting to hear what Fannie will do. This seems a little flakey to us. Now we aren't sure who or what to believe. Have you ever heard of anything like this?A. Yes, and it seems to be happening more frequently these days. In our experience, and in talking to short sale agents across the nation, we see this mostly with Freddie and Fannie backed loans. Here is what we think is happening: when a negotiator submits a file to any investor for approval and the auction date is 3 weeks out or less, the negotiator requests an extension of the Trustee Sale date (auction date). Fannie and Freddie are so backed up that their staff gets behind in communicating granted extensions. Additionally, the law firms that handle the Trustee Sales get backed up in updating their schedules. Therefore, the negotiator and the agents can get left a day or two behind the curve. We notice this on attorney websites. They most often are updated hourly, but the later in the week, the better the chance that updates lag a bit. Fridays seem to be especially rough. We have even had negotiators tell us at the "eleventh hour" that an offer was not approved by the investor and they did not receive an extension. So, we all considered the transaction dead until the following Monday when extensions were verified and no auction had happened. It is a cause for anxiety, but we just picked up the pieces and proceeded. The buyer did have to come up a bit before Fannie would accept the numbers, but the buyer still got an excellent bargain. Hang in there! Q. We are short sale sellers. Our lender required us to apply for a HAFA short sale. We thought it was a great program because we both lost our jobs over a year ago and have gone through all our savings so the $3000 moving allowance was a miracle for us. That was 4 months ago. Our lender is now telling us we don't qualify because they have an old credit report showing us making payments on loans we no longer have, so they think we have money to make our mortgage payments. What do we do now? Our credit has taken a bad enough hit, we don't want a foreclosure!A. We are so sorry to hear this. Unfortunately, we hear it all too often. HAFA (Home Affordable Foreclosure Alternatives) sounds good, and it should be, but lenders have a long way to go to get up to speed, as do all these government programs designed to help but often hurt. If you have time (preferably 60 days, but not less than 30 days) before a scheduled Trustee Sale date, try submitting a current credit report, along with copies of the last two months of income (unemployment or whatever you have) and the last two bank statements, along with an updated financial report. This may help, but be prepared to forego the HAFA sale in favor of a regular short sale to avoid foreclosure. And remember, if all this fails and the home does go to auction, you are not alone. Pick up the pieces and stay strong. HOME IS WHERE YOU LIVE, it does not have to be the house you own.Part ElevenArizona Department of Real Estate Short Sale Advisory: Arizona Department of Real Estate Short Sale Seller Advisory A Resource for Real Estate Consumers Provided by the Arizona Association of REALTORS® A short sale is a real estate transaction in which the sales price is insufficient to pay the loan(s) encumbering the property in addition to the costs of sale and the seller is unable to pay the difference. A short sale involves numerous issues as well as legal and financial risks. This Advisory is designed to address some of these issues and risks, but does not purport to be comprehensive. Before Proceeding with a Short Sale Understand a Lender´s Options upon Loan Default There are many types of loans that are secured by real property. These may be purchase loans, refinanced loans, home-equity loans, or one of the various other types of loans. The type of loan and type of property will determine what remedies a lender may have if the homeowner fails to make the agreed upon payments. The available remedies, the homeowner´s overall current or potential future financial strength, the lender´s cost in acquiring the loan and any shared-loss or similar agreement if the loan was acquired by purchase or merger, are some of the many factors that the lender may consider in deciding how to proceed when a loan is in default. For an overview of these issues, go to www.aaronline.com/AZR/Dec/09LoanDefaults.aspx Be Aware of Predatory "Rescue" Scams & Short Sale Fraud Homeowners worried about foreclosure may be susceptible to predatory "rescue" scams which may cost you money with no results, result in the loss of your home entirely, or involve you in a fraudulent scheme. For more information, go to: www.efanniemae.com/utility/legal/pdf/fraudnews/mortgagefraudnews0709.pdf "Red Flags" of fraudulent schemes include: • Guarantees to stop the foreclosure • Large upfront fees • Instructions not to contact the lender • Transfer of title or lease of the property • The proposed buyer is an LLC • Requests that the homeowner execute a power of attorney • The proposed buyer, at the buyer´s sole expense, retains a third party to negotiate the short sale for the seller´s benefit. Report suspected scams to the Department of Financial Institutions at fraudline@azdfi.gov, the Attorney General´s Office at www.azag.gov/consumer/foreclosure/index.html#Complaint or NeighborWorks© at www.loanscamalert.org/default.aspx Contact a Free HUD-Approved Housing Counselor or Contact Your Lender Directly • Contact a HUD-approved housing counseling agency online at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=AZ or call (800) 569-4287 or TDD (800) 877-8339 for advice on your options. For additional HUD resources: http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure • Contact the Neighborhood Assistance Corporation of America at: www.naca.com/refinance/refinanceTenStep.jsp • Contact the lender directly. To find the lender´s contact information, check the loan billing statement, or coupon book. Ask for the lender's home retention department, loss mitigation department, (or other department that handles negotiation of loans in default); explain the situation and find out if the lender is willing to discuss options. Utilize Free Services Available to Arizona Residents • Contact the Arizona Foreclosure Helpline at 1-877-448-1211 (toll-free) or visit www.housingaz.com/ShowPage.aspx?ID=248 • Review the Arizona Foreclosure Prevention Task Force Workbook www.dbtaz.org/flyers/2009.9.1.State.Task.Force.Wrkbk.pdf . This book will help you evaluate your options and provide you with tools to take action. Additional resources are available at: www.azforeclosureprevention.org. Obtain Legal Advice An attorney can advise you about your options and legal liability. • To find out if you are eligible for free or low cost legal assistance, contact a legal aid organization in your county or one of the organizations listed at www.azbar.org/LawyersHelpingYou/freelegal.cfm or www.azlawhelp.org/housing.cfm • Contact the Lawyer Referral Service in your county where you can consult with an attorney for a small fee for a half-hour consultation. Maricopa County: www.maricopabar.org/displaycommon.cfm?an=16 (602) 257-4200. Pima County: www.pimacountybar.org/web/lawyer-referral-service-lrs (520) 623-4625. • Attorneys who are State Bar Real Estate Law Certified Specialists can be located at www.azbar.org/LegalResources/findspecialist.cfm. Obtain Tax Advice • For Mortgage Forgiveness Debt Relief Act and Debt Cancellation tax information, go to www.irs.gov/individuals/article/0,,id=179414,00.html • Attorneys who are State Bar Tax Law Certified Specialists can be located at www.azbar.org/LegalResources/findspecialist.cfm. Be Aware of the Consequences of Committing "Waste" Damaging the property or removing fixtures such as sinks, toilets, cabinets, air conditioners, and water heaters may result in liability to the lender for "waste." In other words, the lender may be able to sue you for damages if you have physically abused, damaged or destroyed any part of the property. Options other than Short Sale Consider All Options A short sale may not be your best course of action. Consider all your options before making a decision. Loan Workout • Reinstatement: Paying the total amount owed by a specific date in exchange for the lender agreeing not to foreclose. • Forbearance: An agreement to reduce or suspend payments for a short period of time. • Repayment Plan: An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up. • Claim Advance/Partial Claim: If the loan is insured, a homeowner may qualify for an interest-free loan from the mortgage guarantor to bring the account current. Loan Modification The lender may agree to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified or the loan term extended. Loan modification resources include: • Making Homes Affordable: www.makinghomeaffordable.gov • National Foreclosure Mitigation Counseling Program: http://findaforeclosurecounselor.org/network/home.asp • Homeownership Preservation Foundation: www.995hope.org 1-888-995-HOPE™ Hotline Refinance If the lender will not agree to a loan workout or modification, the homeowner may be able to refinance the loan with another lender. The HOPE for Homeowners program will refinance mortgages for homeowners that can afford a new loan insured by HUD's Federal Housing Administration. Learn more at www.hud.gov/hopeforhomeowners/index.cfm Deed-in-Lieu of Foreclosure The lender may allow a homeowner to "give back" the property. This option may not be available if there are other liens recorded against the property. Review the HUD requirements at www.hud.gov/offices/hsg/sfh/nsc/rep/dilfact.pdf. Work Out Sale The lender may allow a specific amount of time for the home to be sold and the loan to be paid off. The lender may also allow a buyer to assume the loan to purchase the property even if the loan is non-assumable. Bankruptcy If you are considering bankruptcy as an option, consult with an attorney that specializes in bankruptcy cases: www.azbar.org/LegalResources/findspecialist.cfm. Access the Arizona Bankruptcy Court self help information by calling 866-553-0893 or visit www.azb.uscourts.gov/default.aspx?PID=78#866. Foreclosure Allowing the lender to foreclose is another option. The counselors at the Arizona Foreclosure Help Line can explain the foreclosure process, call: 1-877-448-1211. Ultimately, only you and your attorney can decide if foreclosure is the best option for you. Attorneys who are State Bar Real Estate Law Certified Specialists can be located at www.azbar.org/LegalResources/findspecialist.cfm. Ask your attorney about the possibility of a deficiency lawsuit after foreclosure. Assuming all statutory requirements are met, the Arizona anti-deficiency statutes may limit the lender´s remedy to foreclosure, even if the amount due to the lender exceeds the value of the property. Also, seek professional tax advice about the consequences of a foreclosure and review the IRS information at www.irs.gov/individuals/article/0,,id=179414,00.html Short Sale Considerations If you decide to pursue a short sale, consider taking the following actions. Contact a Qualified Real Estate Professional Interview several real estate professionals and ask about their experience in short sales, the number of short sale transactions that they have handled, and their education and training in short sales. • Review the real estate professional´s background and continuing education on the ADRE website at: http://services.AZRE.gov/publicdatabase • Ask if the real estate professional has obtained a short sale certification, such as the Short Sales and Foreclosure Resource Certification ("SFR") www.realtorsfr.org/. • Find a REALTOR® at www.aaronline.com/ConsumerAssistance/FindARealtor Investigate Documentation and Eligibility Documentation and eligibility criteria for short sales vary depending on specific lender and investor guidelines. Generally, you must prove that you are financially incapable of paying the loan and the lender is convinced that it will fare better by agreeing to a sale for less than the outstanding loan amount than foreclosing. Determine the Amount Owed on the Property All debt and costs must be factored in before determining whether a short sale is feasible. Consider the delinquent loan, home equity loan or other loans recorded against the property, past due homeowner´s association fees, unpaid property taxes and the costs of a sale, such as closing costs, escrow fees and brokerage commissions. If you have more than one loan on the property, be aware that a short sale will generally require the approval of all lenders. Determine the Estimated Fair Market Value of the Property You must prove to the lender that the home is worth less than the unpaid loan balance. Consult a real estate professional or an appraiser for assistance in estimating the value of the property. Consult Legal Counsel The importance of competent legal counsel to help you determine whether a short sale is the best option and to advise you during the short sale process cannot be over emphasized. See the legal resources listed on page 2 or visit www.azbar.org. Understand that a Short Sale May not Discharge the Debt Even if a lender agrees to a short sale, the lender, the VA, or the FHA may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation. This outstanding personal obligation could result in a subsequent collection action. For example, a lender may accept the short sale purchase price to "release the lien" on the property as opposed to agreeing to accept the purchase price as "full and final settlement of the debt" on the property. Therefore, be certain of the terms of any short sale before making a decision, consult an attorney regarding whether the lender is entitled to pursue a deficiency judgment and obtain any debt forgiveness agreements with the lender in writing. Obtain Tax Advice A short sale in which the debt is forgiven is a relief of debt and may be treated as income for tax purposes. The Mortgage Forgiveness Debt Relief Act of 2007 created a limited exemption to allow homeowners to pay no taxes on debt forgiveness; however, only cancelled debt used to buy, build or improve a principal residence or refinance debt incurred for those purposes qualifies for this tax exemption. For more information on the tax consequences of debt relief seek professional tax advice and go to www.irs.gov/individuals/article/0,,id=179414,00.html Be Aware of the Impact on Your Credit Score The impact of a short sale on your credit score depends upon a variety of factors, including late or missed payments. A short sale may appear on your credit report as "pre-foreclosure redemption," "paid in full for less than full balance" or other similar term. Understand That There May Be a Waiting Period Before You Can Buy another Home Your ability to qualify for a loan to purchase another home after a short sale will likely be impacted by a short sale and there may be a waiting period before you can purchase another home. Home Affordable Foreclosure Alternative (HAFA) Program The HAFA program was designed to give homeowners different alternatives to a foreclosure, which include incentives for completing a short sale. For more information on the options available, visit the HAFA program website www.makinghomeaffordable.gov/hafa.html To find out which option you are eligible for go to www.makinghomeaffordable.gov/eligibility.html To find out if your mortgage servicer participates in the HAFA program go to www.makinghomeaffordable.com/contact_servicer.html National Association of REALTORS® HAFA brochure: www.realtor.org/wps/wcm/connect/ef66df0041fa182e988ffcc7ba2f3d20/Brochure+Text+Clean+REV+as+of+4-5-10.pdf?MOD=AJPERES&CACHEID=ef66df0041fa182e988ffcc7ba2f3d20 Guidelines and Forms: www.hmpadmin.com/portal/programs/foreclosure_alternatives.html Review the Arizona Association of REALTORS® (AAR) Short Sale Forms AAR has developed a Short Sale Addendum to the Listing Agreement, www.aaronline.com/documents/SSAListing.pdf, and a Short Sale Addendum to the Residential Resale Real Estate Purchase Contract www.aaronline.com/documents/SSARPC.pdf to assist in a short sale transaction. Review these contract forms and any other forms you are asked to sign so that you thoroughly understand your rights and obligations. For More Information, Visit: • The Arizona Department of Real Estate website: www.azre.gov/ • AAR´s Consumer Foreclosure Assistance Links: www.aaronline.com/documents/ForeclosureLinks.aspx SELLER ACKNOWLEDGMENT Seller acknowledges receipt of this Advisory and further acknowledges that there may be other issues of concern not listed herein. The information in this Advisory is provided with the understanding that it is not intended as legal or other professional services or advice. These materials have been prepared for general informational purposes only. The information and links contained herein may not be updated or revised for accuracy. If you have any additional questions or need advice, please contact your own lawyer. _______________________________________________________________________ Seller Signature Date _______________________________________________________________________ Seller Signature Date Back to topCopyright © 2008 by Michele R. MichaelsBrent DeWitt and Michele MichaelsHavasu Realty30 Acoma Blvd S, Suite 210Lake Havasu City, AZ 86403928 854-1700 Office928 854-2280 Fax928 486-3131 Brent's Cell928 486-5212 Michele's Cell We join the nation in supporting our Troops!
8. Buyer(s) given opportunity to improve the offer(s).
9. When an offer meets lender requirements, lender issues Letter of Acceptance instructing seller and buyer to proceed and close within 10-30 days. The Letter of Acceptance may include terms that seller or buyer may want to counter. Seller and buyer should have their attorneys and/or tax accountants review the Letter of Acceptance if there is ANY DOUBT what the terms mean. SECRET: Lenders usually fax the Acceptance Letter to the Listing Agent; however, occasionally they will mail the letter directly to a buyer or seller. BUYERS and SELLERS: NEVER sign and return this letter to the lender without consulting your agent. 10. Expect the Lender's Letter of Acceptance require Seller and Buyer to close within 10-30 days. Buyers' lender must be in a position to draw loan docs and fund quickly.SECRET: Some individuals get upset with lenders for the lengthy, drawn-out process, and resent lender instructions to "hurry to closing" after the lender has "finally made a decision." Stop and consider: the seller is getting out of a nasty situation; the buyer is getting a property below Fair Market Value; the Lender(s) is typically losing anywhere from ten thousand to well over one hundred thousand dollars per short sale. It pays to keep things in perspective. Timeline (Approximate)First 2-6 weeks: Lender receives and processes package, orders BPO, assigns file to NegotiatorFollowed by 1 day - 4 weeks: Agents, Negotiator, Seller and Buyer agree on price and termsFinally 10-30 Days - Proceed to ClosingSecret: Different lenders have different levels of competency dealing with short sales. Some have become proactive and are adding staff to Loss Mitigation departments and streamlining the process. Some are so overwhelmed with foreclosures they barely have staff available for short sales. Changes occur constantly. Possible HurdlesSome short sales close, from start to finish, in as little as 45 days. They are the exception. Typically, expect 90-120 days to close. On rare occasions, a complex short sale may take up to 6 months to close. It helps to remember that the average front line negotiator at the bank is handling 100-150 files.Most often, a short sale involves more than one loan. If the 1st and 2nd loans are with the same lender, the process is easier. If the loans are with different lenders, the process as described above will have to be repeated with both lenders simultaneously. An added complexity for the listing agent is negotiating with the 1st lien holder on their allowed payoff to the 2nd lien holder. Don't let this be a cause for alarm, as well-trained agents anticipate this and know what to do. Just realize this scenario may add another week to the negotiating timeline.Even if two loans against a property are with the same lender, the loans may be with different divisions at the lender and require the same work as two different lenders. Sometimes the mortgage payments are going to a servicing company instead of the lender. If this is the case, the servicing company must also agree to the short sale, possibly adding another layer to the timeline.During the boom, many people bought property with less than 20% down, which usually required insuring the loans. Mortgage insurance companies also need to agree to a short sale. Some lenders in 2nd position, most HELOC (home equity line of credit) lenders, and many mortgage insurance companies will require the seller agree to an unsecured note to cover some of their loss before they will agree to a short sale. Amount and terms for these notes are almost always negotiated "down" from the lender's or mortgage company's first demand, again adding a layer to the negotiating timeline.Hopefully, the agent who fills the BPO order for the lender is local and competent, and has determined an accurate current Fair Market Value. Be aware, however, that some lenders are actually using BPO companies who complete the order without ever seeing the property, using electronic information only. If the agent negotiating the file determines the lender is working off an inaccurate FMV, add another week or two to the process. Be sure, the bank negotiator will not tell the agent what the BPO came in at, but a savvy agent can usually figure it out very closely by establishing a good rapport and asking the right questions.Back to top Part FourUnderstanding the NumbersDifferent lenders have different policies governing their short sale process. Different markets also influence the numbers. However, some basic guidelines can be applied to the numbers that will work for the bank. The following information does not cover all the potential complexities, but will give you a good handle on how the process works.Understand the banks are more interested in current Fair Market Value, NOT what is owed. The bank assumes they will suffer a loss in a short sale. Bottom line, the bank wants to know four numbers:1. What's the current FMV2. What's the mortgage balance total (1st, 2nd, HELOC,etc.)3. What's the total of any other liens plus cost of sale (title fees, commission, tax liens, etc.)4. What's the offerStep One: As we learned above, the bank will order a BPO upon processing a package. The BPO sets the FMV lenders will use. The offer must be negotiated to within a certain percentage of the BPO before the lender(s) will agree to the sale. Various types of loans have different guidelines as to what is an acceptable short payoff.Step Two: Lender(s) will look at the HUD 1 Settlement Statement prepared by the escrow officer to ascertain suggested partial payoffs to each lien holder and determine their loss.Step Three: the primary (1st) lender will use internal formulas to determine costs of carrying the loan if they refuse the short sale, proceed to foreclosure, take the property into inventory, and sell it three to six months later. If the loss is less by accepting a short sale than going the foreclosure route, the1st lender will usually agree to the short sale. Step Four: As stated above, various types of loans have different guidelines as to what is an acceptable short payoff. 1. Lenders in 1st position usually agree to a short sale if the net payment they receive is within 85-90% of the FMV as reported in their BPO. Remember, the 1st lender usually has to agree to share some of the short sale purchase funds with other lien holders. Lien holders would have no motivation to agree to a short sale unless they receive some funds. 2. Second lien holders typically want a short payoff of 10% of the second loan balance. Sometimes a lesser amount can be negotiated. Look at this like jealous siblings. If the second lien holder sees that the 1st is not losing much compared to what the 2nd is being asked to forfeit, they may dig in their heels and require more before they will agree to the short sale. Conversely, if they see the 1st taking a big hit, they may be agreeable to less than a 10% payoff. The listing agent will be negotiating between the lenders. 3. HELOC lenders are tougher. This type of loan has terms similar to revolving credit (credit cards). Even though the property securing the loan may go away (through foreclosure), the loan stays in place and the lender can more easily pursue the borrower for payment. Most HELOC lenders begin negotiations with a 50% of the loan balance payoff demand, but may negotiate down to as low as 20-25%. As with the 2nd lender, they will be more flexible when they see the 1st taking a heavy hit.As a matter of negotiating to short sale acceptance, a second or HELOC lender may require the seller to share in the loss. As mentioned above, this might be in the form of demanding the seller liquify some assets to bring additional funds to the table. If the seller has no assets, lenders may require the seller sign an unsecured note to pay off part of the loss. Amounts and terms of these unsecured notes are subject to negotiation, and ultimately, the seller must agree to them or face foreclosure. The lenders don't want the foreclosure. Therefore, very manageable terms can usually be worked out. A last number (less important than true current FMV) that you should be familiar with is loss severity. Loss severity is the percentage of loss the lien holder will suffer against the loan balance by allowing a short sale. Lenders in first position typically respond favorably to a loss severity between 20-30%. Acceptable loss severity may be more in harder hit markets such as Las Vegas and some parts of Ohio and Florida; however, lenders having loans secured by Lake Havasu City real estate typically fight loss severity greater than 20% UNLESS current Fair Market Value on a particular property indicates they have little choice.None of these guidelines are written in stone; they change with market conditions. Pressure from more foreclosure properties coming on the market have the greatest influence in deeper discounts allowed by the lenders. Remember, it's a changing world...Back to top Part FiveShort Sale MythsToo much disinformation is out there regarding short sales. Some of the inaccuracies come from real estate agents. A bunch comes from late night infomercials that want your money to learn how to buy at 50 cents on the dollar with no money down. Myth - Lenders are so desperate they will accept any offer on a short sale.Truth - Lenders would rather work toward a possible solution with the homeowner first. If that is not possible, lenders will use their internal guidelines in accepting or rejecting a short sale offer.Myth - Lenders will sell "short" at 50% of the list price.Truth - Lenders may suffer a loss severity of 50% of the loan balance in accepting a short sale; however, they will NOT agree to an offer of 50% of the FMV (usually very close to the list price if the listing agent is competent). They would be much better off to foreclose and sell the property as an REO. Remember, the lender is discounting their loan to current market value. This discount can range anywhere from 5% to 50%, depending on market conditions in different parts of the country.Myth - The lender will not accept a short sale if the client is not behind on their payments.Truth - Many tier one bank employees will tell a caller that this is true; however, short sales have closed when the seller did have a valid hardship, but had not yet run out of money. Lenders recognize, if the numbers are right, the short sale today may be a better option than allowing the loan to go through the foreclosure process, then getting up to 30% less later. A savvy listing agent recognizes the file has to be moved to the RIGHT person who understands the numbers and has authority to accept. Myth - The lender will only accept a full FMV (fair market value) offer. Truth - The lenders have internal guidelines that allow them to accept up to 15% off the current Fair Market Value. They obviously won't tell us this when the offer is submitted. Agents negotiating the file need to know who to talk to and how to get them to understand the numbers (short sale Net vs. foreclosure Net).Myth - The lender will not accept $60,000 net on a $100,000 loan. Truth - Yes, they may. As mentioned, the lender does have internal guidelines that lower level mitigators use to determine if they can accept a 'vanilla' short sale. In cases where the loss severity is great, as in this example of 60% of the original note, lower level mitigators will turn us down all day long. A senior loss mitigator or AVP may be able to sign off on that same file right over the phone. They key is showing the value has decreased significantly and the alternative (foreclosure) will result in a greater loss severity.
Truth - The lenders have internal guidelines that allow them to accept up to 15% off the current Fair Market Value. They obviously won't tell us this when the offer is submitted. Agents negotiating the file need to know who to talk to and how to get them to understand the numbers (short sale Net vs. foreclosure Net).Myth - The lender will not accept $60,000 net on a $100,000 loan.
Truth - Yes, they may. As mentioned, the lender does have internal guidelines that lower level mitigators use to determine if they can accept a 'vanilla' short sale. In cases where the loss severity is great, as in this example of 60% of the original note, lower level mitigators will turn us down all day long. A senior loss mitigator or AVP may be able to sign off on that same file right over the phone. They key is showing the value has decreased significantly and the alternative (foreclosure) will result in a greater loss severity.
Myth - A second position lien will sign off on a short sale, even if they are offered $0.
Truth - How great that would be! If you held a second lien and you were going to get wiped out at foreclosure, would you sign off on a short sale and release your lien if you were offered $0? No way. Listing agents must pull a PR (preliminary title report) and look over ALL liens on title. If there are any lien holders that cannot be tracked down, you may not be able to do the deal, even if the first is jumping for joy and wants to complete the short sale. Remember that taxes and HOA dues are liens that will need to be satisfied. In most cases the first lender will allow delinquent taxes and HOA dues to be paid in full; however, some lenders will require the seller to contribute in part to the HOA.Myth - If the negotiator turns down your offer, the bank will NEVER accept that offer. Truth - Even when the numbers are right on, many agents take a turn down as gospel instead of a sign that they are talking to a low level employee at the bank. If you know the values in your area and you know this deal will net the lender more money than a foreclosure, then the agent's job is to "escalate" to a higher level and try to get the file approved. We hear stories of how the bank was stupid and turned down a great offer. If an agent had made the effort to talk to someone at the bank who cares about the bank's success (usually those that are paid bonuses on results and not just a salary) and that can do simple math, you would have probably had an approval on the same exact offer that the 'salary' employee turned down. NO DOESN'T ALWAYS MEAN NO. Also, remember that loss mitigators are trained to say no to the first offer and ALWAYS ask for more money if they are not getting a full payoff. That's their job.
Myth - Lenders will not accept a short sale where the buyer is asking for seller concessions to cover closing costs or repairs.Truth - The numbers are the numbers where the bank is concerned. If there is room in the deal for the lender to allow concessions and remain within their guidelines, they very well may accept concessions in the offer.Back to top
This new law gives an incentive to short sell a principal residences when the owner is upside down and can no longer make the payments. It will also encourage those with both a principal residence that is upside down and other properties to short sell the principal residence and move into the other residence. This new law does not give relief to flippers that have flops, or investors that over financed, or even homeowners that leveraged up their loans after acquiring the house.
You can view the entire text here.Another possible relief for foreclosed owners or short sellers who may be liable for 1099 taxable income is insolvency. Your accountant will file IRS Form 982 to prove your total liabilities are greater than your assets, which will relieve you of the tax liability. Again, ALL short sellers are strongly advised to talk to a CPA competent in real estate, and specifically short sales, prior to listing their property as a short sale.Short sellers, be sure to do three things about 30 days after the sale has closed. First, ask your listing agent to verify that your transferred title shows up correctly in the public records. Second, ask your listing agent to contact the bank to verify your file has been closed. Third, get copies of your credit report from Equifax, Experian, and TransUnion. You can do this at no cost at http://AnnualCreditReport.com. Many banks will try to report your loan(s) as "paid, less than agreed" even though they agreed to report "paid in full" or "settled in full." Understand that the bank agreed to the short sale, essentially modifying the terms of the debt, and wrote off the loss to balance their books and issued you a 1099C. Therefore, they cannot legally report a paid less than agreed. You may try writing the lender yourself and attaching a copy of your 1099C; however, most short sellers have much greater success hiring an attorney to write the letter to the bank. Many attorneys are available to do this at very affordable rates. Banks WILL correct the credit reporting when they are called on it. Make sure they do, as this will have a strong positive effect on your credit rating.Stay in touch with your listing agent. Make sure you give your agent new addresses and phone numbers. Better agents will stay in touch with their short sale clients with wonderful tips for rebuilding credit, keeping your credit within optimum guidelines, leads for affordable rentals, and more. Know that this trying time will pass, and you can count on good agents to help guide you to a bright, new, and better time. It won't be long before you will be a homeowner again, at a terrific price, with a mortgage you can afford!Back to top
Arizona Department of Real Estate
Short Sale Seller Advisory
A Resource for Real Estate Consumers Provided by the Arizona Association of REALTORS®
A short sale is a real estate transaction in which the sales price is insufficient to pay the loan(s) encumbering the property in addition to the costs of sale and the seller is unable to pay the difference. A short sale involves numerous issues as well as legal and financial risks. This Advisory is designed to address some of these issues and risks, but does not purport to be comprehensive.
Before Proceeding with a Short Sale
Understand a Lender´s Options upon Loan Default
There are many types of loans that are secured by real property. These may be purchase loans, refinanced loans, home-equity loans, or one of the various other types of loans. The type of loan and type of property will determine what remedies a lender may have if the homeowner fails to make the agreed upon payments. The available remedies, the homeowner´s overall current or potential future financial strength, the lender´s cost in acquiring the loan and any shared-loss or similar agreement if the loan was acquired by purchase or merger, are some of the many factors that the lender may consider in deciding how to proceed when a loan is in default. For an overview of these issues, go to www.aaronline.com/AZR/Dec/09LoanDefaults.aspx
Be Aware of Predatory "Rescue" Scams & Short Sale Fraud Homeowners worried about foreclosure may be susceptible to predatory "rescue" scams which may cost you money with no results, result in the loss of your home entirely, or involve you in a fraudulent scheme. For more information, go to: www.efanniemae.com/utility/legal/pdf/fraudnews/mortgagefraudnews0709.pdf
"Red Flags" of fraudulent schemes include:
• Guarantees to stop the foreclosure
• Large upfront fees
• Instructions not to contact the lender
• Transfer of title or lease of the property
• The proposed buyer is an LLC
• Requests that the homeowner execute a power of attorney
• The proposed buyer, at the buyer´s sole expense, retains a third party to negotiate the short sale for the seller´s benefit.
Report suspected scams to the Department of Financial Institutions at fraudline@azdfi.gov, the Attorney General´s Office at www.azag.gov/consumer/foreclosure/index.html#Complaint or NeighborWorks© at www.loanscamalert.org/default.aspx
Contact a Free HUD-Approved Housing Counselor or Contact Your Lender Directly
• Contact a HUD-approved housing counseling agency online at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=AZ or call (800) 569-4287 or TDD (800) 877-8339 for advice on your options. For additional HUD resources: http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure
• Contact the Neighborhood Assistance Corporation of America at: www.naca.com/refinance/refinanceTenStep.jsp
• Contact the lender directly. To find the lender´s contact information, check the loan billing statement, or coupon book. Ask for the lender's home retention department, loss mitigation department, (or other department that handles negotiation of loans in default); explain the situation and find out if the lender is willing to discuss options.
Utilize Free Services Available to Arizona Residents
• Contact the Arizona Foreclosure Helpline at 1-877-448-1211 (toll-free) or visit www.housingaz.com/ShowPage.aspx?ID=248
• Review the Arizona Foreclosure Prevention Task Force Workbook www.dbtaz.org/flyers/2009.9.1.State.Task.Force.Wrkbk.pdf .
This book will help you evaluate your options and provide you with tools to take action. Additional resources are available at: www.azforeclosureprevention.org.
Obtain Legal Advice
An attorney can advise you about your options and legal liability.
• To find out if you are eligible for free or low cost legal assistance, contact a legal aid organization in your county or one of the organizations listed at www.azbar.org/LawyersHelpingYou/freelegal.cfm or www.azlawhelp.org/housing.cfm
• Contact the Lawyer Referral Service in your county where you can consult with an attorney for a small fee for a half-hour consultation.
Maricopa County: www.maricopabar.org/displaycommon.cfm?an=16 (602) 257-4200.
Pima County: www.pimacountybar.org/web/lawyer-referral-service-lrs (520) 623-4625.
• Attorneys who are State Bar Real Estate Law Certified Specialists can be located at www.azbar.org/LegalResources/findspecialist.cfm.
Obtain Tax Advice
• For Mortgage Forgiveness Debt Relief Act and Debt Cancellation tax information, go to www.irs.gov/individuals/article/0,,id=179414,00.html
• Attorneys who are State Bar Tax Law Certified Specialists can be located at www.azbar.org/LegalResources/findspecialist.cfm.
Be Aware of the Consequences of Committing "Waste"
Damaging the property or removing fixtures such as sinks, toilets, cabinets, air conditioners, and water heaters may result in liability to the lender for "waste." In other words, the lender may be able to sue you for damages if you have physically abused, damaged or destroyed any part of the property.
Options other than Short Sale
Consider All Options
A short sale may not be your best course of action. Consider all your options before making a decision.
Loan Workout
• Reinstatement: Paying the total amount owed by a specific date in exchange for the lender agreeing not to foreclose.
• Forbearance: An agreement to reduce or suspend payments for a short period of time.
• Repayment Plan: An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up.
• Claim Advance/Partial Claim: If the loan is insured, a homeowner may qualify for an interest-free loan from the mortgage guarantor to bring the account current.
Loan Modification
The lender may agree to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified or the loan term extended. Loan modification resources include:
• Making Homes Affordable: www.makinghomeaffordable.gov
• National Foreclosure Mitigation Counseling Program: http://findaforeclosurecounselor.org/network/home.asp
• Homeownership Preservation Foundation: www.995hope.org 1-888-995-HOPE™ Hotline
Refinance
If the lender will not agree to a loan workout or modification, the homeowner may be able to refinance the loan with another lender. The HOPE for Homeowners program will refinance mortgages for homeowners that can afford a new loan insured by HUD's Federal Housing Administration. Learn more at www.hud.gov/hopeforhomeowners/index.cfm
Deed-in-Lieu of Foreclosure The lender may allow a homeowner to "give back" the property. This option may not be available if there are other liens recorded against the property. Review the HUD requirements at www.hud.gov/offices/hsg/sfh/nsc/rep/dilfact.pdf.
Work Out Sale
The lender may allow a specific amount of time for the home to be sold and the loan to be paid off. The lender may also allow a buyer to assume the loan to purchase the property even if the loan is non-assumable.
Bankruptcy
If you are considering bankruptcy as an option, consult with an attorney that specializes in bankruptcy cases: www.azbar.org/LegalResources/findspecialist.cfm. Access the Arizona Bankruptcy Court self help information by calling 866-553-0893 or visit www.azb.uscourts.gov/default.aspx?PID=78#866.
Foreclosure
Allowing the lender to foreclose is another option. The counselors at the Arizona Foreclosure Help Line can explain the foreclosure process, call: 1-877-448-1211. Ultimately, only you and your attorney can decide if foreclosure is the best option for you. Attorneys who are State Bar Real Estate Law Certified Specialists can be located at www.azbar.org/LegalResources/findspecialist.cfm. Ask your attorney about the possibility of a deficiency lawsuit after foreclosure. Assuming all statutory requirements are met, the Arizona anti-deficiency statutes may limit the lender´s remedy to foreclosure, even if the amount due to the lender exceeds the value of the property. Also, seek professional tax advice about the consequences of a foreclosure and review the IRS information at www.irs.gov/individuals/article/0,,id=179414,00.html
Short Sale Considerations
If you decide to pursue a short sale, consider taking the following actions.
Contact a Qualified Real Estate Professional
Interview several real estate professionals and ask about their experience in short sales, the number of short sale transactions that they have handled, and their education and training in short sales.
• Review the real estate professional´s background and continuing education on the ADRE website at: http://services.AZRE.gov/publicdatabase
• Ask if the real estate professional has obtained a short sale certification, such as the Short Sales and Foreclosure Resource Certification ("SFR") www.realtorsfr.org/.
• Find a REALTOR® at www.aaronline.com/ConsumerAssistance/FindARealtor
Investigate Documentation and Eligibility
Documentation and eligibility criteria for short sales vary depending on specific lender and investor guidelines. Generally, you must prove that you are financially incapable of paying the loan and the lender is convinced that it will fare better by agreeing to a sale for less than the outstanding loan amount than foreclosing.
Determine the Amount Owed on the Property
All debt and costs must be factored in before determining whether a short sale is feasible. Consider the delinquent loan, home equity loan or other loans recorded against the property, past due homeowner´s association fees, unpaid property taxes and the costs of a sale, such as closing costs, escrow fees and brokerage commissions. If you have more than one loan on the property, be aware that a short sale will generally require the approval of all lenders.
Determine the Estimated Fair Market Value of the Property
You must prove to the lender that the home is worth less than the unpaid loan balance. Consult a real estate professional or an appraiser for assistance in estimating the value of the property.
Consult Legal Counsel
The importance of competent legal counsel to help you determine whether a short sale is the best option and to advise you during the short sale process cannot be over emphasized. See the legal resources listed on page 2 or visit www.azbar.org.
Understand that a Short Sale May not Discharge the Debt
Even if a lender agrees to a short sale, the lender, the VA, or the FHA may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation. This outstanding personal obligation could result in a subsequent collection action. For example, a lender may accept the short sale purchase price to "release the lien" on the property as opposed to agreeing to accept the purchase price as "full and final settlement of the debt" on the property. Therefore, be certain of the terms of any short sale before making a decision, consult an attorney regarding whether the lender is entitled to pursue a deficiency judgment and obtain any debt forgiveness agreements with the lender in writing.
A short sale in which the debt is forgiven is a relief of debt and may be treated as income for tax purposes. The Mortgage Forgiveness Debt Relief Act of 2007 created a limited exemption to allow homeowners to pay no taxes on debt forgiveness; however, only cancelled debt used to buy, build or improve a principal residence or refinance debt incurred for those purposes qualifies for this tax exemption. For more information on the tax consequences of debt relief seek professional tax advice and go to www.irs.gov/individuals/article/0,,id=179414,00.html
Be Aware of the Impact on Your Credit Score
The impact of a short sale on your credit score depends upon a variety of factors, including late or missed payments. A short sale may appear on your credit report as "pre-foreclosure redemption," "paid in full for less than full balance" or other similar term.
Understand That There May Be a Waiting Period Before You Can Buy another Home
Your ability to qualify for a loan to purchase another home after a short sale will likely be impacted by a short sale and there may be a waiting period before you can purchase another home.
Home Affordable Foreclosure Alternative (HAFA) Program The HAFA program was designed to give homeowners different alternatives to a foreclosure, which include incentives for completing a short sale. For more information on the options available, visit the HAFA program website www.makinghomeaffordable.gov/hafa.html
To find out which option you are eligible for go to www.makinghomeaffordable.gov/eligibility.html
To find out if your mortgage servicer participates in the HAFA program go to www.makinghomeaffordable.com/contact_servicer.html
National Association of REALTORS® HAFA brochure: www.realtor.org/wps/wcm/connect/ef66df0041fa182e988ffcc7ba2f3d20/Brochure+Text+Clean+REV+as+of+4-5-10.pdf?MOD=AJPERES&CACHEID=ef66df0041fa182e988ffcc7ba2f3d20
Guidelines and Forms: www.hmpadmin.com/portal/programs/foreclosure_alternatives.html
Review the Arizona Association of REALTORS® (AAR) Short Sale Forms
AAR has developed a Short Sale Addendum to the Listing Agreement, www.aaronline.com/documents/SSAListing.pdf, and a
Short Sale Addendum to the Residential Resale Real Estate Purchase Contract www.aaronline.com/documents/SSARPC.pdf to assist in a short sale transaction. Review these contract forms and any other forms you are asked to sign so that you thoroughly understand your rights and obligations.
For More Information, Visit:
• The Arizona Department of Real Estate website: www.azre.gov/
• AAR´s Consumer Foreclosure Assistance Links: www.aaronline.com/documents/ForeclosureLinks.aspx
SELLER ACKNOWLEDGMENT
Seller acknowledges receipt of this Advisory and further acknowledges that there may be other issues of concern not listed herein. The information in this Advisory is provided with the understanding that it is not intended as legal or other professional services or advice. These materials have been prepared for general informational purposes only. The information and links contained herein may not be updated or revised for accuracy. If you have any additional questions or need advice, please contact your own lawyer.
_______________________________________________________________________
Seller Signature Date
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