Helping You To

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    Helping You To PreserveYour Credit

    A Guide To Understanding The ProcessJohn L. Dumas, Realty Source San

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    What Is A Short Sale?

    Its a transaction where two unique events must occur together.

    (1) Net Proceeds Sale Loss

    A short sale occurs when your net proceeds from the sale is insufficient to coveryour note balance(s).

    (2) Lender Agreement

    The lender(s) agrees to release its mortgage lien(s) and note obligations on thehome in exchange for payment less than the full loan balance.

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    Why Would A Lender Agree To A

    Short Sale?

    (1) Lender Loses Less As Compared To A Foreclosure

    The discounted payoff of the short sale must be less than the lenders cost toforeclose.

    Legal fees on foreclosure Title closing of property

    Holding of property until a successful resale Maintenance of property until a successful resale Commission & marketing cost of resale

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    Why Would A Lender Agree To A

    Short Sale?

    (2) Seller Distress

    The lender will agree to a short sale if the seller can prove distress.

    Seller is in default on mortgage Seller can document financial distress Seller has a firm sale which generates insufficient proceeds

    Seller sale provides no net to seller Seller proves current market comparables support sale price

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    Why Would A Seller Want To Do A

    Short Sale?

    Potential Seller Benefits

    1. The Government recently passed HAFA (Home Affordable ForeclosureAlternatives) that is a Godsend for homeowners underwater.

    2. With HAFA, the Government requires homeowners are released from theirdebt, and any future liability from their Lender.

    3. Financial Incentives are provided: $1500 for you, $1000 for the Lenders, andup to $3000 for any additional lien holders.

    4. The process has been streamlined, and is MUCH faster now than ever before.

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    Why Would A Seller Agree To A

    Short Sale?

    Continued..

    5. It has less of an impact on your credit rating than a Foreclosure or Deed-In-Lieu of foreclosure.

    6. Your lender may stop reporting missed payments to credit agencies.

    7. Provides more time for you to act in this difficult situation.

    8. You may buy another home sooner as compared to a foreclosure.

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    What Must A Seller Do To Prepare For

    A Short Sale?

    The following is a checklist of what you need to gather to begin the process of a Short Sale.

    Hardship letter Appraisal Deed Financial information worksheet Statement of Assets & Liabilities Net worth summary

    Copy of property tax bill Copy of 2 recent bank statements Copy of 2 recent pay stubs Copy of 2 recent IRS tax returns

    Late bills summary Medical bills Divorce decree Child support payments Unemployment benefits SSI income

    Authorization to sell Homeowner association information Other to be determined by lender

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    What Is The Short Sale Selling

    Process?

    1. Homeowner signs listing agreement with real estate agent.

    2. Agent finds buyer who offers less than note owing.

    3. Homeowner accepts buyers offer.

    4. Homeowners lender accepts buyers offer.

    5. Transaction closes when the buyer delivers the funds, the lender releases thelien, and the Homeowner delivers the deed.

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    What Are The Qualifications For A

    Short Sale?

    Can you say yes to the following 4 questions?

    (1) Has your Homes Market Value Has Dropped?

    (2) Have you already missed a payment, or foresee the possibility of missingone?

    (3) Are you in Hardship of any kind?

    (4) Is your debt (including your current mortgage) more than your assets?

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    What Constitutes & Triggers

    Hardship?

    1. Unemployment

    2. Divorce

    3. Medical emergency

    4. Sudden illness

    5. Death

    6. Bankruptcy

    7. Increase in mortgage payment due to resetting of ARM(s)

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    What Does Not Constitutes

    Hardship?

    1. Bad Purchase Decisions

    2. Unhappy With The Neighbors

    3. Buying Another Home

    4. Pregnancy

    5. Moving Into An Apartment

    6. In-Laws Coming To Live With You

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    How Is A Short Sale Different From A

    Normal Sale?

    (1) Marketing

    There is no difference. Well utilize our extensive marketing program.

    (2) Buyers

    There is a big difference. Short sale buyers are price sensitive & driven.

    (3) Home Pricing

    There is a big difference. Appraisal is based upon other short sales comparingapples to apples.

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    How Is A Short Sale Different From A

    Normal Sale?

    (4) Other MLS Agents

    Only Agents and their buyers will know you are in short sale.

    (5) Sale Impact

    Having buyers and agents fully aware of the short sale status increases thelikelihood of a fast sale.

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    What Are The Consequences of a

    Short Sale?

    (1) Potential IRS Tax Consequences

    If the lender agrees to the short sale, the lender may possess the right to issue you a1099 for the shorted difference due to a provision in the IRS code about debtforgiveness.

    Many situations are exempt from debt forgiveness, according to theMortgage Forgiveness Debt Relief Act of 2007.

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    What Are The Consequences of a Short Sale?

    (2) Deficiency Judgment

    The lender has the right to pursue a summary Judgment for the deficiency.

    Example

    The bank was owed $300,000 and sold short for $210,000. The deficiency is $90,000. The lender sues theseller for the deficiency.

    With HAFA, Lenders must agree not to pursue this option.

    (3) Blemished Credit Record

    Short sales will show up on credit reports as a pre-foreclosure in redemption status.The typical short sale will affect credit up to 2 years and 40-60 points, while aforeclosure 5-7 years and 250-300 points.

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    Which Is Better, Foreclosure or Short Sale?

    Fannie Mae: August 2008

    Due to the increased incidence of pre-foreclosure [short] sales, Fannie Mae isestablishing a 2-year elapsed time period for reestablishing credit followingcompletion of the action.

    A foreclosure client must wait5 to 7 years, maintain at least a 680 credit score inthe sixth and seventh year, and pay a minimum 10 percent down on future homepurchase.

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