Short Sale Guide - Birmingham Alabama

7/29/2019 Short Sale Guide - Birmingham Alabama

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What is a Short Sale?

Borrowers who are acing oreclosure may ask the lender to accept a discountedpayoff on their loan. Tis is called a short sale or short payoff. It allows theborrower to avoid a oreclosure action, and may offer the lender an expedited andless costly resolution o the situation.

Historical trends tell us that the number o short sales has increased whenchanging markets sofen home prices and leave homeowners with a higher

mortgage interest rate or loan balance. For the consumer, negotiating a short salewith the lender may seem a daunting task, particularly at a stressul time whenoreclosure looms. A short sale allows the borrower to maintain a better overallcredit record than with a oreclosure. It also allows time or the homeowner torelocate on a more convenient timetable instead o acing eviction and possibly adeficiency judgment down the road. A short sale may impact the borrowers taxsituation, so a tax advisor should be consulted.

Most lenders have specific criteria to consider a short sale that relate to theborrowers ability to repay the debt. Some lenders will consider a short sale onlyi the borrower can produce evidence o hardship. A property that is distressed

or requires extensive repairs may also qualiy. I the lender were to oreclose onthis type o property, it would have to pay or all the repairs necessary to sell theproperty. A short sale may represent a more cost-effective way to pay off the loan.

For our team, assisting a homeowner with a short sale means not only acommission but the real satisaction that comes rom helping someone out o atough spot. Te benefit to the borrower is that the our team negotiates with thelender and fields offers rom potential buyers as well as collects the necessarydocumentation that goes along with the sale.

Te tips on the ollowing pages review many o the aspects o a short sale, butconsumers are urged to consult their attorney, HUD homeowner counselingcenter, tax proessional, and other appropriate proessional agencies or assistance


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ListingAppointment

FinancialQualification

ListProperty

Input to MLS

Offer & ExecuteContract

Conventional Short Sale Process

First and Second Mortgage

Only if Offer Doesnot Cover FullBalance of 1st

Complete Package& Send to 1st

Appraisal of BPO

Approval

Adjust Payoffto Title

Final Inspections

Closing

Complete Package& Send to 2nd

Appraisal of BPO

Approval

ContinueMarketing

Re-Negotiatewith Buyer

UpdateContract

ContinueMarketing

Re-Negotiatewith Buyer

Update

Contract

Submit Letterof Approval

from 2nd

Not Approved

Re-Submit

Not Approved

Re-Submit


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ListingAppointment


ListProperty

Input to MLS

CompletePackage &

Send to Bank


Appraisal or BPO

Approval

Adjusted Payoffto Title

Final Inspection

Closing


Bank Will Communicate

Not Approved

Re-Submit

ContinueMarketing

Re-NegotiateWith Buyer

Update Contract


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ListingAppointment


ListProperty

Input to MLS


CompletePackage &

Send to Bank

Contract &Package

Submitted Together

Appraisal or BPO

Approval

Adjusted Payoffto Title

Final Inspection

Closing


Bank Will Not Communicate

Not Approved

Re-Submit

ContinueMarketing

Re-NegotiateWith Buyer

Update Contract


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ListingAppointment


ListProperty

Complete Package& Send to Bank

(Form 90036 & 38)

FHA Appraisal

Gain Acceptanceinto Program(Form 90045)

Input to MLS


Offer Meets orExceeds FHA

Appraisal

Closing


FHA Pre-Foreclosure Sales Program

Offer Less than FHAAppraisal

Submit Requestfor Variance

Variance Denied Variance Approved

Time Runs Out

Submit Request

for Variance

Submit Requestfor Variance

Variance Denied Variance Approved

Contin

ue

Marketin

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ting

Foreclosure


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Alabama Foreclosure Process

Non-Judicial Foreclosureis only used when

Power of Sale Cause exists

Does not requirecourt appearance

The Security Instrumentis either a mortgage or a

Deed of Trust

Notice of Foreclosure to bepublished for 4 consecutive

weeks in a county newspaper

Deed of Trust depends if it hasPower of Sale Cause

Trustor cannot reinstateon his defaulted loan

30 day waiting periodbefore sale

Borrower gets notification ofimpending sale by auction

Right of Redemption:12 months

Auction takes place,overseen by lender, in front ofcourthouse of county where

property is located

Foreclosed home will be sold,in cash, to the highest bidder

Deficiency allowedif granted by judge


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Tips for Avoiding Foreclosure

Free CounselingFor borrowers, oreclosure is a very serious legal procedure which can ofen be avoided. Housing counselingagencies sponsored by the United States Government offer valuable resources to help you discover specialborrower programs. Most o these services are ree o charge. Contact the US Department o Housing and UrbanDevelopment (HUD) at (800) 569-4287 or visit the departments website at www.hud.gov or more inormation.

What to Ask the LenderI you, or someone you know, cannot meet the mortgage payment, HUD recommends that any letters romthe lender be answered immediately with an explanation o the circumstances. Many lenders offer assistance,but only or those who stay in the home and do not abandon it. For example, the lender may have a special

orbearance program to rearrange payments, or even reduce or suspend them or a period o time. Te lendermay also refinance the debt or extend the term o the loan to make the payments lower.

Tose with FHA loans may also qualiy or a partial claim payment. Tis program provides a one-timepayment rom the FHA Insurance und to bring the mortgage current. I the loan meets certain criteria, thelender can file a partial claim. Te borrower must sign a Promissory Note and a lien or the amount o thepartial claim that will be placed against the property. Te interest-ree amount is due and payable when the firstmortgage is paid off or when the property is sold.

Scams

Unortunately, there are those who prey upon people in financial difficulty. Most likely, anything that sounds toogood to be true probably is. o avoid scams it is important or the borrower to:

Check with a lawyer or the mortgage company beore entering into any transaction involving the property.

Remember that the loan must be paid even i the deed is signed over to someone else. Te lender must ormallyrelease the mortgage debt.

Make sure all promises are made in writing.

Not sign anything with blanks to be filled in later.

Read and understand all documents beore signing.


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TaxesIn addition to the damage it can do to a borrowers credit rating, oreclosure can also cause major taxconsequences. Most people assume that a oreclosure will automatically cancel taxes, but this is usually nottrue. Tat is why it is important to involve a tax attorney or advisor in all considerations o oreclosure andalternatives to oreclosure.

Loans against personal property, such as a bank loan or seller carry-back loan to purchase an owner-occupied

residence, are called non-recourse loans. Various state laws protect borrowers rom personal liability on apurchase mortgage or the home they occupy. Under these types o non-recourse loans, the tax liability isthe outstanding amount o the loan, or sales price i higher. A greatly simplified example: Te borrower owes$100,000 on the home he lives in. Even i it is oreclosed upon or given as deed-in-lieu o oreclosure back tothe lender, or the lender accepts a short sale payoff, the borrower is still taxed as i the property had sold or$100,000.

I the loan is a recourse loan, i.e. the borrower is personally liable i the property is sold or less than theamount owed to the lender, then the borrower has both personal liability and tax consequences. o obtain apersonal judgment against the borrower, the lender must instigate a judicial oreclosure. Te borrower wouldbe relieved o personal liability i the lender proceeds with a rustees Sale (or non-judicial oreclosure) on theproperty. Again, a oreclosure, deed-in-lieu o oreclosure or short sale all involve a tax obligation which iscomputedas i the property were sold or its value or, in certain cases, i the debt exceeds the propertys value.

The Mega Agent Real Estate Team is There to HelpAnother possibility is a pre-oreclosure sale or even a short sale o the property, which avoids the oreclosureprocess. Some lenders also allow a deed-in-lieu o oreclosure (also called a riendly oreclosure) in which theborrower signs the house over to the lender to avoid the oreclosure. Tis may not be quite as damaging to thecredit rating as a oreclosure, but lenders only consider this option i a pre-oreclosure sale is not possible. TeMega Agent Real Estate eam can help with these types o sales to avoid oreclosure.

Tips for Avoiding Foreclosure


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Foreclosure vs. Short Sale

ISSUE FORECLOSURE SUCCESSFUL SHORT SALE

Future Fannie Mae Loan(Primary Residence)1

A homeowner who loses a home to foreclosure isineligible for a Fannie Mae-backed mortgage for aperiod up to 7 years with some exceptions based onextenuating circumstances. See: efanniemae.com

A homeowner who successfully negotiates andcloses a short sale will be eligible for a FannieMae-backed mortgage within 2 years (see page2 for LTV ratios).

Future Fannie Mae Loan(Non Primary)2

An investor who loses a home to foreclosure is ineligiblefor a Fannie Maebacked mortgage for a period upto 7 years with some exceptions based on extenuatingcircumstances. See: efanniemae.com

An investor who successfully negotiates andcloses a short sale will be eligible for a FannieMae-backed investment mortgage within 2 years(see page two for LTV ratios).

Future Loan with anyMortgage Company

On any future 1003 application, a prospective borrowerwill have to answer YES to question C in Section VIII ofthe standard 1003 that asks Have you had propertyforeclosed upon or given title or deed-in-lieu thereof inthe last 7 years? This will af fect future rates.

There is no similar declaration or questionregarding a short sale.FHA If current at the close of short sale,a homeowner may apply for an FHA loanimmediately. If homeowner is late before closeof short sale closing, will be eligible for FHA loan

after 3 years.3

Credit Score Score may be lowered anywhere from 250 to over 300points. Typically will affect score for over 3 years.

Only late payments on mortgage will show,and after sale, mortgage is normally reportedas paid as agreed, paid as negotiated, orsettled. This can lower the score as little as 50points if all other payments are being made.A short sales effect can be as brief as 12 to 18months.

Credit History Foreclosure will remain as a public record on a personscredit history for 7 years or more.

A short sale is not reported on a persons credithistory. There is no specific reporting item forshort sale. In most cases a loan is typicallyreported paid in full, settled or paid asnegotiated.

Security Clearances Foreclosure is the most challenging issue against a

security clearance outside of a conviction of a seriousmisdemeanor or felony. If a client has a foreclosure andis a police or security officer, in the military, in the CIA, orany other position that requires a security clearance, inalmost all cases clearance will be revoked and positionwill be terminated.

On its own, a short sale does not challenge most

security clearances.4

Current Employment Employers have the right and are actively checking thecredit regularly of all employees who are in sensitivepositions. A foreclosure in many cases is ground forimmediate reassignment or termination.

A short sale is not reported on a credit reportand is therefore not a challenge to employment.5

Future Employment Many employers are requiring credit checks on all jobapplicants. A foreclosure is one of the most detrimentalcredit items an applicant can have and in most caseswill challenge employment.

A short sale is not reported on a credit reportand is therefore not a challenge to employment.6

Deficiency Judgment In 100% of foreclosures (except in those states wherethere is no deficiency), the bank has the right to pursuea deficiency judgment.

In some successful short sales it is possibleto convince the lender to give up the right topursue a deficiency judgment against thehomeowner.

Deficiency Judgment(amount)

In a foreclosure the home will have to go through an REOprocess if it does not sell at auction. In most cases thiswill result in a lower sales price and longer time to salein a declining market. This will result in a higher possibledeficiency judgment.

In a properly managed short sale the home issold at a price that should be close to marketvalue and in almost all cases will be better thanan REO sale resulting in a lower deficiency.

ISSUE FORECLOSURE SUCCESSFUL SHORT SALE


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Short Sale vs. ForeclosureFannie Mae Waiting Period Table

Foreclosure 7 Years 3 Years

Additional requirements after 3

years up to 7 years

90% maximum LTV ratios

Purchase, principal residence

Short Sale 2 Years - 80% maximum LTV ratios

4 Years - 90% maximum LTV ratios

7 Years - LTV ratios per the Lender

Eligibility Matrix

2 Years - 90% maximum LTV ratios

Derogatory Event Fannie Mae Waiting Period

Requirements

Waiting Period with Extenuating

Circumstances


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Absolute Auction:Auction with no minimum bidamount. Te highest bidder wins.

Abstract (of title):A history o all transactionsshown in the public records affecting a particular

Acceleration Clause: A provision in a promissorynote that specifies conditions under which the lendermay advance the time when the entire debt which issecured by the mortgage becomes due.

Adjustable Rate Mortgage (ARM):Mortgage loansunder which the interest rate is periodically adjusted,

in accordance with some market indicator, to moreclosely coincide with the current rates.

Affidavit: A written statement made under oathbeore a notary public or other judicial officer.

Agreement:A legally binding contract madebetween two or more persons.

Appraisal: A report rom an independent third partydetailing the estimated value o real estate.

Balloon Note/Balloon Payment: A promissory note

with amortization payments scheduled or a longterm, usually 30 years, but maturing in a shorter term,ofen five to seven years. It requires a substantial finalballoon payment or the remaining principal.

Bankruptcy: A ederal court proceeding under theUnited States Bankruptcy laws where an insolvendebtor either has its estate liquidated and debtdischarged, or is allowed to reorganize its affairsunder the protection o the bankruptcy court.

Beneficiary: A person or entity that is legally entitledby a will, trust or insurance policy to receive moneyor property.

Chain of Title: Te history o successive ownershipand transer in the title to a tract o land.

Clear Title: Real property ownership ree o liens,deects and encumbrances or claims.

Closing (also called Settlement): Te completion oa real estate transer, where the title passes rom seller

to buyer or a mortgage lien is given to secure debt.Closing Costs: Expenses involved in closing a realestate transaction over and above the price o theland.

Clouded Title: A land title having an irregularity,possible claim or encumbrance that, i valid, wouldadversely affect or impair it.

Contract of Sale: Agreement by one person to buyand another person to sell a specified parcel o land ata specified price.

Conveyance: Te transer o title or property romone person to another.

Deed: An instrument or conveying real estate.

Default: A ailure to meet legal or contractualobligations.

Deficiency Judgment: When the proceeds rom aoreclosure sale are less than the amount due on thedebt.

Encumbrance:Any interest, right, lien or liabilityattached to a parcel o land (such as unpaid taxesor an unsatisfied mortgage) that constitutes orrepresents a burden upon the property.

Equity: Te current market value o real property,less the amount o existing liens.

Execute: o sign a legal instrument. A deed is said tobe executed when it is signed, sealed, witnessed

Federally-Insured Loan:A mortgage loan thatoriginates in a ederally-insured government

program like the Federal Housing Authority (FHA).

Foreclosure: A legal proceeding ollowing a deaultby a borrower in which real estate secured by amortgage o deed o trust is sold to satisy theunderlying debt.

Instrument: A written document.

Foreclosure Glossary


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Judgment:Te decision o a court regarding therights o parties in an action.

Junior Mortgage: A mortgage lower in lien prioritythan another. For example, a second mortgage orhome equity line.

Lawsuit: A dispute between two or more parties thathas been filed in the court system by one o them.

Lien: A monetary charge imposed on a property,usually arising rom some debt or obligation.

Lis Pendens: A recorded legal notice that there islitigation pending relating to the land, and a warningthat anyone obtaining an interest subsequent to thedate o the notice by be bound by the judgment.

Market Value:Te average o the highest price thata buyer would pay and lowest price a seller wouldaccept.

Mortgage: A conditioned pledge o property to acreditor as security or the payment o a debt.

Note (also called a Promissory Note): A written

promise to pay a sum o money, usually at a specifiedinterest rate, at a stated time to a named payee.

Power of Attorney: A written instrument by whichone person, the principal, authorizes another, theattorney-in-act, to act on his or her behal.

Principal: A sum o money owed as a debt on whichinterest is payable.

Public Records: Records which by law discloseconstructive notice o matters relating to the land.

Real Estate (also called Real Property): Landand anything permanently affixed to the land suchasbuildings, ences, and those things attached to thebuildings, such as plumbing and heating fixtures, orother such items that would be personal property inot attached.

Recording: Te noting in a public office o the detailso a legal document, such as a deed or mortgage,affecting the title to real estate.

Redemption:Te right o the owner in Alabamato reclaim title to property i he or she pays the

debt to the mortgagee within a stipulated time aferoreclosure. Alabamas Right o Redemption lasts 1year.

Release: o relieve rom debt or security or abandona right, such as release o a mortgage lien rom apartor all o the land mortgaged.

RESPA: Te Real Estate Settlement ProceduresAct (12 U.S.C. 2601 et.seq.) that, together with

Regulation X promulgated pursuant to the Act,regulates real estate transers involving a ederally-related mortgage loan by requiring, among otherthings, certain disclosures to borrowers.

Satisfaction: An instrument releasing the lien o amortgage.

Senior Lien or Mortgage:I there is more than onelien on land, those liens are ranked by priority. Asenior lien or mortgage is entitled to be paid first inoreclosure or bankruptcy, beore a junior lien.

Tenant: One who has right o possession o land byany kind o title.

Title Defect: Any possible or patent claim or rightoutstanding in a chain o title that is adverse to theclaim o ownership.

Title Insurance Policy:A contract o title insuranceunder which the insurer, in keeping with the termso the policy, agrees to indemniy the insured againstloss arising rom claims against the insured interest.

Trustee: Person or entity who is given the legalauthority to manage money or property on behal osomebody else. In a oreclosure action, this is ofenthe title company.

Trustor: A person who creates a trust by transerringproperty to a trustee. When a borrower signs theDeed o rust, the borrower becomes a trustor.

Foreclosure Glossary


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RE/MAX Advantage Collier Swecker

2010 Distressed Propert y Institute, LLC. All rights reserved. Any duplication without expre ss written consent is prohibited. All CDPE forms are provided for informational purposes only. The Distress ed Property Institu te, LLC assumes noresponsibility nor guarantees the accuracy of these forms. It is strongly recommended that agents investigate the specific items necess ary to their situation and local and regional laws. 10.1.10

FORM P

Sellers Signature Date Buyers Signature Date

Sellers Signature Date Buyers Signature Date

Listing Brokers Signature Date Selling Brokers Signature Date

Listing Brokerage/Company Date Selling Brokerage/Company Date

Listing Agent Date Selling Agent Date

1. After the lender receives the short sale packet, the lender may require at least 60-90 business days to approve the

short sale. After approval, the sale must close within lender approved time frame, typically 30-45 calendar days.

2. The seller will receive no cash from this transaction (unless the short sale is HAFA-approved). Any funds usually due to

the seller will be paid to the lender.

3. The seller has no additional cash and will be unable to pay for any closing costs, such as the termite bond, buyers

appraisal or home warranty. Should the buyer desire a home warranty or termite bond they are free to purchase one

at closing.

4. The seller may be unable to pay for maintaining the property. The property will remain in the current condition

through closing; the seller will not be able to make any repairs to the property.

5. The sellers broker will pay the the buyers broker a commission equal to the amount listed in the MLS. Please

note that since the lender is taking less than what is owed to them in a short sale, the lender in some cases may

negotiate a lower commission percentage.

6. Any offer on this short sale must include a pre approval letter from Buyer's Lender if 3rd party financing is being

accomplished. If the offer is cash the Seller's Lender will require a "proof of funds" letter.

7. Buyer will be granted a 7 business day inspection period. There inspection period shall commence once the Buyer's

Agent receives written notification from the Listing Agent that the short sale file has been approved by the Seller's Lender

During the inspection period, Buyer may terminate the contract for any reason and any earnest monies will be released

back to the Buyer.

8. The sellers forgiven or cancelled debt may be taxable income. The seller should discuss this matter with a tax

professional. This has no bearing whatsoever on the buyer.

9. In some cases the lender may pursue a deficiency judgment against the seller for any funds not collected at closing.

This has no bearing whatsoever on the buyer.

10. By signing this disclosure, you acknowledge that you have read and understand these situations. Any changes to the

commission rate will be provided by the lender at the time of the lenders final approval of this short sale.

RE/MAX Advantage


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Short Sale Guide - Birmingham Alabama

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