• Is a short sale right for everyone?
  • What are the credit benefits of doing a short sale vs. foreclosure?
  • What are the TAX consequences of doing a short sale vs. foreclosure?
  • Can my lender come after me for the difference?
  • Will Bank of America (Countrywide) come after me for the difference?
  • Why should I do a short sale if I couldn't get an approval letter removing the deficient balance?
  • What's the difference between a 2nd mortgage and a HELOC?
  • Will the short sale cost me anything?
  • Do I qualify for a short sale?
  • Do I have to stop making payments on my mortgage in order to do a short sale?
  • Should I file for bankruptcy?
  • When should I begin the process?
  • How long does it take?
  • How do you handle short sales?
  • Why would my lender agree to a short sale?
  • Should I do a loan modification?
  • Will the bank reduce my loan amount or principle with a loan modification?
  • Do I need an attourney?
  • How do I start the process?
  • What is my obligation?
Question: Is a short sale right for everyone?

Answer:

The simple answer is no. Many agents make it sound like anybody can do a short sale with minimum credit consequences, with full release of your debt and that you will for sure be able to purchase a new home within two years While this may be true to some extent, a short sale is often times not a homeowner’s most viable route. The bottom line is that a lot of agents make it sound so “ideal” to attract more business. Many of these agents list short sales to attract buyer leads and have no real intention of ever selling the property. We do not do this! We take pride in our knowledge and expertise of being able to close short sale deals; we are proficient in our ability to prepare short sale files/paperwork to the banks liking and have mastered the negotiation techniques necessary close short sale deals and earn our clients the greatest net proceeds possible. Nevertheless, we admit that a short sale is not a one size fits all solution and is not always the right solution. Every situation is relative and has to be assessed by professionals (Realtor, CPA and attorney) to protect the homeowner and ensure they are optimally represented.

So please read the answers to these questions and when you are ready call my team at 916-788-8826. We will give you a FREE NO Obligation phone consultation to determine what solution is best for you and what your likely outcome will be.

Question: What are the credit benefits of doing a short sale vs. foreclosure?

Answer:

There are two parts and scenarios that need to be considered for this answer. Let's start with how it will be reported to the credit bureau's. While in cases, short sales and foreclosures, the delinquent mortgage will negatively affect their credit rating, at least short sellers will have type of verbiage stating that they worked out a deal with their lender. Such terms are reported by lenders as "debt settled for less than what was owed, debt settled, debt settled with agreement." or some other verbiage dependent on each lender. A short sale can possibly be less damaging to you credit point wise and there are many cases where the damage was as little as 50-100 points. Compared to a foreclosure on your credit report which is the worst possible scenario which can reduce your score by well over 3-400 points.

The next situation that plays out as to your credit damage is whether you are late on your payments or not. Once you stop making payments lenders will report you 30, 60, and 90 days late all the way to 150. This will contrinute to your failing credit. If you have two loans the then damage doubles. People who are late on their payments will suffer much more severe credit damage than those who miss a payment and do a short sale. And YES you can do a short sale even if you are not behind on your payments. (See Below)

People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 24 months. So, if buying a home is a future goal, then a short sale is the better option for many families. Fannie Mae and Freddie Mac have recently changed their guidelines (August 2008) stating that if you have a short sale on your record you may be able to buy another home within 24 months with financing that is ultimately going to be backed by them. While if you have a foreclosure on your record you will have to wait 5-7 years before being backed with financing by Freddie or Fannie.
Question: What are the TAX consequences of doing a short sale vs. foreclosure?

Answer:

Every situation is different for each person, so it is important to consult with a tax professional, CPA, or tax attorney. Here is some information to get you started, after which you should confir with your CPA to see if it applies to you. When you do a short sale or a foreclosure the lender is allowed to write off the loss and pass it on to you as income in the form of a 1099-C. The IRS considers this income for you and is taxable. For example, you borrowed $200,000 to purchase a home, but were only to repay $150,000 in the short sale, you will receive a 1099-C for that $50,000 and possibly taxed on that according to your tax bracket.

Federal Taxes: The home mortgage forgiveness debt relief act of 2007 states that if the property is your primary residence and the debt discharged was from your original "purchase money" loan, then you will not have to pay the taxes for that amount. Further, if you did refinance and used the money to only improve your home, then you may be eligable for the exclusion as well. This act has been extended until the end of 2012. If you refinanced your home and pulled the money out for other reasons or expenses or it is not your primary residence then it is possible that you may have to pay the taxes unless you are eligable for 'Insolvency'.

The IRS does not require you to pay the taxes on the loss the lender takes in a short sale if, at the time of the short sale, you are insolvent. Insolvency means your debts (including your mortgage) exceed the value of all your assets. In other words, if at the time of the short sale, your debt is greater than your assets, then you are insolvent. Ask your tax advisor if you are eligable for the debt relief act or insolvency and filing the IRS Form 982.

State Taxes: The state of California conformed to the federal tax exemption with its own senate bill 1055 for the year of 2008, but has not yet for the year 2009-2010. Ask your tax advisor if you qualify for an exemption of state taxes for a short sale. There may be taxes imposed from the CA tax franchise board. It is important to understand that taxes may apply to you whether you do a short sale, deed in lieu, or a foreclosure.
Question: Can my lender come after me for the difference?

Answer:

There are two types of loans in CA. There is 'non-recourse' and 'recourse'. A 'non-recourse' loan is one that you obtained to initially buy the home. If you go through a non-judicial foreclosure process with a 'non-recourse' loan the bank will not be able to come after you for the difference. If you do a short sale with a 'non-recourse' loan, some attorneys feel you should be protected and not have to worry about the bank coming after you. Other attorneys feel that the CA civil code of procedure does not address the short sale issue and does not protect 'non-recourse' loans, only a foreclosure does. The bottom line is there is no precedent set in court and no lender has challenged it that I know of, yet. It is important to have an attorney explain to you the CA Civil Code of Procedures 580b, 580d, and 726 as we cannot give legal advice.

If you have done any type of refinancing or obtained any cash out financing or have a Home Equity Line of Credit (HELOC) take out after the date of purchase, then these are considered 'recourse' loans and the ability is there for a bank to come after you for the difference if you go through a short sale. Unless you receive a short sale approval letter specifically stating that they will not pursue a deficiency judgement or some other verbiage of that sort. Every lender issues completely different approval letters with different verbiage. It is important to review your approval letter when it is issued, and we have attorneys on retainer to help you review your approval letter so that you fully understand it. It is also our goal to always get you a full release from any liability from your bank when obtaining a short sale approval, and we have an excellent success rate of approval letters. The ultimate goal of a short sale however is to get a full release in an approval which will absolve you from having to pay back any deficiency.
Question: Will Bank of America (Countrywide) come after me for the difference?

Answer:

Currently Bank of America does NOT issue approval letters stating that they will not pursue you for the difference. They will issue you an approval letter stating that BAC and its investors as well as mortgage insurance carriers reserve the right to pursue you for the remainder of the balance. This is simply an issue that we have not been able to get around. The only instance being we have seen this done is where our client has hired attorneys to litigate and negotiate with top level executives and BofA's legal department to get a letter seperately issued directly to the home seller that they will NOT pursue the homeowner. We can facilitate putting the home on the market, receiving an offer, presenting it to Bank of America to accept in order to sell the home but it will NOT absolve you from having to pay back any of the difference. If you would like an attorney to litigate with Bank of America to negotiate their release of a deficiency or talk about your other options you are free to do so at your own costs and we will be happy to work with them.
Question: Why should I do a short sale if I couldn't get an approval letter removing the deficient balance?

Answer:

If you are worried about a lender coming after you or your financial future, you may not want to. But some home owners are willing to accept an approval letter without a deficiency removal for the following reasons:

 •   To stop the payoff clock and stop incurring future and larger deficiency or payoff.

 •   To avoid a foreclosure on their credit.

 •   To settle the deficiency issue at a later date.

 •   To try and do the most responsible thing and get the bank the highest price possible for the home.

 •   To avoid any attorneys or additional fees out of pocket to dispose of the home.

 •   They simply will take their chances and file for Bankruptcy if the lender does try to collect.

 •   They simply will take their chances that the lender will not come to collect and 'write off' the loss instead.

Question: What's the difference between a 2nd mortgage and a HELOC?

Answer:

A true closed ended second mortgage is one of that is usually used to typically purchase the home and used as additional financing. While some seconds are not always used at purchase, in either event they are loans that are only secured by the property and may be wiped out if a first forecloses and there is not enough equity to pay them anything.

A HELOC is completely different in that, while it does include a lien on a property, it is still a line of credit that can stay open even if the lien is wiped out in a foreclosure. Many inexperienced agents do not understand this, and HELOCs need special attention in order to do a successful short sale with a full release.
Question: Will the short sale cost me anything?

Answer:

Our real estate fees will cost you ABSOLUTELY NOTHING. Our fees of negotiating your short sale and getting your home sold will be paid out of your lenders pocket. We typically negotiate to have any past mortgage payments eliminated and negotiate to have the lender pay for all costs associated with selling the home. Also any past property taxes and possibly any past HOA dues outstanding, allowing you to have to pay nothing out of pocket. We have even negotiated to have the lender pay for repairs on the home as well as the buyers closing costs, but it is subject to each lender and their guidelines. There have been recent changes however from some lenders in what they will and will not pay for, and one of the most costly is past HOA dues. Each situation is compeltely dependent on which lender you have and your personal scenario. Be sure to get your free consultation to find out what your lender is willing to do.
Question: Do I qualify for a short sale?

Answer:

Below is a list of requirements homeowners must meet in order to qualify for a short sale. Requirements 1 and 2 are consistent amongst all lenders while the applicability of requirements 3 and 4 tends to vary:

1.    Your home’s current market value should be less than the outstanding mortgage balance.
       This balance usually includes penalties and other fees. To be sure, you can have your home
       appraised and your total unpaid mortgage balance calculated. For example, if your home was
       appraised to worth $90,000 and you owe a total mortgage balance of $100,000, then you fulfill
       this requirement.

2.    You will have to prove that you are having financial difficulties and not capable of paying the
       difference once the sale is completed. In most cases, reasons of unemployment, divorce,
       bankruptcy, medical emergency and death are considered to be valid. Hardship could also
       include a reduction in income that no longer allows you to stay current on your mortgage
       payments.

3.    In most cases, your mortgage must be in default. This means you have missed mortgage
       payments and received a Notice of Default, formally informing you of your delinquency. Some
       lenders will accept a short sale file for approval on loans that are not delinquent. Not that many
       are documented. Other lenders will not accept the file until the loan is delinquent. The best way
       to find out is to contact us, put together your short sale package (do it right away) and see if
       the lender will approve it with it being current.

4.    Lastly, you should have no assets that your lender can see that could be liquidated to pay the
       lender the difference. Your lender will probably ask for your financial statement, income tax
       returns and other financial documents to support your claim.

Please contact my office at (916) 788-8826 or send an email to homes@paulboudier.com to find out if you qualify.

Question: Do I have to stop making payments on my mortgage in order to do a short sale?

Answer:

Not Always. Just because you called your particular lender and they told you that you could not do a short sale unless you miss some payments, don't believe it to be true. These people who answer the phones at these mortgage companies are low level personnel who do not care about your credit. Every borrowers situation is different and a short sale can be done while staying current on your mortage payments. We have successfully closed many short sales where the borrower never missed a payment. However, we are seeing more and more investors (owners of loans) deny short sale requests due to the fact that there have not been any missed payments. Fannie Mae, FHA, and some other investors are starting to claim this once again. The important thing to note, is that if you are able to afford your payments you should continue to make them until we devise a plan for you based on your goals and objectives. Many times in short sales you need to gather further information from the lenders to determine what they want and are willing to do, before voluntarily missing any payments. If you have a true hardship and simply cannot afford your payments, well then there is no need to worry.
Question: Should I file for bankruptcy?

Answer:

At this point in the market there are many attorneys who are advising clients to file for bankruptcy in any situation and charging very high fees. For some this may be the correct solution. However it is important to understand that going through a bankruptcy, which ever kind you chose (Chapter 7 or 13) will not allow you to keep your home unless you bring your mortgage current. While you may be able to stay in your home while the bankruptcy is taking place (6-10 months) it also 'freezes' the home from being able to be sold or do a short sale. You should speak with a competent bankruptcy attorney and decide if you want to sell your home before filing or when the filing is completed. If you need a reference to a bankruptcy attorney we can provide you with one.
Question: When should I begin the process?

Answer:

Immediately, foreclosure and short sale situations tend to be extremely time sensitive and consuming for negotiations. The sooner we can begin the negotiations with your lender the greater chances of a successful resolution. There is no need to wait until the lender sends you a notice of default or initiates formal foreclosure proceedings agaisnt you. Time is of the essence! Please contact us today at (916) 788-8825 for a FREE consultation.
Question: How long does it take?

Answer:

Depends on many different factors, such as who your lender is, how long it takes to get an offer, how many loans you have, if you are behind on payments, and the list goes on. With an inexperienced agent it could take 6-8 months, with our system, and contacts with each lender we have an average turnaround time of 4 months. Our fastest record of getting a home on the market and an approval is 3 business days, but that is not the case for everyone. Each scenario is different.
Question: How do you handle short sales?

Answer:

We handle everything. You will have one point of contact that will handle the listing of your home, answer all calls from buyers and agents, call your bank and handle the negotiations from start to finish. Every interested party on your home WILL GET a call back from someone who knows the exact status of what is going on with your file. Each agent is only allowed to handle a handful of short sales due to the amount of work involved with them. We also have people in the office who handle marketing, filing paperwork, and general support of these short sale agents.

Each file is also reviewed every 48 hours by PAUL BOUDIER himself to monitor the progress and handle all of the final and difficult negotiating with the bank when the time comes. His expertise is infused in every file and he knows what is going on with EVERY file from start to finish. If you wish to talk to him at any point you can call him directly at (916) 788-8880 or email him for a quicker response, and he WILL get back to you.
Question: Why would a lender agree to a short sale?

Answer:

In most distressed mortgage situations, foreclosure is the last resort for all parties concerned. The homeowner and the lender usually want to avoid foreclosure at all costs. That is why a short sale is advantageous to foreclosure and lenders are typically very motivated to pursue a short sale prior to foreclosure.

A short sale gives the lender the ability to cut its losses up front thereby avoiding the expense and time of a foreclosure and potentially greater losses. Lenders want to make loans. They do not want to be in the business of owning and managing real estate. Whether a lender chooses to go through with a foreclosure or agree to a short sale, they are taking a loss either way but in many cases they would take less of a loss with a short sale and resolve the matter in a comparatively shorter time frame. In nearly every case a short sale offers a significantly better return on the lenders investment than a foreclosure does.
Question: Should I do a loan modification?

Answer:

If you would like to keep your home, then yes a loan modification would be the first option for you to pursue. If you want out, then a short sale is best. There are two way to do a loan mod, the first is to do it yourself and the second is with the help of a professional. It's just like selling your home, you can do it yourself, but the chances of success are much greater if you employ the services of a professional.

To do it yourself you will be required to provide a substantial amount of financial information to your lender and the process takes about 2-3 months, and is very much like a short sale, however you are trying to show your lender that you are not able to make your current payments, but you could afford to make payments on an adjustment on the loan in the form of interest rate reduction or a longer term loan.

If you do use a professional, please be sure to do your research on them first. Many companies are springing up everywhere and many are not licensed and do not have the proper contracts in place in order to charge you and upfront money. We know many reputable loan modification companies that we can refer you to, and have give you a FREE consult.
Question: Will the bank reduce my loan amount or principle with a loan modification?

Answer:

We work with many loan modification companies and we have yet to ever see it in writing that this has ever happened. While there have been examples of deferment of interest on portions of loans, we have yet to see IN WRITING an example of this actually happening. Fed Chairman Ben Bernanke has been pleading with banks for 2 years to do this and Barack Obama has plans to entice banks to do this in order to obtain further TARP funds. At this time we have only heard of lenders changing interest rates on loans, making the payments interest only for a set time or increasing the loan term in order to reduce the payments for homeowners. The bottom line is when you sell the property you will still be responsible for paying back what you owe on the property. For some homeowners a loan mod is right for them if they plan to stay in the home for a longer term and anticipate a return in their equity in time, in order to pay off the lender in full if they ever decide to sell.
Question: Do I need an attourney?

Answer:

In some instances YES!

Now it is getting harder than ever. Some banks have taken the path of saying they are going to come after EVERYONE who does a short sale. While we can still get full release from about 85% of the banks out there, if your ultimate goal is to obtain an approval letter stating that they will not pursue you for a deficiency, we will have to work with attorneys whom we have teamed up with, who specialize in this. Attorneys do cost additional fees so be sure to talk to us about this if you are interested during your initial consult.

We also recommend conferring with an attorney to review an example of an approval letter from your lender which we can provide. We can also have you speak with one of our attorneys on retainer about your specific approval letter once it is received so that you understand everything in it and its terms. Then you can decide if you still want to move forward. If you do not agree to the terms that the ledner provides, you can cancel your listing and NOT sell your home. We make sure to not bind you to any contract with any buyer until the approval letter is received from your lenders and you give the final OK.
Question: How do I start the process?

Answer:

First thing is to contact us at (916) 788-8880 for a FREE one hour phone consultation to make sure a short sale is right for you. You may also email us at listings@paulboudier.com. From there he will set up a time to come to your home and again counsel you in person and go over the entire process and his methods of doing short sales. THERE IS NO OBLIGATION OR FEES, PERIOD.
Question: What is my obligation?

Answer:

You are free to cancel your short sale at any time with no fees paid. If you are able to find other alternatives or solutions you can cancel your contract and keep your home. We are in the business of helping people and if some solution other than a short sale presents itself in order for you to keep the home, such as winning the lottery, you are absolutely free to concel your contract. NO FEES or OBLIGATIONS!
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