Should I Short Sale My Home?
Thinking about short selling your house but worried about your credit? Don t worry! Millions of people just like you are thinking about the same thing. Nobody knows for sure what the future holds but we can make some educated guesses from past experiences.
Let's begin with this: Every lending situation is unique and we cannot recommend which decision is best for you. We will supply you with information, facts, our opinions and our educated guesses. Your job is to weigh all the information you have and make the best decision that fits your situation.
I can't afford my payment?
If you can't afford your payment and the loan modification was not successful, or did not lower your payment enough, then the only remaining options are short sale, deed in lieu and foreclosure. If this is the case, contact NASSPro immediately, we can help you with this situation before it's too late.
Will a short sale hurt my credit?
Short sales affect credit differently depending on the types of hits your credit actually takes. Homeowners that continue to make all the payments and keep the rest of their financial picture solid wouldn't be as affected as a homeowner that has stopped making payments and now has the repercussions of a 30/60/90 days late on their credit. We have seen many instances where the seller's credit scores were 700-800 scores and only fell to 620 and 640. We have seen credit scores that were 700-800 scores then fell to below 570 but 6 months later was back above 680. We have seen some credit scores that just need a credit repair company to step in and help rebuild the devastation that has been created all together. Typically, if the seller is paying on all their other bills, has good credit history and is only short selling one home, he/she has a better chance of quickly rebounding their credit score. Remember each situation is unique.
How much is my credit worth?
This is a personal question you must ask yourself. If your home is upside down $200,000 and you make $50,000 dollars a year, is it worth it to wait for your home to regain value or is it better to take the hit for a couple of years? Another way to look at it is to determine how much the difference your loan amount is over the value. Then the person must decide if it is worth having credit issues for a period of time, pay the higher payment or is it cost effective to save the money on lower rent and use the extra cash for what used to be purchased with credit. Your credit will come back but will the value of your house?
My house dropped in value and my payment has gone up or stayed the same.
There is a new phenomenon that has recently taken place across the nation. Many homeowners are making an economic decision by looking at their options because their home value has dropped beyond any hope of a foreseeable comeback. In this market, homeowners must educate themselves as to what the different options are before making a decision to short sale the home. The options are as follows:
- Do Nothing - If a homeowner does nothing, they most likely will lose their home at foreclosure auction. Credit reports issues, tax ramifications and deficiency judgments may apply. (State Specific)
- Payoff/Refinance/Short Refinance - Complete paying off the entire loan amount plus any default amount and fees. Usually this is accomplished through a refinance of the debt. With properties worth less than what is owed, you must negotiate the bank to take less than what is owed. Must not be late on payments & qualify for new loan. In today's market, you may qualify for the HARP Government program but you must have a Freddie Mac or Fannie Mae loan.
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Fannie Mae
- 1-800-7FANNIE (8am to 8pm EST Mon.-Fri.).
- www.fanniemae.com/loanlookup
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Freddie Mac
- 1-800-FREDDIE (8am to 8pm EST Mon.-Fri.)
- www.freddiemac.com/mymortgage
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Fannie Mae
- Reinstatement - Paying the entire default amount plus interest, attorney fees, late fees, taxes & missed payments.
- Loan Modification - Utilizing the existing mortgage company to extend the terms of the loan by negotiating changes in interest and/or principle. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment. You may also be eligible for the HAMP government program as well if you have a loan with Fannie Mae or Freddie Mac.
- Forbearance - Lender may be able to arrange a repayment plan based on the homeowner's financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.
- Partial Claim - A loan from the lender for a 2nd loan to include back payments, costs and fees.
- Deed in Lieu of Foreclosure - Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current. Most loan applicants ask if this has ever happened.
- Bankruptcy - This option can liquidate debt and/or allow more time. We can refer you to a qualified bankruptcy attorney.
-- Chapter 7 (Liquidation) To completely settle personal debt.
-- Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.
-- Chapter 11 (Business Reorganization) A business debt solution. - Sale/Short Sale - Straight Sale applies if the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is MORE than the property's value.
- Foreclosure - is always the very last option. Remember, the bank does not want to foreclosure on you and would rather work something out.
ASK YOURSELF THE FOLLOWING QUESTIONS!
If my home dropped 50% from $500,000 and now is $250,000, in order for me to break even, my house would have to double in price from today is and is that likely?
Short Sale is an option
There are many homes that have recently been purchased in my areas that are renting for half of my mortgage payment. How can I compete with these homes?
Short Sale is an option
If my house doubles in value, wouldn't it be better to have bought one for $250,000 and profit $250,000 rather than just catching up?
Short Sale is an option
I won't be able to get credit.
Even people with good credit have gotten their credit card rates raised and their balances lowered so the credit available is far less then what it was in 2008 and prior. Presently many people are able to return to the same credit level as they were before their completed short sale after approximately 2 years- many even sooner!
What's the average credit score?
Millions of people are having tough financial times and their credit scores are falling and as this happens, the average credit score falls too. Compared to the whole country, scores that used to be below average may become average or good. With the antiquated methods in place, the credit bureaus are currently considering changing their systems in order to adjust for the economic climate.
If I am going to short sell, is it probably better to do it sooner than later?
This is a personal decision, but if millions of people are in default, it would probably make the most sense to weigh all the options sooner rather than later. You may have missed an opportunity to get head start on special programs.
Will the credit guidelines change?
Let's assume the banks only make money if they lend. If a high percentage of the population has hits on their credit, the banks and credit card companies will alter their lending guidelines to account for the following events: the worst housing market in history, biggest stock market crash since 1929, the worst recession since the Great Depression and the highest unemployment rate since that the historic event.
Will I have tax ramifications or deficiency judgments to deal with after a short sale?
Again, each situation has its own fingerprint and some are even state specific. Regarding taxes, the best thing to do is consult with your tax attorney or CPA to how this will affect your personal situation. Ask them if you:
- Qualify for the Mortgage Debt Relief Act of 2007
- Can file debt cancellation for the 1099C that the bank sent you
- Qualify for insolvency. Tax Form 982
- Or if you do not qualify for any tax relief can they negotiate with the IRS for a payment plan or full payoff if you pay a lump sum of pennies on the dollar of what is owed. Ex: Tax Masters
What are some advantages of a short sale?
- Avoid foreclosure on your credit
- Avoid potential bankruptcy
- Avoid being evicted from your home
- Less potential tax liabilities
- Easier to clean up your credit and reduce the time it takes to re-qualify for future homeownership
- Get out from underneath a depreciating asset
- Typically you don't have to pay for normal and customary closing costs or real estate commissions
- Can potentially avoid liability for their mortgage debt and negotiating on your own terms if the delinquency judgment applies.
- Typically no out of pocket expenses unless requested by the bank
- Homeowner education of know our options to avoid this situation in the future
What Resources are available for homeowners?
- HAMP Home Affordable Modification Program, www.makinghomeaffordable.gov
- HARP Home Affordable Refinance Program, www.makinghomeaffordable.gov
- Hope for homeowners 1-888-995-HOPE (4673)
- US Department of Housing & Urban Development
- HUD-approved Housing Counseling Agency
- Fair Housing Administration
- NACCR www.havegoodcreditagain.com
- Freddie Mac 1800- FREDDIE www.freddiemac.com/mymortgage
- Fannie Mae 1800- 7FANNIE www.fanniemae.com/loanlookup
- Making Home Affordable Plan www.makinghomeaffordable.gov
- Home Equity Conversion Mortgages (HECM)
- HOPE NOW Alliance www.hopenow.com
- NeighborWorks of America www.nw.org
- Mortgage Bankers Association's Foreclosure Prevention Resources Center
- National Foundation of Credit Counseling
- Homeownership Preservation Foundation
- Mortgage Debt Relief Act, this is regarding paying taxes on the 1099c's
- Neighborhood Assistance Corporation of America (NACA)
NACA's Information and Refinancing Services line: 1-888-302-NACA
Website: https://www.naca.com/program/homesaveProgram.jsp
Beware of Foreclosure Rescue Scams
- Scam artists are targeting struggling homeowners and are anxious to sell their homes
- Beware of anyone who isn't an attorney who asks for upfront money to work process modifications
- Beware of people who pressure you into signing docs immediately or who try to convince you that they can "save" your home if you sign or transfer over the deed of your house.
- Do not EVER sign the deed of your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt and you have a commitment letter from the bank stating the approval of the transfer.
- Never make a mortgage payment to anyone other than your mortgage company without their written approval.
REPORT These issues to HUD right away:
1-800-669-9777
We obviously cannot answer all your questions especially since each situation is unique.
We have set up an opportunity for you to have a
FREE Consultation!
No Cost, No Fees Ever!
We have seen too many consumers being scammed for thousands of dollars during a time when they need that money the most. NASSPro is dedicated to educating homeowners on understanding their options when facing the decision to do a short sale. We are founded on the principles of Honesty, Fairness and Respect. Our confidence is based on our Experience and Proven Results.
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The National Association of Short Sale Professionals
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