Foreclosure & Short Sales - Frequently Asked Questions

What is a short sale? A homeowner must sell their home. In the current real estate market their property value is worth less than the amount owed to the lender(s). The lender(s) must agree to accept less than the amount owed, in order for the transaction to close.

How do I know if I qualify for a short sale? For a homeowner to qualify for a short sale, they must meet the following requirements.  1) Hardship: there is a situation causing you to have trouble paying your mortgage, or causing you to move.  2) Monthly income shortfall:  Lender(s) will want to see you have or are soon to have more monthly expenses than monthly income.  3) Insolvency:  The lender(s) will want to see that you do not have significant liquid assets available, that would allow you to pay down your mortgage.

Why would a lender accept a short sale? Financially it is more cost effective for the lender to do a short sale rather than foreclose on a home. Lenders do not want to own property. The additional time and expenses required to foreclose on a property become costly. While lenders will take a loss doing a short sale, they can often minimize their losses by as much as 10-30% over a foreclosure

How long does a short sale process usually take? The several stages involved in the short sale process. Here is a very brief overview of the process: 1) Homeowner completes documentation required by lender (a couple of days).  2) Homeowner lists property with real estate agent (a couple of days) .  3) Marketing of the house and getting an offer from a willing, ready, and able buyer (varies, but generally 3-8 weeks).  4) Preparation and submittal of short sale package to lender. Phoning, faxing, emailing constantly with lender(s) to negotiate the approval of the sale (30-90 days, depending on lender). 5) Short sale approval granted by lender and transaction can close (15-30 days).

How does a short sale help me? It helps you avoid an emotionally draining foreclosure process. Avoiding a foreclosure will lessen the devastating impact a foreclosure will have on your credit score. There is a huge difference between life after foreclosure and life without foreclosure.

What is the homeowners role in the short sale? Complete the documentation required by the lender and list the house with a real estate agent. Be prepared to up-date documentation required by your lender (current bank statement, pay stubs, etc.). The homeowner needs to pro-active in selling their house. Cooperate with access and showing requests. Try and keep the house clean and free of clutter for showings. Be a responsible homeowner from listing to closing and vacating of the house.

What is the foreclosure process in Michigan? Generally three consecutive months of unpaid mortgage payments (varies), then lender will file notice with Owner and County. From date of notice, the owner has 14 days to contact designated agent to see if the parties can reach terms on a loan modification. If parties are unable to reach terms, then 90 days after notice date, the four week advertisement period begins in the newspaper (legal news). Also, if owner does not contact designated agent within 14 days, the four week advertisement may begin sooner than 90 days. Then, Auction/Sheriff sale takes place at County building. The Redemption period is 6 months from the date of the Auction/Sheriff sale. If house is still occupied, then Sheriff eviction takes place, may be immediately or up to a month. Redemption period is 30 days if property is considered abandon. If not living in home, to avoid possible abandonment, owner must keep utilities on, maintain lawn, remove snow, put lights on a timer, blinds drawn, and maybe a mattress with a clock in a room. Must appear house is being maintained from the outside. There is a12 month redemption period for some rural property, or properties with more than 50% paid down on mortgage or some bankruptcy cases. After redemption period, full title goes to senior note holder.

Some companies guarantee they can stop foreclosure, is this true? No legitimate company can guarantee they will stop foreclosure. Beware of any company asking you to pay a large upfront fee, tells you to send mortgage payments directly to them, or asks you to turn over the property deed, or tells you to avoid contacting your lender directly.

Will I get any money from the sale of my house? NO. When the lender approves the short sale, they require that the borrower (seller) not receive any money from the sale of the property, since the lender is going to take a loss on the loan.

Can I sell my house to a relative? NO. The lender will require the sale to be a arm’s length transaction, meaning no special relationship between the parties involved.

Can you guarantee that my short sale will be successful? No promises or guarantees can be made that your house will sell. Unfortunately we cannot guarantee what the lenders ultimate decision will be regarding your situation. We can guarantee that we will do all that is required to complete a successful short sale.

Is it possible to do a short sale if homeowner is current on their mortgage ? YES, the lender  may consider a short sale due to certain hardships and the future inability to make payments.

Can I keep the house through a short sale? No, the purpose of a short sale is to get the property sold. You do not keep the house and generally need to move prior to closing of the transaction. A short sale will not allow you to remain in the house. If you intend to remain in your house, other options need to be considered.

What if the property has multiple loans/liens? All lien holders must be satisfied in some way to complete the short sale. The short sale process is basically the same.

Will Mortgage Insurance pay to cover the deficiency? It depends on the amount of the deficiency. Usually mortgage insurance only covers a certain amount. It is for the lenders protection and the lender will try to collect from the borrower, before making a claim with the mortgage insurance company.

How do I pay realtor commissions, taxes and other expenses to sell my home? The homeowner does not pay any of the expenses associated with the sale of the home, such as commissions and other closing costs, those expenses are paid by the lender.

How will my retirement be treated in a short sale? Normally it is true you cannot have assets or savings to qualify for a short sale. But, in many cases lenders are disregarding retirement accounts, that would otherwise be protected in a bankruptcy.

What is a release? The lender may offer to “release” its security interest against the property in exchange for less than the total amount due on the note. A release will allow the property to be sold without paying off the obligations of the note. However, the note is not satisfied. Advantages: This will allow the property to be sold and thus avoid foreclosure. Disadvantages: The remaining debt on the property (deficiency) still exists. You are still liable for the note, thus you still owe the money. In reality it is unlikely the lender will pursue the deficiency unless you have other significant assets. If the property goes back to the bank by foreclosure, the deficiency can be a much higher amount. You should seek advice from a real estate attorney regarding this matter.

What is a satisfaction? The lender agrees to accept less than owed as complete and total satisfaction of the note and release its lien against the property. Your note, obligation and debt to the lender is settled an there is not a deficiency. Sometimes short sale negotiations are successful in obtaining satisfaction and other times only a release.

Are there any tax consequences after the short sale? If the lender agrees to satisfaction, the Mortgage Debt Relief Act of 2007 provides that debt cancellation to up to $2 million is not considered taxable income if such debt  involved acquisition indebtedness on the owner’s primary residence of at least two years. You should always confirm tax matters with your tax professional.

How can a foreclosure affect my employment opportunities? With a foreclosure on your credit report, some employers consider it a reason for termination or reassignment to a different position. It can be extremely harmful to your chance of being selected for a new job if your credit report is taken into consideration.

What are the implications to my credit score? A successful short sale, your mortgage will be reported on your credit report as either paid or negotiated, lowering your score as little as 50 points and affecting you for only 12 to 18 months. After a foreclosure, your credit score can be lowered as much as 300 points and affects your score for over three years.

What are the implications to my credit history? A short sale is usually reported as paid in full and is not reported on your credit history. A foreclosure will remain on your credit history for 10 years or more and will remain as a public record.

How long will I have to wait to buy another home? After a foreclosure, you may end up waiting another 36 to 72 months before being able to get lender approval with a somewhat favorable interest rate. After a short sale and depending on your credit score, you may be able to get a FHA loan, with a favorable interest rate in 6 to 24 months.

What will be the effects on my future loans? For most mortgage lenders you will not be asked to declare or be questioned regarding a short sale on any standard loan application (1003). In regards to foreclosure, you will be asked on any future standard loan application (1003) if you have had a property foreclosed in the last seven years, thus affecting your interest rate.

Other than a mortgage, what can a low credit score affect? A lower credit score will cause significantly higher interest rates for credit cards and any types of loans. Also, you will pay much higher insurance rates for automobiles and homesteads.

What should I do prior to or once I’m behind on mortgage payments? Be pro-active and contact your lender as soon as possible. Explain your financial situation to your lender and see if a loan modification or forbearance agreement can be the solution to saving your home from foreclosure.

The Sheriff Sale is about to or has occurred, do I still have time? Yes, there is still time (approximately six months) to execute a successful short sale transaction. But, the more time available, the greater chance for a successful outcome.

When should I start the short sale ? Ideally once you recognize you will be unable to keep up with your mortgage payments and it has been determined you will not be able to work out a satisfactory loan resolution with your lender.

How common are short sales and foreclosures in Michigan? Recent estimates show 50-70% of sales in Michigan will be short sales or foreclosures.

 

Michael Warren, CDPE, SFR
cell: 734-634-5868
email: mikew@mi.rr.com
39500 High Pointe Blvd., Suite 140, Novi, MI  48375
www.Brookfield-Realty.com

 

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