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Short Sale Options:

Here are some options if you are in a financial hardship and can no longer afford your home:

OPTION #1: SELL YOUR HOME
This is only an option if you have enough equity in the home or cash in hand to cover your existing mortgage and all the expenses in selling a home.

OPTION #2: SHORT SALE
Selling your home under this option will help minimize the damage to your credit, minimize or eliminate your tax liabilities and possibly eliminate a deficiency judgment.

OPTION #3: LOAN MODIFICATION
This option can extend the term of the loan, add on delinquent payments to the loan principal, and/or reduce the interest rate to make the loan more manageable for the home owner.

Another option is a repayment plan that requires home owners to increase their monthly payments until the loan is current. It may be possible to refinance an adjustable rate loan with a Federal Housing Authority or conventional fixed loan. Note that lenders will not postpone a foreclosure just because a property is listed, although they may postpone if you have a reasonable offer in the works.

OPTION #4: NEGOTIATE A FORBEARANCE AGREEMENT
Loan borrowers sometimes have problems with their payments due to unexpected circumstances. This may cause the lender to start the foreclosure process. To avoid this situation, the lender and the borrower have the option to make an agreement called "forbearance". According to this agreement, the lender delays his right to exercise foreclosure if the borrower could catch-up his payment schedule in a certain amount of time. This time-period and the payment plan depend on the details of the agreement which are accepted by both of the parties involved.

Note that forbearance is just for "temporary" financial problems. If the borrower has more serious problems, for example if it is a variable-rate mortgage and the interest rate become high enough so that the borrower cannot afford the payments anymore, then forbearance is usually not a solution.

OPTION #5: DEED IN LIEU OF FORECLOSURE
The advantages of this option for the homeowner are to avoid foreclosure and not go through the difficult process of the foreclosure process. It will release all or most of the liability to the homeowner and allow the bank to turn around and sell the property much sooner without the bank having to spend additional time and money going through the foreclosure process. This would be a good option to consider if you feel that there will be no benefit from you selling your home or doing a short sale.

OPTION #6: WALK AWAY - FORECLOSURE
You can always let your home go to foreclosure and do nothing. Sometimes the situation seems so overwhelming and this may be an option. We don’t recommend that you do this, and would suggest that you talk to someone so you can determine if any of the options above would make more sense. You can also contact us if you feel more comfortable. It’s important that you talk to someone that you can trust, and not someone that is looking to take advantage of someone in a difficult situation. There are many real estate scams out there and you don’t want to become a victim because you didn't seek a second opinion. You may have some options that you are unaware of.

If you would like to get started or have some more questions, please give us a call or email, for a FREE, no obligation consultation to know all your options before it is too late.

 

So You Want to Sell your own Home?

So genius your thinking about selling your home on your own? No real estate agents = no commissions. Right? Just you and the prospective buyer, pure and simple. Right?!... Sorry... read to find out why this is not a good idea

 

 

5 Things Not To Do If You Fall Behind On Your Mortgage

ONE

Absolutely DO NOT ever deed your property to a third party without absolute confirmation your loan has been paid off!

Note: if you believe this option is best for you, please consult with an attorney – not the buyer’s attorney – before completing the transaction.

If you deed your property to a third party, that party then controls the property. The new owner can rent the property (and keep the rent), attempt to sell the property to make a profit, move into the property or use the property in other ways.

What the new owner might not do is make mortgage payments, and that could become a big problem for you. Just because you no longer own the property does not mean you are no longer responsible for the mortgage loan obligations. The lender made the loan to you. And until it is paid off you will be primarily responsible for the mortgage obligation.

If you give up control of the property and the new owner does not pay on the loan, the damage to your credit could be disastrous.

TWO

Do Not sell your home at a huge discount. Unless the actual foreclosure sale is less than 45 days away, you have time to explore options. Take a day or two and make a few phone calls. As a general rule, if someone is pushing you hard to get you to sell your property to them, it’s probably because the deal they are proposing is very favorable – to them. If you have equity in your home, it belongs to you. Let’s see if we can get it to you.

For a Free, no obligation assessment, just contact us

THREE

Do Not pay upfront fees!

Never pay any upfront fees to a company offering to negotiate a short sale on your behalf! All of our fees are always paid by the lender, when the transaction closes. We have confidence in our ability to close the transaction and will never ask you for any fees. Avoid any company that is asking for money upfront. There have been many cases of people paying upfront costs and the company/person then disappearing or not providing the services promised. If a company representing you feels confident they will close the deal, they will not be asking for any money upfront.

FOUR

Do Not authorize a prospective buyer to deal directly with your lender. The buyer has one goal and one goal only, and that is to negotiate a low, probably very low, price with your lender. The buyer will ask your lender to accept a discounted payoff. The negotiations could go on over an extended period of time, and if the transaction does not work out the buyer may elect not to buy your property. It could leave you with very little time to resolve the situation and avoid foreclosure. Further, you have no control over the information that goes to your lender or the accuracy thereof. It is entirely possible that the buyer could handle the negotiation and presentation of information in a way that makes it very difficult for you to resolve your loan situation later.

If, however, you believe that your best option is to allow the buyer to work directly with your lender, make certain you consult with a real estate professional and/or an attorney before signing a contract. If you are going to do a Short Sale get representation from a real professional. It costs you nothing – the lender pays the fees. Someone should be looking out for you.

We can help, and it costs you nothing. The lender wins also. They do not want to take your property through foreclosure. That’s why they will negotiate to get the deal done.

FIVE

Do Not do nothing. A surprising number of people just accept what they see as the inevitable, and let foreclosure run its course. Don’t let it happen – the damage to your credit will follow you for 10 years!

Take a little time to explore potential options. See informaiton above. You do not want a foreclosure on your credit record. It will hamper your ability to get a consumer loan or a car loan for at least a few years, and it will be very difficult to obtain another mortgage for a very long time.

 

 
Short Sale Facts & Fundamentals

The following information is for general reference only and is not to be construed as tax or legal advice. Consult your income tax preparer and/or attorney for specific details regarding your individual situation.

SHORT SALE FUNDAMENTALS & Frequently Asked Questions about Short Sales

What is a short sale?
(Also called "Short Pay" or "Pay Off") When a lender allows the sale of a home and the net proceeds to the lender at close of escrow are not enough to cover the seller's mortgage obligations it is consider a 'short sale'. The lender also agrees to forgive the difference to avoid foreclosure.The seller must be in a financial hardship for the lender to approve the short sale.

What would qualify as a financial hardship?
Unemployment, reduced income, divorce, separation, medical bills, too much debt, death of a spouse or family member, mortgage payment increase, business failure, job relocation, illness, damage to property, military service, incarceration to name a few.

Why would a lender approve a short sale?
If a lender rejects a short sale, they will wait several months to get the property back through foreclosure, then take several more months to get it sold. During these many months, the lender has received no payments and the market has likely dropped further. A 2002 study by Craig Focardi of the Tower Group estimated that the entire cost of a foreclosure was $58,759 and took 18 months. Other factors that can influence a bank’s decision include the liability risk it assumes by owning the property after foreclosure, the money tied up during the holding period for a foreclosure and REO resale, additional costs associated with an REO such as attorneys’ fees, as well as the additional reserves it will need if REO's rise in the bank’s portfolio. An REO stands for Real Estate Owned and means the bank owns the property.

What does it cost me (Seller) to do a short sale?
It shouldn't cost anything, but some lenders might ask the seller to contribute to the sale. You will have to have your individual situation assessed to know for sure.

How long does it take to complete a short sale?
From the time a short sale package and a valid offer have been submitted to the lender, it can take as little as two weeks or as long as 60 days to receive an approval of a short sale from a lender. That’s why it’s critical to price and market aggressively to receive that first offer and get the short sale process started as soon as possible. Buyers should be made aware of the timeline before placing an offer.

What is the likelihood of getting a short sale done?
Depending on your situation, we are experiencing a 90% chance at the moment. There are varying factors to the approval of a short sale.

What is a non-judicial foreclosure?
A non-judicial foreclosure is when a Trustee Sale happens at the courthouse steps. Due to the One-Action rule in California there cannot be a deficiency judgment imposed on you from either the first or second loan after the Trustee Sale. California Foreclosure Law is non-judicial.

What is a judicial foreclosure?
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.

Why is it better to do a short sale instead of a foreclosure?
Foreclosure is not a good option since it can adversely affect your credit record for up to 10 years. Typically on a short sale, the loan will show up as “paid" on your credit report; however there can be a notation that says "settled for less than originally owed.“ This is much more favorable than having a foreclosure on your credit report. Better credit means you will be able to purchase a home a lot sooner - usually in 18 months.

How long after receiving a Notice of Default does the Trustee's Sale happen?
A Trustee's Sale date is set 3 months after the date the Notice of Default (NOD) is recorded. 20 days prior to the sale date, the owner will receive a Notice of Sale (NOS). In times where there are a lot of these happening, the time periods get longer, sometimes a lot longer.

When should I move out?
While it is easier for us to sell your home when it is vacant, we recommend you take advantage of as much free housing as is legally available to you. You are actually helping your lender by not moving out because a vacant home is subject to vandalism which further increases the lender's loss. We will let you know when the short sale transaction will close and will give you notice when to move out. If you move out too soon, and the home gets foreclosed, you will not be able to take advantage of the money (cash for keys) your lender may offer you to move out quickly.

Is my personal property insured?
If your homeowner’s insurance premiums are paid by your lender thru an ‘escrow’ or ‘impound’ account, check with your insurance company at the annual renewal to ensure your lender has not converted the policy to a ‘fire’ policy which would not cover your personal belongings.

What is a non-recourse loan?
Any loan that is purchase-money (has not been refinanced) on an owner-occupied 1-4 unit dwelling. This definition applies to both 1st Trust Deeds and 2nd (junior) Trust Deeds. A non-recourse loan is very favorable because the lender's only recourse, in case of default, is the property itself. The lender cannot pursue the borrower for a deficiency judgment or attempt to collect money or any other asset from the borrower.

What is a recourse loan?
Any loan that is not non-recourse, including all refinanced loans, equity lines of credit and loans used to purchase rental property. This includes rate & terms refinances where no cash was taken out. In case of default, the lender is not limited to taking the property back and the borrower may be personally liable on the debt. In California, any recourse loan that is foreclosed on non-judicially through a Trustee Sale, becomes non-recourse.

What is a "Deficiency Judgment"?
It is a judgment lien against a debtor, defendant or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or non-recourse loan. (see above) Lenders may not seek a deficiency judgment if (1) the foreclosure is non-judicial or if (2) foreclosure or short sale is on a purchase money obligation (non-recourse).

What if all of the loans on my property are non-recourse?
There are no costs to you to short sell your home. If there is a Home Owners Association you should keep that current. You are not required to pay property taxes, commissions, closing costs, repairs or the mortgage. The debt will be permanently eliminated at close of escrow without declaring bankruptcy. No IRS ordinary income tax is due on the forgiven debt. However there may be state tax due. A successful short sale will keep foreclosure off your credit. Homeowners with all non-recourse loans and insolvency should do a short sale without exception.

What if there is only one loan on my property and that loan is recourse?
You still will not have to pay anything to short sell your home. You will not have to pay property taxes, commissions, closing costs, repairs or the mortgage. The debt will be permanently eliminated upon close of escrow without declaring bankruptcy. You may need to pay capital gain tax if there is a low cost basis and insufficient exemptions. You will owe IRS ordinary income tax on the forgiven debt unless you are 'insolvent' or declare bankruptcy because the federal Mortgage Debt Relief Act of 2007 does not apply to a recourse loan. If a short sale is successful, you'll keep foreclosure off your credit. You should consider a short sale if your income tax preparer says you are 'insolvent' per the IRS definition.

What if there is more than one loan on my property and the junior loan is recourse?
If your 1st loan forecloses, the entire principal balance of your 2nd loan converts to unsecured debt, just like credit card debt. The debt from the recourse 2nd loan is NOT eliminated! You will still owe the full amount of the 2nd loan even though you no longer own the home. This secondary lender can, and probably will, pursue aggressive collection action against you including a deficiency judgment in court with subsequent liens and wage garnishment. You may need to pay capital gain tax if there is a low cost basis and insufficient exemptions. If, in the face of a deficiency judgment for the full amount of the second loan, you would realistically declare bankruptcy, you should do this prior to the foreclosure to get a couple more months of rent-free living and increase the likelihood of short sale success. A short sale is an excellent test to find out if bankruptcy is needed or not. If the secondary loan approves the short sale, no bankruptcy is needed, but you will have to pay IRS ordinary income tax on the forgiven debt unless your income tax preparer says you are 'insolvent' because the federal Mortgage Debt Relief Act of 2007 does not apply to a recourse loan. If the secondary loan rejects the short sale, you should declare bankruptcy and live rent-free longer. All loans included in the bankruptcy convert to the favorable non-recourse status. If you're facing a large capital gain, bankruptcy may be an excellent way to increase short sale likelihood which would minimize the capital gain tax.

Can you help me if the Trustee Sale (aka 'foreclosure') has already been scheduled?
If your lender has already recorded a Notice of Trustee Sale and scheduled the actual foreclosure auction there is not enough time to find a high-price buyer for your home and negotiate with your lender. You need to list with us within two (2) months of the Notice of Default being recorded in order to allow for enough time to market your home and obtain an offer. If you've already missed 3-4 payments, it's time to start the short sale process.

What geographies do you cover?
We can help homeowners in Alameda, Contra Costa, Solano, and Napa Counties in California.

WHAT'S REQUIRED OF YOU

What do I need to do?
You’ll need to write a short hardship letter, complete a monthly budget, and fill out the Realtor mandated disclosure forms. We’ll need your permission to communicate with your lenders. We'll need 2 recent months bank statements and pay stubs plus last years IRS form 1040 from your income tax return. You'll need to allow buyers to enter your home, sometimes on short notice. Your home does not need to be cleaned and organized to show. When your lender's appraiser visits, you'll want your home to be as unattractive as possible. After a short sale approval, you'll need to complete the escrow process.

Do I have to have a sign in my yard?
No. We prefer you do though, as it will increase the likelihood of a sale.

Do I have to have a lockbox on my door?
No. We prefer you do though, as it will make showings faster and more convenient for today's demanding buyers.

UNUSUAL CIRCUMSTANCES

What if I have a purchase-money, owner-occupant loan, but I never moved in?
If they do not find out that you never moved in your lender will probably treat the debt as non-recourse. You can assume that the IRS will consider the debt as recourse and you will have to pay ordinary income tax on the forgiven debt unless you're 'insolvent'.

Can I have a relative or friend purchase my short sale home and rent it back to me so I don't have to move?
Possibly, but it is risky., Some lenders require the buyer and seller to sign a document at short sale closing affirming that the sale is an arms-length transaction where the buyer and seller do not know each other.

Is it legal for me to collect rent from a tenant if I'm not making the mortgage payment?
Yes, if you've owned the home for more than 12 months. If you've owned the home for less than 12 months, collecting rent without paying the underlying mortgage is rent-skimming, a misdemeanor.

A FRESH START

Will I have trouble finding a rental with a short sale or foreclosure on my credit?
You shouldn’t. In today's market, owners that refuse to rent to tenants with a foreclosure or short sale on their credit will have great difficulty keeping their homes occupied.

What tax liabilities will a seller have as a result of a short sale?
One often overlooked aspect of short sales is that a seller must count any amount forgiven by the lender as income and pay taxes on that income, even if no actual money was received. The IRS requires lenders to submit a Form 1099 stating the forgiven amount. Sellers who meet the Internal Revenue Service definition of insolvency (either in bankruptcy or with debts exceeding assets) will not have to pay taxes on the forgiven amount. The Mortgage Forgiveness Debt Relief Act of 2007, signed by the President on December 20, 2007 (H.R. 3648) states that any primary residence with a non-recourse type loan, sold during Jan. 1, 2007 and Dec. 31, 2010 that resulted in an indebtedness shall not be subject to Federal income taxes on the forgiven amount. However, State income taxes currently still apply to any indebtedness unless you're insolvent. Consult a tax specialist.

What are the effects on my credit?
A foreclosure or deed-in-lieu of foreclosure will affect your credit the same way. Your credit score will usually decrease 250 to 280 points and show "foreclosure" on your credit report. A short sale is less damaging by showing "settlement of a debt" on your credit report and will usually result in a loss of 80 to 100 points. These point amounts may vary due to other credit issues in your report.

How long until I can purchase another home?
The waiting period after a foreclosure or deed-in-lieu of foreclosure is the same at about 36 months, until a lender will offer any kind of interest rate that makes sense. The waiting period after a short sale is much shorter at about 18 months at a good interest rate.

If you would like to get started or have some more questions, please give us a call or email, for a FREE, no obligation consultation to know all your options before it is too late.

 

 

Proud Members of:

National Association of Realtors
California Association of Realtors
Solano Association of Realtors
American Apartment Owners Association
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