The Foreclosure Man
Top Five Things You Should Never Do If You Begin To Fall Behind On Your Mortgage
There are various reasons why individuals may fall behind on their mortgage payments, such as a decrease in income, job loss, family illness or injury, divorce or separation, the passing of a family member, and medical expenses.
During these emotional and challenging times, stress is a natural response. When exploring solutions, you may receive numerous offers from different organizations offering assistance; however, it's crucial to be cautious about whom you engage with. Unfortunately, some groups prioritize their own interests. To assist you in navigating this situation, I have compiled a list of factors to consider:
Number One:
Absolutely DO NOT transfer your property to a third party without verifying that your loan has been fully repaid!
Please note: if you are considering this option, seek advice from a lawyer – not the buyer's lawyer – before finalizing the deal. When you transfer your property to a third party, that party gains control of the property. The new owner may rent out the property, sell it for profit, reside in it, or use it in other ways. What they may not do is make mortgage payments, which could pose a significant issue for you. Just because you no longer own the property doesn't release you from mortgage responsibilities. The lender granted the loan to you, making you primarily accountable for the mortgage until it's settled. If you relinquish control of the property and the new owner fails to make loan payments, it could severely impact your credit. An example of this scenario is offering a "rent to own" program to a potential buyer.
Number Two:
Avoid selling your home at a significant discount.
Unless the foreclosure sale is imminent within 45 days, you still have time to consider other alternatives. Dedicate a day or two to reach out and explore different options. Typically, if someone is pressuring you to sell quickly, it's likely because the deal is more advantageous for them.
Number Three:
Avoid authorizing a potential buyer to communicate directly with your lender.
The buyer's main objective is to negotiate a significantly reduced price with your lender by requesting a discounted payoff.
These negotiations can drag on for a long time (even up to a year or longer long time), and if the deal falls through, the buyer might decide not to purchase your property, leaving you with minimal time to prevent foreclosure.
Allowing the buyer to manage communications with your lender may lead to challenges for you in resolving your loan situation later.
If you do choose to let the buyer interact with your lender, seek advice from a real estate professional or lawyer before committing to any contract. When considering a short sale, always have a real estate agent representing your interests, like Dan Wood – the lender covers the costs for everything included in order to close on the property.
We have successfully advocated for homeowners in situations like yours numerous times. The lender also benefits from a successful resolution, as they prefer not to foreclose on your property, motivating them to reach a mutually beneficial agreement.
Number Four:
Refrain from taking no action.
Many individuals passively accept what they view as inevitable and allow foreclosure to proceed unchecked. Prevent this scenario as the repercussions on your credit score can be long-lasting.
Invest some time in exploring potential solutions. A foreclosure on your credit report can impede your ability to secure a consumer or car loan, renting an apartment or another house, purchasing anything really, for a considerable period. Moreover, obtaining another mortgage may prove challenging for an extended period also, but far less than if the home ends up going into actual foreclosure.
Furthermore, in certain instances, choosing inaction and allowing the property to go into foreclosure may result in the lender pursuing you post-foreclosure to collect debts. Opting for a short sale, on the other hand, absolves you of any future liability for deficiencies.
Number Five:
Refrain from Paying Upfront Fees!
When considering a company to negotiate a short sale on your behalf, never agree to pay any upfront fees. Our fees are always covered by the lender once the deal is finalized. We have full confidence in our ability to complete the transaction and will never request fees from you.
Paying upfront fees is not only against our principles but is also illegal. Depending on the circumstances, engaging in short sale consulting could violate licensing laws and the Federal Real Estate Settlement Procedures Act (RESPA) .
Be cautious of any company demanding upfront payment. Instances have been reported of individuals paying substantial upfront fees (sometimes amounting to thousands) only for the company or individual to vanish or fail to deliver the promised services.
It is unjust for any company to demand payment before offering a service. Our payment comes from the bank upon the deal's completion.
A company that is confident in their ability to close the deal will not request payment upfront on services not yet rendered.
Let’s review the Short Sale Process.
The Short Sale Process
1. Hire Dan Wood:
The first step in the short sale process is to hire Dan Wood, who is an experienced short sale agent to represent you in selling your property and specifically for negotiating with your mortgage lender, but also with your buyer and their agent, and then back again with your lender until we have an agreement.
During the initial meeting, we will assess your current situation, discuss the available options, and assist you in finding the most suitable solution. Additionally, we will address any inquiries you may have, outline the procedure, and gather all necessary documentation should you decide to proceed.
2. Contact your lender(s):
Your lender usually provides an "Authorization" form. This form grants our team permission to communicate directly with your lender(s) to facilitate the short sale process. We will inform your lender of our collaboration in the short sale of your property. Typically, the lender will only assess the short sale once we have received an offer for your property.
If you have a Conventional loan, continue to step 3.
Scroll down for the color matching your loan for the specific steps for the following loans, but more or less the steps are similar, but different:
FHA Loan (Federal Housing Administration)
VA Loan Short Sale, also referred to as VA Compromise Sale
3. List your property for sale on the public market:
The upcoming stage in the short sale process of your home involves listing your property on the market. Prior to reviewing the short sale package, the lender mandates having an offer on your property. Dan Wood will determine your property's pricing by assessing comparable properties in your area and will oversee the entire listing procedure. This encompasses providing suggestions to prepare your property for viewings, advertising and marketing your property for sale, and liaising with potential buyers and their real estate agents.
4. Receive and accept an offer:
Once a buyer presents an offer on the property you will receive it shortly after, however we will begin by verifying their financing, qualifications, and downpayment. Once all items have been confirmed, we will review the offer with you again and make any recommendations to either counter, decline, or accept the offer. If multiple offers come in, we do the same exact thing with all of the offers and give a deadline for all of the offers and including the public for a best and final time, until we pick the winning offer to present to your lender.
The contract will have to be written contingent on the lien holders' approval. The contract must include a short sale addendum that is correctly filled out, for the entire thing to work right with no delays. In other words, the lender will have to accept less than what is owed on the existing loan after all of the fees are taken care of.
5. Submit the short sale package to your lender(s):
After your offer is accepted and you enter into a contract with a buyer, we will compile and submit the short sale package to your lender(s). This package typically consists of the following items:
Authorization letter allowing Dan Wood to communicate with the bank.
Estimated net sheet completed by the title company.
Completed financial statement or mortgage assistance request (RMA).
Seller's hardship letter. (Loss of income, Divorce, Death of primary wager earner spouse, etc)
Tax returns from the last two years.
W-2s from the last two years.
Recent 30-day pay stubs.
Two months' worth of bank statements.
Comparative market analysis or list of recent comparable sales in the vicinity.
Copy of the entire package of Listing Agreement Documents
6. Lender review:
Once the short sale package is submitted to your lender(s), a negotiator will be assigned to your account. The review and response period typically lasts 1 to 3 months, but it can extend depending on the assigned negotiator... The lender will eventually request an actual appraisal or a broker price opinion (BPO) to assess the market value of the property. They will evaluate all documents and compare the home's value with the received offer. If the net proceeds meet their requirements, the short sale approval will be granted. Failure to meet the lender's criteria may lead to foreclosure. Sometimes, despite a short sale, the property might still end up in foreclosure as the lender may and often do repurchase the property at auction and then re list the home and sell it as a REO (Real Estate Owned) also known as a foreclosure, to the public. Some banks may even renovate the property for a quicker sale and higher profit sale.
7. Receive and approve the short sale approval from the lender(s):
Once your lender greenlights your short sale request, you will need to thoroughly examine the terms and conditions of the approval. If you accept all the lender's terms, escrow will be initiated, usually with a 30-day window for closure. As part of the approval process, the bank might request an "arm's-length" affidavit, where both the buyer and seller confirm in writing that they have no prior knowledge of each other or any pre-existing relationship.
8. Escrow period:
The escrow period typically lasts for 30 days. Throughout this period, the buyers will conduct property inspections, the buyer's lender will arrange for an appraisal, and we will meet with you to review all property disclosures and escrow instructions. Even though the entire sale is AS IS, some agents will still advise to try to negotiate repairs with us. We just have to respond to them that the home is sold in as is condition and no repairs will be happening. The only repair that will cause a problem is the roof. The roof has to be insurable for anyone that is not a cash buyer. Every step in this process aligns with a standard sale procedure, aside from the property being sold in as is condition.
9. Close of escrow:
Upon the specified close of escrow, the buyer's lender will provide the loan funds, escrow will register the grant deed, and the transaction will be finalized. The closing date of escrow marks the final day you can occupy the property. (Many sellers choose to relocate before the closing day arrives, because we will typically fund shortly after we sign the closing documents)
Pros and Cons
When faced with the choice between a short sale and foreclosure, homeowners often wonder which is better. Opting for a short sale typically offers more advantages compared to foreclosure. Here are the basic benefits of a short sale:
You will have no further obligations after the sale, as your lender will consider your loan settled.
You can avoid foreclosure altogether. THIS IS HUGE!
You will have control over the timelines and your circumstances.
The impact on your credit score will be FAR less severe than with a foreclosure.
You can potentially buy a new home sooner than if you went through a foreclosure.
The sale can be conducted discreetly.
However, there are some drawbacks to consider with a short sale:
You must actively oversee the sale of your home instead of simply walking away as in a foreclosure.
You still have to show the home to buyers, inspectors, appraisers, surveyor and a variety of other trades for inspections.
The approval process can be time-consuming, but we can handle that for you.
Both short sales and foreclosures may have tax implications to be aware of. Your CPA can properly guide you, but with a short sale, it typically has far better results that benefit you when compared to foreclosure.
How to qualify for a short sale
Selling a property through a short sale can be a great solution for homeowners facing a situation where the mortgage balance surpasses the property's value and they need to sell. Lenders may approve a short sale for various reasons, as elaborated below. Essentially, the lender looks for evidence of hardship or circumstances indicating the homeowner's inability to maintain the property.
What Is A Short Sale?
A short sale occurs when a property is sold for less than the total amount required to settle the existing mortgage(s), closing costs, realtor commissions, and any additional liens linked to the property. Typically, a short sale is chosen as a substitute for foreclosure.
Residential properties that could be eligible for a short sale include:
Single-family homes
Condominiums
Vacation homes
Retirement communities
Multi-unit homes (up to 4 units)
Investment properties
Farms
There are numerous misconceptions regarding the eligibility criteria for a short sale. In reality, the qualifications are quite, straightforward, and individuals who are concerned about not meeting the requirements often find that they are in fact eligible for a short sale, in reality.
Here is an overview of the three primary factors that lenders consider when assessing your eligibility for a short sale. It is worth noting that meeting all three criteria is not always necessary to qualify.
1 – Hardship
A hardship refers to a situation beyond your control that may lead to missed loan payments or financial struggles. Contrary to common belief, it doesn't always have to be a financial issue. It's worth noting that the definition of "hardship" can vary based on individual perspectives and may not always stem from a major life event.
For instance, a job relocation to another state can be classified as a "hardship". Take the case of former NBA player Ron Artest, who purchased a home in Loomis, CA for $1.85 million and later sold it in a short sale for $1 million, experiencing a nearly 50% decrease in the property's value. Despite maintaining a substantial income, the loss of approximately 23% of his earnings qualifies as a hardship in his situation.
Qualifying Hardships
Many lenders require a hardship explanation, but some do not. However, if they do, here are some sample hardships that qualify for short sale consideration. These situations may not have happened to you directly, but could involve a family member who supports you or someone you support:
Loss of job or reduced hours
Job relocation (voluntary or involuntary)
Military service
Family bereavement
Incarceration
Increased expenses or overwhelming debt
Unexpected home repairs or maintenance
Reduction in income
Severe illness or medical bills
Divorce or separation
Investment losses
Alteration in loan terms or payment hike (adjustable-rate mortgage)
Inability to save for retirement
Unable to refinance
Decrease in property value
To proceed with the approval process, the lender may request a hardship letter. This letter explains why you are behind on your mortgage payments. It should provide a clear overview of your current situation and the necessity for a short sale. The hardship letter is a standard step in the short sale process and should be submitted with the complete set of financial documents required by the lender.
2 – Monthly Shortfall
During the short sale process, the lender will typically require evidence that you are no longer able to afford your current mortgage or will soon face financial challenges. For instance, if you are relocating for work and will struggle to pay both your current mortgage and housing in the new location.
This information will be recorded on a "Financial Worksheet" or profit and loss statement. The worksheet will detail your current income and expenses, and any anticipated changes in the future will also be included.
3 – Insolvency
Insolvency is not a must for eligibility for a short sale, yet it can be considered as a qualifying difficulty. Insolvency refers to when your overall debts exceed your total assets. When faced with insolvency, the lender needs to verify that you lack alternative resources to settle your mortgage or maintain regular payments.
During this scenario, the mortgage provider aims to confirm that your debts surpass your available cash, and you are unable to meet your financial commitments on time.
Do I Qualify For A Short Sale?
If your home's value is less than what you owe, you might simply qualify for a short sale, which requires proper documentation for lender approval. Our experienced team has assisted numerous homeowners through various short sale scenarios, from strategic sales to financial hardships.
To navigate the process effectively and negotiate with your lender, you need a real estate agent who understands the intricacies involved, like Dan Wood. True stories, with multiple short sale transactions representing sellers and additionally buyers as well. Fact.
For queries about purchasing a short sale or selling your property, feel free to contact Dan to explore options and understand how his short sale system and dedicated team can support you.
Short Sale Scams & Foreclosure Scams
If you have fallen behind on payments and you are considering a short sale or foreclosure, you need to be diligent in researching and hiring the right agent to help you. The change in the market over the years has unfortunately increased the number of unscrupulous people who, under the guise of offering assistance, seek to take advantage of homeowners in distress. If you find yourself in default, this article is to assist you in what to be careful of and what to look for when hiring someone to assist you.
FOR REAL FORECLOSURE-RELATED SCAMS
What is a foreclosure-related scam?
A foreclosure-related scam is a broad term encompassing fraud, deceit, or trickery aimed at homeowners facing foreclosure or other individuals connected to the foreclosure process. With the surge in foreclosures during the mid-2000s, these scams have become prevalent in the real estate industry. Some scammers claim to assist distressed homeowners in foreclosure but actually aim to deceive them into losing their money or property. Additionally, other schemes target real estate agents, investors, buyers, lenders, tenants, and other parties involved in the foreclosure process.
What are the potential ways individuals could be deceived by a foreclosure-related scam?
A scam artist has a keen understanding of choosing their targets and triggering their vulnerabilities. Homeowners facing foreclosure are particularly susceptible to scams due to challenges in comprehending and seeking assistance for the complex legal, financial, and tax matters related to foreclosures, short sales, loan modifications, and bankruptcies. Additionally, they often struggle with managing the stress and shame associated with the possibility of losing their homes through foreclosure. Since homeowners typically view homeownership as a significant achievement, the fear of losing their home can lead to poor decision-making. Certain homeowners are specifically singled out by scam artists, as they are seen as easy targets, including the elderly, individuals with language barriers, those with limited resources, or lacking knowledge. In such circumstances, homeowners in foreclosure may fall prey to scam artists promising quick fixes.
Can you identify a straightforward method to recognize a scam artist?
No.
Scam artists, contrary to expectations, do not exhibit villainous behavior or appearance on the outside. Typically, they present themselves as well-groomed, kind, patient, and trustworthy individuals. Their companies or organizations often carry names that sound benevolent, like Community Home Savers or Housing Assistance Services.
These fraudsters commonly employ "affinity marketing" strategies, where they try to attract victims by associating themselves, or pretending to, with the same racial, religious, or social groups. For instance, a scam artist might claim military affiliation and use military language to befriend military personnel. Another scammer could join a church to build trust with its members before attempting fraud. Additionally, they may use various other tactics such as posing as government officials, claiming non-profit status, or offering money-back guarantees, among others.
What are the warning signs of a foreclosure-related scam to be mindful of when interacting with someone?
Homeowners facing foreclosure should exercise extreme caution when interacting with individuals who exhibit the following behaviors:
Request money upfront before rendering any services
Demand payment solely in cash, cashier’s check, or wire transfer
Seek a transfer of title or ownership interest in the property
Make unverified promises to halt foreclosure or provide guarantees
Offer to purchase a property at a price exceeding its market value
Insist on immediate action without any delay
Request the homeowner to grant power of attorney
Solicit signatures on a grant deed or deed of trust
Pressure for immediate signatures without allowing sufficient time for document review
Seek signatures on incomplete documents
Fail to furnish copies of signed documents
Refuse or neglect to provide written confirmation of verbal promises
Direct homeowners to make mortgage payments to entities other than the lender
Advise homeowners against discussing the matter with the lender, housing counselor, accountant, attorney, family, friends, or others.
How does a foreclosure scam work?
There are numerous variations of foreclosure-related scams, with new ones emerging regularly. These scams can generally be classified as follows:
Phantom Help: Scammers offer to negotiate with the lender or provide foreclosure services for a fee, but often deliver minimal or no assistance, leaving the homeowner at a loss of money and time that could have been better used to prevent the actual real foreclosure date.
Bail-Out: Con artists propose plans to assist homeowners in distress, such as rent-to-buy schemes, but frequently fail to fulfill promises, leading to further financial strain for the homeowner.
Bait-and-Switch: Homeowners are misled into signing documents different from what they were told, like signing over the property deed.
Apart from these categories, there are numerous other foreclosure-related scams, ranging from forgeries and identity theft to property flipping schemes and loan fraud. These scams can be intricate or as straightforward as signs claiming "We Buy Homes" or "Stop Foreclosure Now."
Can you provide some actual instances of scams related to foreclosures that aim at homeowners that I haven't heard of? Please let me know.
Here are some instances of foreclosure-related scams:
Housing Assistance Services:
Marc Sheckler's firm, Housing Assistance Services, Inc. (HAS), targeted homeowners who received default notices. HAS sent out official-looking "Fresh Start Program" letters offering counseling on avoiding foreclosure and negotiating loan modifications. Homeowners paid an upfront fee of $750 to $1,250, plus additional fees for services like credit reports and processing reinstatements. Despite promises, HAS did not deliver the services, leading to a lawsuit filed in 2004.
Rodriguez:
Martha Rodriguez and associates operated a foreclosure rescue scam from 2003 to 2005. By promising to help refinance loans and save credit, they actually orchestrated straw buyers to purchase homes, defrauding over 100 homeowners of $12 million. Rodriguez pleaded guilty to criminal charges related to the scam in February 2007.
Rice:
In 1990, Marshall Rice took advantage of Evelyn Onofrio's foreclosure situation by arranging a secured loan with high interest rates. When Onofrio defaulted, Rice initiated foreclosure proceedings and acquired the property. Onofrio sued for violating foreclosure consultant laws and breaching fiduciary duties, leading to damages awarded in her favor.
Alburez and Silva:
Sonia Alburez and Verena Silva operated under various names, targeting homeowners in default by promising to save their homes for a fee. They transferred fractional interests to a sham corporation, which filed for bankruptcy to delay foreclosures. Arrested in March 2008.
Hutchings:
William Hutchings and his associates conducted a foreclosure rescue scam, deceiving homeowners with false promises of transferring titles to stop foreclosures. Hutchings was arrested in May 2008 on multiple felony charges after duping hundreds of homeowners out of their properties and money.
What are some factual real events of foreclosure-related scams that target people other than homeowners?
Different people, not just homeowners, can become victims of foreclosure-related scams, including real estate agents, investors, buyers, lenders, tenants, and others. Here are some actual examples of such scams:
Standefor:
Jeanetta Standefor from Accelerated Funding Group ran a deceptive foreclosure reinstatement scheme for more than two years. By falsely claiming that the invested $18 million would help distressed properties and offering a 50 percent return in a month, she persuaded over 600 individuals. In reality, Standefor ran a Ponzi-like setup, using new investors' money to pay off previous ones. Moreover, she spent $1.9 million on her extravagant wedding, cars, jewelry, and personal expenses. In 2008, Standefor was charged with civil and criminal fraud, as well as securities violations, potentially facing up to 180 years in federal prison.
Davis: Between 2004 and 2007, Mark Allen Davis placed more than 100 newspaper advertisements nationwide. The ads offered individuals a list of government foreclosures in their local areas for a fee of $83 to $93. Callers were directed to a toll-free number and asked to provide their names and bank account details for verification purposes. However, Davis did not deliver the promised lists. Instead, he unlawfully withdrew $126 to $185 from the bank accounts of 800 individuals, amounting to over $400,000. Upon being apprehended, Davis was fined over $328,000 and sentenced to 81 months in federal prison for identity theft, mail fraud, and wire fraud.
What legal options are available for individuals who have fallen victim to foreclosure-related scams?
In theory, there are several legal options available to victims of foreclosure-related scams. My advice is always to contact an actual real estate attorney, because I am not an attorney. However, the reality is that these remedies may not always meet expectations. For instance, one legal recourse is criminal prosecution, where fraud victims can report the scam to local, state, and federal authorities. Yet, law enforcement agencies have the discretion to prioritize which crimes to investigate and prosecute, often focusing on more serious offenses like murder, robbery, and drug crimes.
Apart from criminal avenues, victims can pursue civil action by filing a lawsuit to seek damages or other appropriate relief. However, obstacles such as locating the scammer, identifying assets, proving fraudulent intent, and covering legal expenses can hinder victims from taking legal action.
How can homeowners and others safeguard themselves from scams related to foreclosure?
The fundamental rule is: "if it seems too good to be true, it probably is." Additional steps to safeguard against scams include, but are not restricted to, the following:
Maintain composure and avoid hasty decisions, especially during challenging times when clarity is crucial.
Before committing to any agreement or arrangement, fully grasp all its aspects. Carefully review and understand all documents before signing. If any document is unclear, seek guidance from a lawyer or relevant professional. If there is a language barrier, use your own interpreter rather than relying on the other party's.
Refrain from signing any false documents or leaving spaces blank, especially if assured that it is harmless.
Gather as much information as possible before making choices. Inquire, research, and investigate thoroughly beforehand. Understand the legal, financial, and tax implications of your decisions. Explore various options and seek advice from trusted individuals and professionals.
Stay vigilant against scam tactics. As awareness grows about one type of scam, fraudsters devise new schemes to catch victims off guard. For instance, if people become wary of "foreclosure consultant" scams, con artists may rebrand themselves as loan mediators, facilitators, or legal representatives to deceive individuals.
FHA Short Sale. If you have a FHA Loan (Federal Housing Administration)
If you hold an FHA loan, you may be eligible for an FHA loan short sale (Federal Housing Administration) after the Department of Housing and Urban Development (HUD) assesses your situation and confirms that you are facing a qualifying hardship. All FHA short sales follow HUD guidelines.
In real estate, a short sale occurs when the money from selling a property falls short of covering the mortgage and selling expenses. Since government regulations oversee short sales for FHA loans, the procedure tends to be lengthy and complex for homeowners.
Short Sale Guidelines for FHA and Criteria
When it comes to determining eligibility for a short sale, the Federal Housing Administration (FHA) follows certain criteria:
Property Type: FHA considers properties with one to four units eligible for a short sale, including duplexes and fourplexes. Duplexes or fourplexes can be rented out as long as the owner resides in one of the units and lives there for at least one year.
Rental History: If a property was used as a rental for less than 18 months before the short sale, approval requires obtaining a variance.
Investment Property: Properties used solely for investment purposes do not qualify for an FHA short sale.
Seller's Hardship: Only sellers facing genuine financial hardship qualify for an FHA short sale. Strategic short sales or walking away from the property do not meet the criteria.
Delinquency Status: Sellers must be at least 30 days delinquent to be considered for an FHA short sale. While FHA discourages intentional delinquency, approval is unlikely if payments are up to date.
If your short sale approval seems delayed, it might be under FHA review. FHA typically explores loan modification possibilities before granting a short sale.
FHA Short Sale Qualifications
To be considered eligible, you must meet the following criteria:
You have a single FHA-insured loan
You are facing a permanent financial hardship like reduced income, medical expenses, or divorce
You reside in the property unless you had to leave for reasons preventing you from making payments
The property was not bought for rental purposes or used as a rental for over 18 months
You can provide a clear title to the property without any liens from other parties
You are unable to modify your current home loan or choose not to stay in your home due to other circumstances like a job relocation.
FHA Short Sale Process
Commencing the Process
The entire procedure typically spans 4 to 6 months, though it may extend beyond this timeframe. FHA foreclosure guidelines mandate that your lender assesses you for a loan modification or other "home retention" possibilities first. (This evaluation is applicable whether your home is in foreclosure or pre-foreclosure, and can be initiated at any point.)
We will assist you in compiling all necessary documentation and submitting it to your bank for their initial assessment. After the review of all documents, you will either qualify for a loan modification (which you can decline) or your lender will begin considering you for a short sale.
Assessing Market Value
Once your home's short sale is approved, HUD will perform a complimentary full appraisal to assess its market value.
Following the receipt of an offer from a buyer, HUD will ensure that the offer aligns within a specified percentage of the appraised value.
Get FHA Approval to Join In
Under an FHA Short Sale, the initial step involves securing approval to partake in the HUD pre-foreclosure sale process (PFS) before receiving an offer from a buyer. This process varies from a typical short sale, where the lender typically requires an offer upfront. The FHA mandates acceptance into the program before granting approval for a short sale. Upon approval of your short sale application, the FHA will engage in a contract with you, known as an Approval to Participate in the HUD Pre-Foreclosure Sale procedure (FHA Short Sale HUD Form 90045).
https://www.hud.gov/sites/documents/90045.PDF
Marketing Strategies for Selling Your Home
Upon receiving your "Approval to Participate," you will be granted 120 calendar days to market the house and secure an offer. In the case of a short sale, the property can be sold in "As-Is" condition, relieving you of the burden of making any repairs. Remember that the sale must not involve a family member or someone with whom you have a personal relationship; it must be an "Arm's-Length Transaction."
Proposing an Offer for an FHA Short Sale
Upon receiving an offer for your home, we will prepare the signed purchase contract and necessary documents to submit for review by your lender. At this stage, HUD will either approve the short sale or propose a different price to the buyer. When assessing the offer, they focus on the current value of your home rather than the outstanding mortgage balance. Their aim is to ensure that the net amount received after all costs are covered aligns typically within 88% of the market value.
Short Sale Approval and Closure
Once your offer is accepted, your lender will issue an "approval letter," allowing your home to be sold. This letter will confirm that the lender will forgive the remaining mortgage balance. If there was a foreclosure date set, it will be postponed to accommodate the closing process.
Usually, the closing occurs about 30 days after receiving the short sale approval letter, so you should plan to vacate the property by then.
Upon closing the transaction, all costs will be covered by the lender, and the mortgage will be paid off from the sale's proceeds.
FHA Relocation Support
Under an FHA loan, you may qualify for relocation support following a short sale. During the closing process, you might be entitled to receive up to $3,000, believe it or not, to assist with moving expenses, rental fees, and other relocation costs. Keep in mind that each short sale varies, and the lender will consider the individual circumstances before making a decision.
Prevent Foreclosure on an FHA Loan
If you have an FHA Loan and are falling behind on payments or facing active foreclosure, prompt action is necessary. FHA mandates obtaining an “Approval to Participate” to delay the foreclosure process. This approval is crucial for initiating a short sale of a property insured by the Federal Housing Administration.
Once the “Approval to Participate” is granted, the lender must halt foreclosure proceedings until a suitable offer is presented, or if no offer is received for an extended period, leading to the potential abandonment of the short sale.
Purchasing a Short Sale Using an FHA Loan
If you plan to purchase an FHA short sale with an FHA loan, you may need a closing credit to assist with your closing expenses. FHA permits a 3% credit when insuring the borrower's new purchase.
For non-FHA loan buyers, the credit towards closing costs cannot exceed 1% according to FHA regulations. However, exceptions can be considered on a case-by-case basis. FHA typically aims to receive 88% of the approved sales price. If the net proceeds surpass the FHA minimum, there is a chance that FHA may approve a higher contribution towards your closing costs. Having an experienced agent on your side is essential and critical and should not be overlooked when decided representation for you as a buyer and additionally as a seller. Knowing is half of the battle.
Tax, Credit, and Legal Factors in an FHA Short Sale
A short sale can lead to tax implications due to the forgiven balance on your mortgage. If you receive relocation assistance, it might be categorized as "income" and could also impact your taxes. It's crucial to seek advice from a tax advisor to grasp the potential effects on you.
Our vender list of outstanding CPAs and lawyers are available to talk to you about your circumstances.
Is it possible to purchase a foreclosed home using an FHA loan?
You have the option to buy a foreclosed home with an FHA loan, provided the property adheres to FHA's standards. However, this may pose challenges due to the usual condition of foreclosed properties, which often require maintenance and repairs. During the home purchase process, an appraisal is conducted to assess the property's market value. The FHA appraisal not only determines the market value but also ensures the property meets HUD's minimum standards, which include the condition of your home.
FHA Home Appraisals:
FHA Site Visit:
An FHA appraiser conducts an on-site visit to the home to make observations and capture images. Their assessment includes evaluating the quality of the structure, the interior and exterior conditions, the status of fixtures and systems, and the condition of the property.
Market Research:
Appraisers analyze the selling prices of similar homes by examining properties that recently sold in the same vicinity, usually within the last six months. They base their estimates of the home's market value on the information gathered during the site visit.
FHA Appraisal Requirements Checklist
FHA appraisers are required to adhere to HUD guidelines for minimum property standards. For homes seeking an FHA loan approval, they must meet or be repaired to meet the following appraisal criteria:
The exterior, foundation, and roof must be undamaged.
Property access must be safe and reasonable.
Loose wiring and exposed electrical systems are not allowed.
No damaged underground storage tanks or soil contaminants are permitted.
A functioning, permanent heating system that adequately heats the property is necessary.
Surfaces must be free of chipping or peeling lead-based paint.
Adequate access to attic spaces and natural ventilation in crawl spaces is required.
Access to clean water is essential.
Wood-destroying insect infestations are not allowed (Section 1 Termite Clearance).
Working utilities, including water and heat, are necessary.
There should be no interior or exterior health and safety hazards, such as missing handrails on steep staircases.
Is it Possible to Purchase a Short Sale Using an FHA Loan
You can purchase a short sale using an FHA loan, but the same restrictions that pertain to buying a foreclosed home with an FHA loan also apply.
Is It Possible to Obtain Another FHA Loan After Short Selling My Home
Yes, you are eligible to obtain another FHA loan after selling your house, even if it was through a Short Sale. FHA mandates a waiting period of at least three years from the short sale date before applying for a new mortgage. In certain exceptional situations, it may be possible to purchase a home in less than three years. Extenuating circumstances refer to events beyond the borrower's control, such as severe illness or the passing of a wage earner. FHA explicitly states that divorce or job relocation do not qualify as extenuating circumstances. To benefit from these exceptions, you must provide documented evidence of the extenuating circumstances.
Exploring VA Loan Short Sale, also referred to as VA Compromise Sale for your existing VA Loan
A VA loan short sale, also referred to as a VA Compromise Sale, occurs when a veteran is unable to sell their home for an amount equal to or greater than the outstanding mortgage balance plus closing costs.
The VA compromise sale is a service provided by the Department of Veterans Affairs, serving as their version of a short sale. This option is designed for Veterans and their families who are struggling to maintain their homes and wish to avoid foreclosure. It enables the VA to make a "compromise claim" to bridge the gap, preventing foreclosure and potential damage to credit scores. This process also allows lenders to recover some funds and steer clear of the costs and time associated with a foreclosure.
For Veterans interested in this option, here is a brief overview of the VA compromise sale. Discover the eligibility criteria, guidelines, and necessary qualifications to proceed with the transaction.
How VA Loan Short Sale Operates?
VA compromise sales involve VA borrowers selling their homes at a reduced price, similar to a regular short sale where the home is sold for less than the mortgage amount owed. However, in a compromise sale, the Department of Veterans Affairs covers the difference between the mortgage balance and the current market value up to the guaranteed loan amount. This arrangement facilitates the private sale process, subject to the lender's agreement to reduce the loan guaranty.
For the Veteran participating in a compromise sale, a portion of their entitlement tied to the home sale is temporarily restricted and will only be reinstated upon full repayment of the VA loan. This option is more cost-effective for the VA compared to foreclosure.
Who is eligible for a VA Compromise Sale?
To qualify for a short sale the VA way, as a seller, you need to demonstrate financial hardship and meet the criteria for a short sale. This could involve needing to move out of your current home or relocating due to receiving Permanent Change of Station orders. Other qualifying reasons include reduced income, the passing of a primary wage earner, or significant medical expenses.
A compromise sale may be considered if any of the following financial hardships are present:
Medical costs
Loss of a primary income earner in the household
Mandatory relocation
Decreased earnings
VA Compromise Sale Procedure
Like any short sale, the VA Loan Short Sale process involves specific steps that the veteran must follow.
Initial Stage
To begin, reach out to a real estate agent experienced in short sales to list the home for sale, like Dan Wood. You need guidance through this process. Rest assured, there is no up front expense to you for our assistance. Our fee is covered by the lender upon the successful closure of the short sale.
Next Step
After receiving an offer, the Dan will reach out to the loss mitigation department to finalize the sale with all of the required documents.
Step Three
The mortgage lender will then schedule an appraisal of the property by a VA-approved individual. Simultaneously, the title will be checked for any existing liens. The appraisal will decide the acceptance of a short sale, known as a liquidation appraisal, ensuring the property meets VA standards and determining its fair market value.
Following the appraisal, the lender may request a Broker Price Opinion (BPO), another valuation based on a professional's assessment of the property's fair market value.
Step Four
A compromise sale package can now be put together, usually with the help of your real estate agent. This package includes the sale request, purchase offer, financial statement, Good Faith Estimate, and the Compromise Sale Agreement. It should also incorporate your lender's payoff statement. Your realtor will take charge of delivering this package to your lender, advancing the short sale process, however you will need to authorize them to do so with your lender typically with a company standard policy document they provide to you.
Step Five
The investor's approval is necessary before the sale can proceed, followed by the closing. During the closing, ownership of the home is transferred to a new owner, relieving the veteran of financial responsibility for the mortgage.
The duration of the entire process can vary significantly, mainly based on the processing times of the VA and the lender. Veterans opting for a short sale can usually qualify for another home with a VA-backed loan within two years. In certain situations, immediate eligibility is possible if they are up to date on the mortgage payments at the time of the sale.
VA Compromise Sale Requirements:
The property should be sold at fair market value.
Closing costs need to be reasonable and customary.
The compromise sale should be more cost-effective for the Government than a foreclosure.
The seller must demonstrate financial hardship.
For loans dated on or before 12/31/1989, the lender should be willing to forgive any debt exceeding the maximum guaranty.
No second liens should exist, unless the amount is negligible. If there are any second liens or other liens, the seller can ask the lien holder to release the lien and convert the loan to a personal one.
The seller must secure a sales contract for consideration.
To safeguard the seller, the sales contract should be contingent on VA compromise sale approval.
Requirements for Starting as a Seller:
When it is decided that the seller should explore the compromise sale program, they need to get in touch with their servicer.
All parties must sign and submit a financial statement.
The seller needs to fill out a letter requesting a compromise sale, detailing hardship information.
An application for a Compromise Sale Agreement must be completed, available from the servicer.
For loans originating on or before 12/31/89, the servicer typically must waive any excess amount over the maximum loan guarantee.
What the Seller and Realtor Require to Begin:
All parties have signed a sales contract with a contingency stating: “This offer depends on approval of a VA compromise sale.”
A good faith estimate predicting closing expenses, typically created by the real estate agent to aid in processing.
A letter to the servicer requesting review for a compromise sale.
Financial information and relevant supporting paperwork.
Application for the Compromise Sale Agreement.
Challenges that Might Lead to a Delay in a Compromise Sale
Documents required are not readable
One party listed on the title declines to sign the agreement
Veteran cannot fulfill hardship criteria
Additional significant liens are registered against the property
Other lien holder is not willing to change the loan to a personal one
Loan lacks VA guarantee
Property value will cover the total debt (equity).
Shortage surpasses VA’s maximum guarantee amount.
Veteran has passed away and the estate's administrator or executor is unknown.
Offer is considerably below VA’s appraised value.
Veteran/Seller has filed for bankruptcy
Breakdown of the buyer’s closing expenses was not provided.
Approval for Compromise Sale
After the loan servicer finishes their assessment and the VA approves the compromised sale, the loan servicer will send an approval letter to the real estate agent and escrow company.
During the closing process, the loan servicer will obtain the net proceeds from the sale and request reimbursement from the VA for the difference between the selling price and the outstanding mortgage amount.
What amount will the VA agree to as the payoff in a compromised sale?
The Department of Veterans Affairs (VA) determines the acceptable payoff amount in a compromised sale based on various factors such as the borrower's financial status, property value, and negotiated terms with the lender.
The VA may typically consider a minimum net proceeds of 84.05% of the appraised value. However, certain banks may impose overlays that demand a higher net payoff sum.
PCS Short Sale for Permanent Change of Station
Military families often face the challenge of PCSing, as it is a common aspect of military life to receive Permanent Change of Station orders. Thankfully, Freddie Mac and Fannie Mae have eased their short sale requirements to provide more support for service members and their families.
With the new guidelines in place, military homeowners who are relocating due to orders no longer need to fall behind on their mortgage payments to qualify for a short sale.
Previously, many military homeowners would intentionally miss mortgage payments to meet hardship requirements, even if they could afford them, leading to damaged credit and potential security clearance risks. Unfortunately, once payments were missed, lenders were not obligated to approve a short sale and could opt for foreclosure. However, the Federal Housing Finance Agency's updated terms now allow military members with PCS orders who are up-to-date on their loans to be considered for a short sale without demonstrating financial hardship.
These changes will significantly benefit families who must move due to their military commitments.
How can I reinstate my VA loan entitlement following a Short Sale?
If your short sale included a VA-backed mortgage, the part of your VA entitlement used for that loan will no longer be available in the future. To regain this entitlement, you would have to repay what was lost, which is seldom a wise financial decision. Consequently, it could pose challenges to use a VA Loan for another purchase after a short sale.
Nonetheless, you might still have adequate remaining entitlement – referred to as a second-tier entitlement – to make a purchase without requiring a down payment.
Benefits of a VA Loan Short Sale
A VA loan short sale offers a beneficial solution for veterans facing challenges in meeting their mortgage obligations. This option enables you to sell your home for less than your outstanding mortgage balance, with the sale proceeds allocated towards settling your debt. Opting for a short sale can help you prevent foreclosure and alleviate the weight of a demanding mortgage.
Some Final Tips
The short sale process is intricate and demands someone with substantial experience and meticulous follow-up. In my observation, many agents lack the expertise and time needed to effectively handle negotiations and secure approval. I possess the necessary experience and commitment for such tasks, and I am affiliated with a team of dedicated agents and transaction coordinators who are enthusiastic and willing to go the extra mile to see the job through.Type your paragraph here.
If you are behind on payments and potentially facing foreclosure, please contact me immediately. Do not wait or put it off another day. Another day wasted is another day towards a potential foreclosure. A short sale attempt, is not a guarantee, but rather a way for everyone involved to create a win, win, win situation in what would normally be a overall no one wins situation with foreclosure in the end result. Contact me now to get the house sold for top market dollar, and most importantly, as discreetly as possible. Instead of a foreclosure, which becomes public and neighborhood gossip.
Let's all be real and get this home sold.
Call or Text me now at 817.946.7299
dan@hiredan.com