Karen Daniel Real Estate Idaho Residential, New Construction, & Short Sales and Foresclosure Certified Specialist

Negotiating with

Short Sale Lenders...

 

In working in the short sale arena for the last five plus years, I have seen lenders do just about everything when it comes to negotiating short sales with home owners. There really is no “standard” in short sales. The way one short sale file at one particular lender is handled can be totally different on the next.

One of the biggest reasons for this is that every lender has different investors that actually own the loans. There could be more than twenty five different investors that have interests in loans at one lending institution. So for example just because Bank of America may have done something for a home owner in one circumstance does not mean they would do the same thing for another home owner in the exact same circumstance.

More often than not this is because one investor may not have the same needs or requirements as another investor.

There are basically three scenarios for a seller when completing a short sale. They are a:

  • Cash contribution to the lender at closing.
  • Signing a promissory note to pay back some portion of the short sale debt.
  • A combination of these two things.
  • A complete debt removal.

The biggest consideration for most home owners completing a short sale is debt removal. My goal of course in any short sale is to get the most favorable terms and conditions for the seller which is a complete debt removal. Going back five years ago getting complete short sale debt removal was a lot easier than it is today. Many lenders today want sellers to have some kind of “skin in the game” if they are going to grant a short sale.

In my experience the terms that most home owners get from short sale lenders is very favorable. Home owners are typically asked to bring a cash contribution or sign a note that basically amounts to pennies on the dollar compared to what they owe.

A typical scenario could be a home owner being substantially under water…..for argument sake let’s say $100,000. It would not be unusual for a lender to ask the seller to bring $5000 to the closing and letting the short sale take place. Another possibility if the seller does not have $5000 is to work out a promissory note. Maybe the lender asks for a$15,000 note to be paid back over the next five years at an attractive interest rate. As mentioned previously it could be a combination of these two options. These are just quick examples to give you an understanding of what happens in the short sale world on a daily basis.

There can be circumstances although not real often, where the lender will only accept a cash contribution in order to close. The short sale lender may have this requirement for one of the following reasons:

  • The seller has money in liquid accounts.
  • The seller has not been late with any mortgage payments.
  • The cash contribution is a requirement of waiving the deficiency (debt removal).
  • The seller has a good credit score and are current with other debt.
  • The residence is an investment property.

One of the most difficult parts of going through a short sale as a seller is the long wait involved from the time you get an offer from a buyer until the time you actually begin negotiations with the lender. Sometimes there can be months in between the two. As a seller it is easy to feel in the dark and helpless. There can be times where you will be in this waiting game wondering what the lender is going to require of you and then their request finally comes. They ask you for a cash contribution that you just don’t have.

I have an outstanding short sale attorney that works on behalf of the seller with all of my short sale transactions. In a circumstance where the lender asks for a cash contribution that the seller just can’t come up with the first course of action will be to try to work out an amicable compromise with the lender/investor. This would typically be one of the following:

  • Negotiate to get the cash contribution lowered to something the seller was able to bring to closing.
  • See if the seller can get the funds from a family member or borrow from them.
  • Try to get the lender to accept a promissory note instead.
  • Ask the buyer to pay the cash contribution if lender allowed this to occur. 

In the vast majority of the short sales I have been involved in we have been able to work it out so a compromise was reached and everyone got what they wanted. Should sale negotiations can be difficult at times but if you know what your doing common ground can often be reached.

What would you need to do in the rare instance where a large cash contribution was required that the owner just did not have and the lender would not budge? If all else fails what you would need to do in the scenario above is to put the home back on the market and build in a cash contribution to the lender right into the transaction.

So for example you would add a cash contribution for the lender on behalf of the seller on line 104 of the buyer’s side of the HUD settlement statement. You would also place the same contribution on line 404 of the seller’s side of the HUD as a “Cash Contribution To The Lender”. The payoff amount would then go to the lender.

This is how short sale negotiations work with lenders. If you know what you are doing you can usually find common ground. Of course there are numerous things to look for in a short sale contract which I have covered in a number of articles I have written.

Other short sales articles worth a look:

  • HAFA Short Sale
  • Reasons to reject short sale offers

If you are need to short sale your home or condominium in Eagle, Boise, Kuna, Nampa, Middleton, Meridian, Star, Homedale, Marsing, or Caldwell Idaho, please contact me IMMEDIATELY...

I am successfully completing short sales through out the Treasure Valley. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are specialized transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking an agent that does not understand how to get to the closing table on a short sale.  


 

1) Short Sale

A short sale allows the homeowner to avoid foreclosure,

minimize financial damage and move on from a

burdensome, unaffordable mortgage. In many cases,

a short sale allows the borrower to qualify for a new

mortgage in just 24 months, as opposed to five years or

more after a foreclosure.

 

A trained real estate agent can negotiate a short sale

with your lender if you have three qualifications. First, you

must show some type of financial hardship. Second, you

must have a monthly shortfall, meaning your monthly

expenses are greater than your monthly income. Finally,

you need to prove that your debts are greater than the

value of your assets (certain investments, property, etc.).

 

2) Reinstatement

A reinstatement is the simplest solution for a foreclosure,

however it is often the most difficult for homeowners

to achieve. The homeowner simply pays the total

amount past due (including late fees) to the lender.

This solution does not require the lender’s approval and

will “reinstate” a mortgage up to the day before the

foreclosure sale.

 

3) Forbearance or Repayment Plan

A forbearance or repayment plan involves negotiating

with the mortgage company to allow the homeower

to repay back-payments over a period of time.

The homeowner typically makes current mortgage

payments in addition to a portion of the back-payments

owed. This option requires lender approval.

 

4) Mortgage Modification

A mortgage modification involves the reduction of

one of the following: the interest rate on the loan, the

principal balance of the loan, the term of the loan, or

any combination of these. These changes require lender

approval and typically result in a lower payment for the

homeowner and a more affordable mortgage.

 

5) Rent the Property

This option does not require lender approval, but does

require the homeowner’s ability to rent the house

for enough money to cover the monthly mortgage

payment.

It is important to remember that there may be

unexpected costs associated with the maintenance

of a rental property in addition to the monthly

mortgage payments. Homeowners should take this into

consideration when deciding whether this option will

work for them.

 

 

 

 

      6) Deed-in-Lieu of Foreclosure

  Also known as a “friendly foreclosure,” a deed-in-lieu

allows the homeowner to return the property to the

lender rather than go through the foreclosure process.

Lender approval is required for this option, and the

homeowner must also vacate the property. Deed-in-lieu

can potentially lessen the damage to a credit score

and future loan eligibility, and sometimes the lender

will forgo their right to pursue a deficiency judgment,

meaning the homeowner will not be responsible for

further payments.

 

7) Bankruptcy

Many have considered and marketed bankruptcy as a

“foreclosure solution,” but this is only true in some states

and situations. This does not require lender approval,

but you must have non-mortgage debts that you claim

as a hardship.

Entering bankruptcy can be a risky and costly process.

Be sure to seek the advice of a qualified bankruptcy

attorney when pursuing this as an option.       

 

8) Refinance

As opposed to mortgage modification, refinancing

means you will be acquiring a new loan based on your

current credit standing. If you have already missed

mortgage payments, your credit score may make it

difficult to find a loan with cheaper payments.

 

9) Servicemembers Civil Relief Act

(military personnel only)

If a member of the military is experiencing financial

distress due to deployment—and that person can show

that the debt was entered into prior to deployment—he

or she may qualify for relief under the Servicemembers

Civil Relief Act. The American Bar Association has a

network of attorneys that will work with servicemembers

to help qualify them for this relief.

 

10) Sell the Property

Homeowners with sufficient equity can list their property

with a qualified agent who understands the foreclosure

process in their area. Unfortunately, many homeowners

in today’s market have experienced a decline in home

value and may owe more than what the home is worth.  

 

                                       

 

 

 

 

 

 

IDAHO SHORT SALE(S)...

A Idaho Short Sale is when your lender agrees to take less money than what is owed to them due to a hardship on the part of the seller.
What is a Hardship?
The underlying reason behind most delinquent mortgage payments is what the mortgage industry defines as a “hardship condition.” A hardship condition is basically an unexpected financial crisis of some sort.
HUD recognizes the following situations as valid hardships and reasons for default:
  • Death of a principal mortgagor
  • Death of Mortgagors Family member
  • Illness of principal Mortgagor
  • Illness of Mortgagors Family member
  • Marital Difficulties
  • Decrease of Income
  • Unemployment
  • Excessive obligations
  • Inability to rent Property
  • Military Service
  • Business Failure
  • Payment adjustments
  • Fraud
  • Incarceration
  • Distant Employment Transfer
Will the bank come after me for the difference?
During the short sale process, I can negotiate with the lender to not seek a deficiency judgment against the homeowner. There is a second issue as it relates to the deficiency and the infamous 1099. When you complete a Idahoshort sale the lender will report that loss to the IRS. If this is your primary residence the IRS will NOT tax you on the deficiency. Please see this link for more information.
What about my Credit? How does a short sale benefit me?
The big key here is to AVOID Foreclosure. By nearly any measure, a foreclosure is the most damaging event a credit status can encounter- worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit. Credit scores drop on average 100-200 points, but you can repair your credit in a reasonable time frame. Lenders will also allow you to stay in your home even though you cannot make your payments until a short sale is finalized.
I am current on my mortgage; will my lender consider a short sale?
Yes. The lender will not only look at your current financial information, but also look at what lies ahead in the upcoming months.
Why would a mortgage company agree to accept a short sale?
Foreclosures are costly to lenders- foreclosures are time consuming they require maintenance of the property, keep utilities on, and interest and legal fees can be very high. With as many foreclosures/REO’s as the banks own these days the last thing they want is another foreclosure.
The Idaho Short Sale process:
  • Acquire the services of a knowledgeable Realtor who is a Idaho Short Sale Specialist and a knowledgeable attorney, if necessary.
  • Sign an "Authorization Letter" which authorizes your Idaho Short Sales Specialist to begin negotiations on your behalf. This authorization will not change the terms of your loan, it simply allows your representative to negotiate on your behalf. A complete financial statement will also be required which is a snapshot of your financial condition.
  • Prepare a "Hardship Letter" which outlines the reason you are unable to make the monthly payment obligations and what other factors will keep you from making future monthly obligations.
  • Your lender will request a broker price opinion from your representative which includes condition of your home, comparable sold properties, and the overall condition of the current real estate market.
  • A HUD settlement statement outlining the proposed selling price and all associated costs is provided by your representative.
  • The lender will look at any offers made by ready, willing and able buyers and see if the offer makes economic sense compared to allowing foreclosure.
  • If your lender decides the short sales process is the best avenue available they will approve your proposed short sale and schedule the final process with your representative.

 

Elements of a Short Sale in Idaho (required from homeowner)
  • Hardship Letter
  • Financial Statements
  • Income Tax Returns
  • Bank Statements
  • Pay Stubs
  • Other Documents (required by lender)
Hiring a  Idaho Short Sale Specialist
In most cases if you can keep your home from going to foreclosure you will be in a much better position to buy another home within 3-4 years depending on the type of loan you had on the short sale property. I am a IdahoShort Sale Specialist. I have the experience it takes and I have made a heavy investment in specific classes on all facets of the short sales process. There are so many things that go into a successful closing on Idaho Short Sales. I offer free consultation with you to discuss whether or not a Idaho short sale is the best option for you and your family. My services won’t cost you a penny! Fees are paid upon successful negotiation on the sale of your property by your lender(s). If you want to know if you are eligible for a Idaho short sale, please contact me. The sooner you call, the more options we have. I will assist you in a professional, confidential, and non-judgmental way. I am here to help you AVOID foreclosure!
Contact yourIdaho Short Sale Specialist TODAY!

 

  

If you want to know if you are eligible for a short sale, please contact me.  I will assist you in a  professional, confidential, and non-judgemental way.  I am here to help you avoid foreclosure! 

If you have a property that needs to sold as an Idaho Short Sale, please contact me and I will get the paperwork right out to you!

 

Why would a lender want to accept an Idaho Short Sale?  Foreclosure is a time-consuming and expensive process for lenders.  Many times, lenders recognize that if they accept the short sale, their company will actually loose LESS money than if they foreclose on the home. It is better for their bottom line. 

Are all homes eligible for a Short Sale?  No, there must be a "hardship", or some reason that you cannot continue to make the payments on your home.  Also, there are many different lenders, and each one has different criteria for which Short Sales they will accept. 

Does the homeowner have to re-pay the "short" amount?  Sometimes the lender will require a homowner to sign a note for all or some of the deficit amount.  It is based on your ability to pay.  Signing a note however, is a much better situation than having a foreclosure on your credit history. 

Do I have to be behind in my payments? NO, not necessarily!  Each lender is different, and each short sale is based on your financial situation. If you won't be able to continue making your payments, call to find out.  Taking action sooner is always better, then not and letting your home go to foreclosure! 

 

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