How does a short-sale work? When a borrower would like to sell his/her home for market value, but the market value is less than what the borrower owes on the mortgage. The borrower applies to the bank for a short-sale. This means that the lender may accept less than what the borrower owes on the mortgage in order for the borrower to be able to sell the property on the open market.
There are several steps to a short-sale. The first step is hiring a professional Real Estate Agent who specializes in short-sales. The process starts when the Agent submits a third-party authorization form to the lender to act on behalf of the borrower. This is submitted to the bank, along with a complete package, usually consisting of the following documents: two months of bank statements, last year's tax returns, a hardship letter, 4506-T Form, RMA package, W-2's or a Profit and Loss, and utility bill for proof of occupancy. Although this may sound confusing, a professional Real Estate Agent who specializes in short-sales is well aware of the necessary forms and should guide you through the process.
Once all the required documents are completed and packaged to the lender, they can be sent for review to see if you qualify for a short-sale. When it's confirmed that all the necessary documents are on-hand by the lender, then the file is moved to a negotiator. The negotiator will negotiate the file by submitting the file to the investor who typically owns the note and will either accept or counter the short-sale offer. This can be done manually or electronically, depending on the banking institution.
This process usually takes approximately three months to complete as long as there are no other "factors" involved. If any voluntary or involuntary liens, supplemental taxes or collection companies are involved, then these "factors" will lengthen the negotiation process and prolong the short-sale approvals. In many cases there are two mortgages, a first and a second lien which are secured by the Real Estate and they must both be negotiated at the same time. Typically, two different packages will need to be submitted to two different institutions for the negotiation to take place, if these "factors" are present.
Any recorded liens against the property will need to be paid-off before the bank will issue an approval. The bank will usually pay the pro-rated property taxes, but may not cover past supplemental and penalties.
If the second lien is held by an independent collection company, this may also result in additional work and time delays. A collection company will usually want a higher percentage back to settle the debt and this can get complicated depending on whether the property was used as investment or personal residence. If the property was used for investment, the remaining balance of the settled second lien will be reported to the IRS and the borrower may receive a 1099 at the end of the year. Any settlement over $600 is reported to the IRS for a 1099. You should consult your tax advisor about tax ramifications as a result of any Real Estate transactions.
If the property is owner occupied, than the deficiency balance will often be forgiven. As a primary residence homeowner, you may apply to HAFA (Home Affordable Foreclosure Alternative)which means that you may receive a $3,000 credit from FreddyMac at the COE (Close of Escrow) to assist you in moving out expenses. However, with this credit, comes the limitation of credit balance to the second lien of 6% or $6,000.
If you are unable to negotiate the second lien because you are short on funds, then the collection company may due a lien release. This means that the collection company will accept a partial payment to temporarily remove the second lien to close escrow, but will re-post it on your credit report after the close of escrow. This tactic is often misused and abused by collection agencies to collect more money from of the borrower after the close of escrow.
If you have any further questions regarding Short-Sales or other Real Estate needs, please feel free to contact me via phone or email below. I have been specializing in Short-Sales, Foreclosures and Luxury Homes in Agoura Hills, Calabasas, Hidden Hills, West Hills, Woodland Hills, Tarzana, Encino, Sherman Oaks, Studio City, Toluca Lake, Burbank & Glendale for over 12 years. I hope my article was helpful in answering your questions.
Zevi Shafran
Broker Associate Ewing & Associates
Sotheby's International Realty, Sherman Oaks, CA 91423
Cell: 818-974-2279
E-mail: Info.ZeviShafran.com
Website: ZeviShafran.com
ListingBook: Zevi.ListingBook.com
Article Source: http://EzineArticles.com/?expert=Zevi_Shafran
No comments:
Post a Comment