Since the economic crisis in 2007-2008 I have done my fair share of short sales. Those of you who have been involved in a short sale (in any capacity) know that it can be a never-ending process of frustration, confusion, and repetition; and that’s just in trying to get approved to do the short sale!
Well, Fannie & Freddie are implementing some new guidelines in hopes of streamlining the Short Sale timeline. Below is an article from the magazine, UTAH REALTOR (Third Quarter 2012).
Fannie Mae and Freddie Mac SHORT SALE Improvements: New guidelines to streamline Fannie Mae and Freddie Mac short sales took effect Nov 1. The Federal Housing Finance Agency announced in August that it is consolidating all existing short sale efforts into one program that will “enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale.”
One of the key changes will allow a short sale for people who have a legitimate hardship but are still current on their mortgage payments. In these situations, which include the death of a borrower or co-borrower, divorce, disability or relocation for a job, the servicer will be able to process the short sale without additional approval from Fannie Mae or Freddie Mac – even if the borrower is not yet behind on payments.
Another change will provide up to $6,000 to second lien-holders. “Previously, second lien-holders could slow down the short sale process by negotiating for higher amount,” the announcement said. The $6,000 incentive is designed to help get an OK faster.
FHFA has also reduced documentation requirements for those who have missed several mortgage payments, have low credit scores and have serious financial hardships.
Military personnel who are relocated will automatically receive short sale approval. They will also be under no obligation to cover the shortfall between the mortgage amount and the sales price of the property.
Finally, there will be more clarity for processing a short sale when a foreclosure is pending.
Although a Short Sale can be frustrating for both the Seller and the Buyer if you are a homeowner struggling to make mortgage payments and facing the reality of foreclosure a short sale can be a lifesaver.
Do I still owe the bank after a short sale?
Maybe. When you sell your home for less than the amount you owe against it, something needs to be done about the balance left over. This is called the deficiency balance. The bank can do one of three things:
- choose to forgive this balance, known as a waiver of deficiency.
- they can ask you to pay it back by carrying a unsecured note.
- they can pursue a judgement or collection on the remaining balance.
Some states like California have passed laws that require lenders to waive the deficiency if they agree to accept a short sale. Utah does not currently have such a law so you will need to negotiate the waiver of deficiency
Do most banks waive the balance after a short sale?
Generally, most 1st position lien holders will waive the remaining balance on a short sale. 2nd liens get a much smaller portion of the funds in a short sale and as a result will generally want to make up the difference in some way. They may ask for you to contribute funds at closing, send your account to collections, or sue you in court to get a judgement against you.
There are federal short sale programs like HAFA, that require all participating lenders to waive the balance. There are other programs like the Chase Short Sale Outreach and the Bank of America Cooperative Short Sale Program that also have the deficiency waiver built in. If you are not participating in these programs, it is important that your agent negotiate this release and have it built into the short sale approval letter
Do I have to hire a real estate agent to do a short sale?
There is no state law that requires you to hire a licensed agent to sell your house in a short sale. The bank however may require that you list the home for sale with a local real estate professional to ensure that you are doing everything possible to get fair market value for the property. They can’t force you to list your home with an agent, but they can refuse to do a short sale if you don’t.
Do I have to show the bank my financial information?
Generally the bank will want to see that you do not have the capacity to continue to make your loan payments until it is paid off as agreed when you borrowed the money. Because of this, they will need to see that there is a reason for you to sell your home. If you are claiming that you can no longer afford to make your payments, they will require proof of that. This is done by having you supply tax returns, bank statements, and recent paystubs and a short sale hardship letter. There are some short sale programs that require a limited amount of documentation which would eliminate the need to supply financial documentation.
Do I have to pay for someone to negotiate my short sale?
No. You don’t have to pay to sell your home on a short sale. The commissions paid to real estate agents come out of the banks proceeds. Some states allow for short sale negotiators to collect a special fee for negotiating a short sale that will be separate from a real estate commission. It is beneficial but not necessary to hire a specialist to handle your short sale. They can often be paid by the buyer, bank, agent or the seller.
Judicial or Non-Judicial Foreclosure State?
Primarily non-judicial foreclosure that does not involve court action is used in Utah. This requires that notice be given to the borrowers and the public, so this foreclosure method is commonly called sale of trust property by public auction. The trust deed usually contains a provision called a power of sale clause which allows a trustee to sell the property in order to satisfy the underlying defaulted loan. In Utah there is no express requirement for the power of sale language to actually be in the trust deed. Only certain parties or entities can serve as trustees, including attorneys, banks and title company officers. The trustee acts as a representative of the lender to complete the sale, which typically occurs in the form of an auction. There are strict notice requirements inherent in the non-judicial foreclosure process.
Does Seller Owe Deficiency Amount After Foreclosure or Short Sale?
Yes. A deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage or deed of trust secures.
For a short sale, the deficiency can be waived if agreed in writing on the short sale approval letter.
If you have more questions about the short sale process please do not hesitate to contact me.
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