Why consider a short sale?

1.  You get some control of how long you stay in your home.  You're actually selling your home, not getting kicked out.

2.  Unlike foreclosure, a second lienholder won't come after you after the closing.  In Washington State, the first lienholder will usually forgive the deficiency whether you foreclose or short sell, but if you have a second mortgage, a foreclosure won't get you off the hook.

3.  Your credit takes less of a hit with a short sale, and you'll be able to qualify for a conventional mortgage in 2 years, as opposed to 7 years with a foreclosure.  You may not care about that right now, but you will in a couple years when you're trying to get a credit card (or you see a short sale that you want to buy).

4.  Bankruptcy can slow down, but won't stop a foreclosure.  This is even more damaging to your credit than foreclosure.  If you have relatively little debt other than your mortgage, think twice before filing.

5.  Loan mods are great, but you'll still owe the same amount, just at a temporarily lower interest rate.  If you're just treading water until the inevitable comes, think about what's going to happen 6 months from now.

6.  When you sell short you typically don't pay any closing costs, HOA liens or back taxes.  Each case is different so call me if you want to talk about your specific situation.

Here is a look at some of the common options available through most lenders (In order from best to worst in how damaged your credit could be):

1.       Work out a loan modification with your lender.  This is a permanent change to the terms of your mortgage to make it more affordable and you will be able to keep your home.

2.       Repayment Plan.  Some lenders will allow you to pay off your delinquency over a period of time by making your monthly payment plus a portion of the delinquent amount, each month.

3.       Partial Claims (FHA Loans Only).  Your lender may be able to work with you to obtain a one-time payment from the FHA insurance fund to bring your mortgage current.

4.       Short Sale.  The bank will allow you to sell your home for less than you owe them.  We do a lot of these and list and sell your home much like any other listing.  Typically, you will again be able to obtain conventional mortgage financing in 24 months.   This option gives you some control of how long you’ll stay in your house before it’s sold.

5.       Deed in Lieu of Foreclosure.  You sign over ownership of your property to your lender, and in return the lender will typically agree to forgive the remainder of your loan balance.  Some lenders will require you to list your home with an agent first and some lenders will not allow Deed in Lieu.  Some people have reported that this hits their credit report just as bad as a foreclosure would.

6.       Do nothing and you will face foreclosure and eviction.  This is by far the most damaging option to your credit rating and a foreclosure filing will be a public record.  You do not want the Sheriff showing up at your door to evict you.  Credit-wise, you will need to wait at least 7 years before again obtaining conventional mortgage financing. 

Don’t wait!   Talk to your lender about your options right away.   You might want to use this letter as a checklist when you call your lender so you can ask about which options are available to you.  Most lenders don’t want to foreclose and will work with you to find a better alternative.Beware of scam artists:  Do not pay any “counseling services” a fee to help you, nor sign over your deed to any “investor” who will claim to “assist” homeowners or “save” their homes and never make any payments to anyone but your lender.  Only your lender can authorize any change to your existing mortgage agreement.

Please call or e-mail me if you have any questions or would like to discuss a short sale.  You can also find more info about your alternatives at makinghomeaffordable.gov .  You can also find additional short sale info at http://www.dfi.wa.gov/consumers/education/home/short-sales.htm  Make sure you also check with your tax advisor or the IRS regarding any tax liability, especially if this is an investment property.  Specific legal questions should be directed to your attorney.

The situation you’re in now is temporary and you’re not the only one who’s gone through this.  One day you’ll be over this and will have moved on.  But first, you have to get through it—and that means doing what’s best for your future.

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What's the Process?
It starts with paperwork.  You applied for the mortgage when you bought the house, and in a way, you must apply to get out of it.  Each lender has their own policies, but most lenders require these docs to approve a short sale:
1.   Authorization to Release Information. This will allow me to talk with your lender (I'll provide this document when we meet).
2.   Handwritten hardship letter (See example letter below).
3.   Purchase Agreement (Of course, I need to list your house first).
4.   State required addendums (I'll provide these as they become necessary).
5.   Listing Agreement (We'll complete this when we meet).
6.   Last two years tax returns (Lender requirement).
7.   Last two months bank statements (Lender requirement).
8.   Last two pay stubs for all borrowers (Lender requirement).
9.   Borrowers financial statement. A basic incoming and outgoing expense sheet will be fine (Lender requirement).
10. Detailed repair estimate if repairs are needed.
11. HUD 1 statement or NET Sheet showing the lender what their NET figure will be and any other expenses owed on the property (Escrow will provide this once we have an offer).
If the homeowner doesn't have bank accounts or is unemployed make sure that this is stated in the hardship letter as the Mitigator that is assigned this file will think that there are items missing and could end up ignoring your file.

Some lenders want your financials and hardship letter PRIOR to listing your home.  I'll let you know what your lender requires.

 Here is what a sample hardship letter looks like:

Lender Name Lender Address Lender's fax number

Today's Date

RE: Hardship Letter  -  Short Sale for _____________________ address

To whom it may concern:

I purchased my home at _____________ in ___________.  At that time I was employed by _______and business was very good.  My salary and the possibility of a promotion and raise made me sure that I could easily support my mortgage.  Unfortunately, a downturn in the market caused my company to reduce its workforce and I was laid off.

After searching for a comparable job, I finally got a temporary position as an office assistant as I continuing seeking other work.  I struggled for several months to make my mortgage payment, and was also hit with some medical payments that I did not expect (the COBRA payment was more than twice what I was paying when employed).  I knew I would have to sell my home to protect my credit rating and possibly have enough cash left over for moving expenses and some savings.  I put my home up for sale by owner in _________, but there were several problems that I did not have enough money to fix, such as the broken fence in the back yard and some pretty severe leaks in the roof which indicated a new one was needed.  Over the next three months I lowered the price three times but still had no takers.  I am now working with a real estate agent and I believe she will be able to help me sell quickly.

I really love my house, but I know that I cannot afford it.  I am a single parent, working as a temporary employee with few benefits and no savings.  My financial situation cannot sustain a home mortgage of nearly $xxx per month.  I want to sell the home, avoid foreclosure and salvage my credit.  I know that a foreclosure on my record will affect me for years to come.  I would ask that you please assist me in avoiding this.

Please accept this offer as payment in full.  My attorney has advised me to file bankruptcy, but I prefer to avoid further destruction of my credit.  I just want to move on and start over.

I deeply appreciate your help and understanding in this matter.  If you have any questions, or need anything further from me, please contact my agent or me personally.

Sincerely,  Home Owner Name   Address and Contact Information