The deficiency is like any other unsecured debt and as such is legally the same to credit card debit, medical debt, or a payday loan. The law authorizes an action for a deficiency judgment for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, as specified. The law also forbids a deficiency judgment in any case in which the real property or an estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.

While in both cases, short sale and foreclosure, the delinquent mortgage will negatively affect their credit rating, at least short sellers avoid having a “debt discharged due to foreclosure” on their credit reports. Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have to wait up to three years to qualify for a mortgage at a reasonable rate.

Short sales show up on a credit report as a “pre-foreclosure in redemption” status and can result in a credit score reduction of 100 points or less. After the sale, the mortgage may show up as “discharged.” People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months. So, if buying a home is a future goal, then a short sale is the better option for many.

Homeowners cannot simply decide that they want to unload a home with a short sale; the lender must agree to it. The key to getting a lender to go along is to demonstrate two things: that you have no other financial resources to pay the mortgage, and that the sale price the buyer is willing to pay is the fair price the market will bear. If a lender believes it can get more for the house by taking possession of it and selling it themselves, then they will not go along with a short sale.

To begin the process of a short sale, you first need to call the lender and speak directly with the person in the loan workout or short sale department. At GMAC ResCap, a large residential mortgage lender, there is a “foreclosure prevention department” with people trained to work with homeowners in exactly this situation. Their motivation is summed up by Steve Nelson at that company: “We pretty much know what our loss is going to be if we foreclose. If a short-seller results in a payoff that’s better than that number, we’re talking all day long with people who want to put a short sale together.” Some lenders report a three- to four-times rise in the number of short sales over the past year.

People who want to go this route should contact a local real estate firm and ask to work with a real estate agent who has actual experience with short sales. These specially trained agents will know the process and deliver the documentation that the lender requires to authorize the short sale. The agent can also find a buyer that is qualified to complete the transaction.

If all goes as planned, the lender will receive all of the proceeds, typically not enough to pay off the loan. The remaining balance of the loan is discharged. But a homeowner agreeing to a short sale should also get legal advice to protect his or herself from future claims of the lender. In some states, only purchase mortgages are fully discharged. For all other types of debt (equity loans, refinancing, etc), the homeowner can be held personally liable for repayment in the future. For this reason, a lawyer’s advice will include getting the lender to agree to fully discharge all mortgage debt involved in the short sale.

This is a common question I always get asked when taking a short sale listing. The alternative to foreclosure is the answer.
Angel

Obama’s administration came out with a new website for home owners struggling to make mortgage payments and facing foreclosure:

MakingHomeAffordable.gov

From the about page:

The Obama Administration has introduced a comprehensive Financial Stability Plan to address the key problems at the heart of the current crisis and get our economy back on track. A critical piece of that effort is Making Home Affordable, a plan to stabilize our housing market and help up to 7 to 9 million Americans reduce their monthly mortgage payments to more affordable levels.

The Home Affordable Refinance Program gives up to 4 to 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. The Home Affordable Modification Program commits $75 billion to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures.

I like how they are taking the “self-assessment” approach and give you a way to see which program will work for your situation. There are basically two programs: Refinancing and

Besides the questionnaires, there are many other resources: a couple of videos, links, and information on foreclosure prevention, foreclosure counseling agencies and contact information for major lenders.

Yes.

But much less than foreclosure.

How much a short sale will mess up your credit will depend on how many payments you missed before we negotiate and close a short sale for you.

If you contact us for a short sale before missing any payments, that would be the best. We have even closed a short sale without any missed payments. Some banks however will want to see at least 1 missed payment to believe that you actually have a “hardship”.

Approximately how many points will your credit score drop?

Because there are so many factors affecting your credit score it’s hard to predict but here is a rough estimate:

Short Sale: 80-100 points negative FICO score impact

Foreclosure or “Deed in Lieu”: 250-280 negative FICO score impact

Most of us are overleveraged here in Sacramento – owing more on the home than what the home is worth. That’s why if you can’t afford your payments, selling the house “short” may be your only way out if you want to settle your mortgages, avoid foreclosure and save your credit.

The best part is…

A Short Sale is FREE to you!

What’s the catch?

Basically, your lender pays for the real estate agent commissions.

Typically the commissions are paid by the sellers from the equity in the property. Well, you don’t have any equity, otherwise you wouldn’t be doing a short sale, right? And we as short sale specialists cannot afford to work for free either. So the bank allows the commissions to be paid out of their proceeds.

The issues is, the lender is already losing money so they will typically reduce our commissions. That doesn’t seem too fair since short sales take MUCH more work than a typical transaction.

So What Exactly Does a Short Sale Real Estate Agent Do?

Realtors specializing in short sales do some of the hardest work in real estate:

1. Collect all the documentation for the short sale package. This includes filling out a bunch of forms, financial statements, and help you write the Hardship Letter. We put all the info into a nice short sale package and send to the bank to get the ball rolling.

We do all this and then the bank cuts our commissions! (But it’s OK, because somebody has to do it!)

On short sales the banks will typically reduce the commission from 6% down to 5% or even 4%. (Split between the buyer and seller agencies.) Also sometimes last-minute problems come up and because the lenders take so long to respond we will sometimes kick-in our commission to make the deal close.

With all that and the work required, no wonder so many agents hate doing short sales!

However, since short sales is our specialty we don’t mind the challenges. Having done hundreds of short sale transactions has given us the experience and confidence to handle whatever comes up.

At the end of the day, the satisfaction of rescuing overleveraged homeowners is what keeps us going.

The 5 Mistakes Are:

1. Stop Paying Without a Plan — depending on the bank you can actually start a loan workout / modification or a short sale without stopping your payments! Other times you may need to stop paying to get their attention (or because you simply don’t have money!) Angel will never tell you to stop making your payments without making sure you understand the consequences.

I think this turned out to be a pretty nice first video with some valuable tips… what do you think?