It is understandable to have questions when coping with a new and challenging situation, especially when a home is at stake. The reality is that millions of homeowners across the country are finding out that they have more questions than answers. We hope that the following information will help you better understand the circumstances. If you have further questions not addressed below, or would like additional information resources, feel free to Contact Us.
What is a Short Sale ?
Read "Short Sale Explained" for a detailed explanation.
Do I qualify for a short sale?
The qualifications for a short sale include any or all of the following:
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
Why do a short sale?
If you owe much more on your mortgage than what your property is worth, and you are struggling to meet the payments, a Short Sale may be the best option for you.
There are various reasons why a Short Sale is a much better option than a Foreclosure. This ranges from:
- the impact on your credit
- the ability to buy a home again in the future
- security clearance
- deficiency judgment, etc.
Please Contact Us, we would be more than happy to give a free consultation and assess your own individual situation, describe all the options available and recommend what we believe would be the best course of action for you and your family.
What is a mortgage modification?
A mortgage modification is a process through which your mortgage lender changes any or all of the following:
- Your interest rate
- Your principal balance (through a reduction)
- Your loan terms (example: from an adjustable to a fixed rate)
This process can allow borrowers to stay in their property when they can no longer afford their current mortgage payments.
Why would a lender modify my mortgage?
Lenders have realized that in some cases it is better for them to work with current borrowers to lower payments or possibly improve terms in order to keep homeowners in their properties. The average foreclosure can cost a lender from 35-50% of the value of a property, so keeping borrowers in their homes is a good option for everyone.
What do I need to qualify for a mortgage modification?
According to the Making Home Affordable Web site (www.MakingHomeAffordable.gov), you will need the following information for your lender to consider a modification:
- Information about your first mortgage, such as your monthly mortgage statement
- Information about any second mortgage or home equity line of credit on the house
- Account balances and minimum monthly payments due on all of your credit cards
- Account balances and monthly payments on all your other debts such as student loans and car loans
- Your most recent income tax return
- Information about your savings and other assets
- Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources
If applicable, it may also be helpful to have a letter describing any circumstances that caused your income to reduce or expenses to increase (job loss, divorce, illness, etc.)
How do I qualify for a mortgage modification?
The first call you make should be to your lender, have the information above ready to discuss with them and call your customer service line to ask them what options you have available. If the person you speak with does not understand what you are asking, you can ask to be referred to one of the following departments (different lenders have different names for these departments):
- Loss Mitigation
- Mortgage Modification
- H.O.P.E.
Prior to contacting your mortgage lender you can quickly complete an eligibility test at www.MakingHomeAffordable.gov. This test will let you know if you are eligible for a modification through the government-sponsored Home Affordability and Stability Program (HASP). For a list of mortgage lenders and servicers, visit www.HopeNow.com.
What if I don’t qualify for a mortgage modification, can’t afford my home, and owe more than it’s worth?
You are not alone and foreclosure is not the only option. If your mortgage lender or servicer will not work with you to reduce your payment, you may want to consider a short sale. Agents like me, with the Certified Distressed Property Expert® Designation, have undergone extensive training in how to process and negotiate short sales. A short sale allows you to sell your home for less than what you owe and avoid foreclosure. Speak to your market expert to see if you may qualify.
What is the impact of a Short Sale on your credit
This question is asked very frequently and involves a number of unique variables. The first thing to keep in mind is that the moment you are 30+ days behind on your mortgage payment, your bank has the right to report to all of the credit bureaus that you are 30 days behind on your payments. When a late payment is reported to the three major credit bureaus, it does have a direct affect on your credit.
After going through a Short Sale or a Foreclosure, most people have multiple 30, 60, and 90+ day late payments reported on their credit report. When the actual Short Sale is completed, most banks will report to your credit report that your account was “paid in full for less than the full amount.” Your credit report may also be marked as “settled.” It is important to keep in mind that each lender has a different way of reporting that a Short Sale was done, but this is the most common language used. If your home were to go to Foreclosure you would most likely see the bank report “Foreclosure” on your credit report. It is difficult to gauge how much damage will be done to your credit score when comparing a Short Sale to Foreclosure. However, typically the impact of a Short Sale is not as severe as a Foreclosure.
We advise you to work with a Credit Repair and/or Credit Scoring Expert for more specific details on this issue, and ways in which to improve your credit after the Short Sale is complete. Recently, many of our clients were able to Short Sale their homes without ever missing a payment. Therefore, they do not have any late payments reported to their credit. When there are no late payments on your mortgage, your credit score is generally not affected. It is not impossible to maintain a high credit score by completing a Short Sale without missing payments on your mortgage and other bills. Please be aware though, that your lender will still report that a Short Sale was done. So, while you may not see your credit score drop if you continue to make payments through the completion of the Short Sale, you’ll still likely have your account marked as “paid in full for less than the full amount” and/or “settled.”
What about Taxes ?
There may be tax ramifications to a Short Sale but every situation is unique. You may have heard, “Don’t do a short sale because you will get a 1099 and have to pay taxes on the difference between what you owed on your home and what you sold it for or the amount the bank wrote off.” This may be true, but this is not the whole story.
During a Short Sale, your loan is partially forgiven, the amount you received as the "forgiven amount" is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
With a Foreclosure, you will also get a 1099. In the case of a Foreclosure the 1099 is called a “1099-A” and the ‘A’ stands for “Acquisition or Abandonment of Secured Property”. It is important to know that while there are many differences, the tax consequences for the ‘C’ and the ‘A’ are substantially the same.
On January 3rd, 2013, President Obama signed The American Taxpayer Relief Act which extended the deadline of the Mortgage Debt Relief Act to December 31st, 2013. Because of
this Mortgage Debt Relief Act which was originally enacted in 2007, you may not even be required to pay taxes on the 'foregiven amount' as shown on the 1099-C. However, before making any Short Sale decision however, we strongly advise you to consult a Lawyer for legal advice and a CPA or Tax Preparer for additional tax advice.
What is the Home Affordable Refinance Program (HARP)?
If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a HARP (Home Affordable Refinance Program). This will allow you to refinance your home and often lower your payments.
What are the qualifications for a HARP Refinance?
According to the HARP (Home Affordable Refinance Program) information released by the government, following are a list of qualifications:
- The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
Disclaimer
Bethany Real Estate and Investments assumes no responsibility nor guarantees the accuracy of this information and is not engaged in the practice of law nor gives legal or tax advice.
It is strongly recommended that you seek appropriate professional legal counsel regarding your rights as a homeowner. Bethany Real Estate and Investments is not associated with the government, and our services are not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to approve your short sale.
