A “short sale” is the sale of a property that involves paying back a mortgage company less than what they are owed. In this marketplace many people are forced to do short sales because property values have dropped so much. MH Solutions Inc has helped hundreds of people successfully sell their properties through short sales to avoid the negative impacts of a foreclosure or bankruptcy. You can read what some of our satisfied customers had to say about MH Solutions by visiting the testimonials page of our website.
We understand how scary the threat of foreclosure can be and how confusing it can be to understand which option is right for you. At MH Solutions Inc., we have a system in place to make it easier for you. To get a clear picture of your options, or to start the short sale process, please read on:
Explore your options
Most lenders typically offer four alternatives to foreclosure: Forbearance, Loan Modification, Short Sale, and Deed in lieu.
1. Forbearance
A forbearance agreement is nothing more than a temporary reduction in mortgage payments until an agreed upon time when the payments will return to normal. When the payments resume the uncollected amount will become due either all at once or spread out over a few months. Therefore, after the forbearance period the payments always go up above what they were originally. This is why forbearance agreement often fail to be a viable solutions for homeowners.
Loan Modification – A loan modification can be a true solution. Most loan modification involve a change in the interest rate of the loan or a change to the term of the loan. It is extremely rare that the principal amount of the loan is reduced. A typical loan modification can take 30-60 days to complete and there is a stringent qualification process. To see if you qualify for a loan modification contact your lender or go to the Making Home Affordable Website.
2. Short Sale
A short sale is when the lender accepts less than they are owed as a full payment of the debt. The seller must not benefit in any way from the sale of the property and the sale must be between the seller and an unassociated 3rd party (arms length transaction). The short sale is a true solution that allows people to sell properties when they owe more than the fair market value.
3. Deed in Lieu
This is similar to voluntary foreclosure. Lenders prefer deed in lieu of foreclosure because it saves them the money and hassle of the foreclosure process. However, lenders would rather do a short sale because the potential for them to lose more on the deed in lieu is greater. This is why lenders often require that the property be listed for sale prior to accepting a deed in lieu. One thing to consider with a deed in lieu is that it doesn’t remove the seller for any liability for any amount lost by the lender, and since the loss is usually greater with a deed in lieu than with a short sale, the deed in lieu is not as favorable. Also, a deed in lieu may have the same negative impact on the seller’s credit as a foreclosure does.
4. See if you qualify for HAFA
The HAFA program, was designed to provide real solutions for distressed homeowners to avoid filing bankruptcy to stop foreclosure or simply abandoning the property. In addition the program offers incentives not historically allowed in a typical short sale.
The program offers borrowers $3000 in relocation assistance, to walk away with no deficiency judgment, and no promissory note. Allowing a borrower to walk away with no fear that the lender will pursue them for the remaining loan balance makes HAFA more appealing than the standard short sale.
Through HAFA there are two alternatives to foreclosure.
The first is a short sale. A short sale will allow you to sell your home for less than you owe. The HAFA short sale process will keep you from having to pay the difference at closing or be pursued for the deficiency by your lender. Selling your home by short sale prevents the financial ruin associated with foreclosure. With the short sale under the HAFA program, a real estate agent must be involved in the process. If you aren’t already working with an agent, we would be happy to refer you to a qualified professional.
The second alternative is a deed-in-lieu. This is where the bank accepts the deed of your home instead of foreclosure. You do not get to keep your home, but your mortgage debt is forgiven.
To qualify for the HAFA program borrowers must meet the eligibility requirements. To find out if you qualify for the benefits of the program give us a call at (207) 221-3388 ext. 13.
Understand what happens to any deficiency
If a lender gets less money than they were owed because of a foreclosure, deed in lieu, or a short sale, the seller may be liable for the short fall. Lenders typically will do one of these three things when there is a deficiency:
1. They may forgive the debt and claim a loss – The most common thing for the lender to do is claim a loss and issue a 1099 C to the seller for the amount of the deficiency. For a seller of a primary residence this will not create a tax liability in most situations. Watch a short video on 1099 C tax liability below.
2. They may ask for the seller to share in their loss – Lenders ask the seller to share in their loss when they don’t want to forgive the entire deficiency. The lender may ask for more cash at closing or a promissory note to be paid back over time after the closing. MH Solutions negotiates on the terms of the promissory note to make it as easy as possible on the seller. Most of the promissory notes are as a result of a second mortgage deficiency.
3. They may try and sue the seller for the difference – A deficiency judgment may be awarded to a lender that sues the homeowner for a deficiency created by a foreclosure, deed in lieu or short sale. The lender may then attach other assets and/or income of the seller. This is very rare and happens less than 8% of the time nationally. Deficiency judgments are so rare because it doesn’t make sense for the lender to spend the money on attempting another separate lawsuit unless the seller has many valuable assets. Watch a video on deficiency judgments below.
An important fact to consider is that a short sale creates a smaller deficiency than a foreclosure or a deed in lieu.
Speak with an attorney
MH Solutions Inc. strongly recommends that each seller consult with an attorney before going through a short sale. It is important that a seller has competent legal advice concerning their particular circumstances to make sure that the short sale is in their best interest. All sellers that work with MH Solutions Inc. have access to our attorney for consultation and other services.
Collect the short sale package items
You will need to collect the following items for each person whose name is on the mortgage and submit them to MH Solutions Inc before any negotiations with your mortgage lender can begin:
- 2 most recent bank statements (must include all pages, your name, your bank’s name, and your account number)
- 2 most recent pay stubs or other income statements
- Last two years federal tax returns (must be signed on page 2)
- Last two years W2 statements
- State Required disclosure
- Authorization form
- Disclosure form
- Loss Mitigation Service Agreement
- Financial worksheet
- Hardship letter
Please contact us to request the required forms. If you are missing any of these items please write a simple note explaining why you can’t provide it. Please make a separate note for each missing item and be sure to sign and date each note. All of these items can be emailed to raina@mhsolutionsme.com or faxed to (800) 782-1128.
Doing a preliminary title search and property inspection
We now require a preliminary title search be done before we take the short sale file. We recommend you use our preferred title company, the cost of which – in most cases – can be paid for at closing by your lender.
By doing the due diligence up front, any liens or title defects of the property will be able to be negotiated with the lender up front and the short sale will have a better chance of being approved. It is extremely difficult and time consuming to go back to a lender after an approval letter has been granted to negotiate on price.
Find a buyer
By now your real estate agent may have already brought you a great offer to consider. If you do not have your property listed with a real estate agent, this is the time to do it. Not all real estate agents are equally experienced at selling short sales, in fact some can even get in the way. If you would like to be referred to an experienced short sale agent in your area please contact our office.
Prepare for the closing
Just as with any other closing, you should plan to attend this closing. If you cannot be present then you must make arrangements in advance with your real estate agent and the title company to handle the paperwork through overnight mail. At the closing you will need to provide a photo ID.