Complete and total credit to Drew Sygit. This is copied from his Blog at Drew's Mortgage News
Short Sale, Deed-in-Lieu, Foreclosure – How do Each Affect When You can get Your Next Mortgage?
Too many homeowners act on bad advice, false assumptions or allow themselves to be conned when choosing one of these options.
DETROIT, MI – Over the last couple of weeks, in speaking with numerous homeowners, real estate agents and investors, I’ve noticed that there’s a lot of confusion and misunderstanding about the impact of Short Sales, Deed-in-Lieu’s and Foreclosures on one’s ability to get a new mortgage.
Over and over again, I’ve heard self-proclaimed experts make many incorrect statements. So many, that I felt compelled to do my best to separate reality from myth, fact from fiction.
Getting a New Mortgage
It’s actually pretty easy to provide concrete proof of when it’s possible to qualify for a new mortgage after a Short Sale, Deed-in-Lieu or Foreclosure. The mortgage meltdown has reduced the main players in the mortgage industry to FNMA, FHLMC, FHA, VA and RD. Gone are the numerous subprime and Alt-A players that seemed to have a mortgage program for anyone.
FNMA – Federal National Mortgage Association
Guidelines changed regarding these issues on June 25, 2008 with Announcement 08-16.
Short Sale: FNMA refers to these as “Preforeclosure Sales” and requires a 2 year waiting period after the sale, with acceptable re-established credit.
Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years. There is a 2 year exception for extenuating circumstances.
Foreclosure: standard of 5 years waiting period, with minimum of 10% down & 680 credit score for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is a 3 year exception for extenuating circumstances.
Bankruptcy: Chapter 7 requires a 4 year waiting period, but there is a 2 year exception for extenuating circumstances.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).
FHLMC – Federal Home Loan Mortgage Corporation
Guidelines changed regarding these issues with the release of Bulletin October 17, 2008. For some reason FHLMC isn’t as user-friendly with their updates in comparison to FNMA. Instead of listing the specific changes in their Bulletins like FNMA, they force you to refer to their guidelines to find the changes. The ones related to our topic are found in Chapter 37-7. FHLMC could definitely use some PR coaching to be more user-friendly.
Short Sale: FHLMC refers to these as “Short Payoffs” and requires a 4 year waiting period after the sale, with acceptable re-established credit. There is an exception for extenuating circumstances of 2 years.
Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years.
Foreclosure: standard of 5 years waiting period, with minimum of 10% down for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is an exception for extenuating circumstances of 3 years.
Bankruptcy: Chapter 7 requires a 4 year waiting period.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).
FHA – Federal Housing Administration
FHA is a part of HUD and as of this point does not differ in how they address Short Sales, Deed-in-Lieu’s or Foreclosures. They’re all treated the same. Their great source for their guidelines can be found at FHA Lending.
ALL: standard of 3 years waiting period required. There is an exception for extenuating circumstances.
Bankruptcy: Chapter 7 requires a 2 year waiting period, minimum 12 months with extenuating circumstances.
Chapter 13 requires 12 months of timely payments and must have court’s authorization.
VA – Veterans Administration
The credit requirements are the same as FHA. More information can be found at: VA Loans
RD – Rural Development
A part of the U.S. Department of Agriculture. The credit requirements are mostly the same as FHA & VA. More information can be found at RD Loans (my favorite!)
Bankruptcy: minimum 3 year waiting period required, no difference between Chapter 7 or 13. Extenuating circumstances may be considered for exceptions.
I highly recommend checking out some of the links I’ve included. Direct anyone giving you contradictory information to them, so they may reference the correct facts.
Monday, April 20, 2009
Tuesday, April 14, 2009
Detroit Free Press article on Short Sales
Short Sales in Michigan
Freep Article
Freep Article 2
While its true that currently short sales are a smaller part of the overall market, everyone will agree they are becoming more and more common and a bigger and bigger part of the market every week here in Michigan. Look at the rise in the graph above. Also, RealtyTrac
reports that nationally, by the end of 2009, 50% of all sales will be short sales!
Short Sales DO require a hardship, and DO take time. If you're a real estate agent, why waste YOUR time doing all the work? OUTSOURCE it. FOR FREE! Let ME do all that work for you! You can concentrate on what you're good at! Finding buyers and sellers! We NEVER charge a fee to the homeowner, agent, or anyone. What are you waiting for? Email me today to let us take over the headaches of dealing with the lenders and negotiations!
info@psomich.com
www.psomich.com (under construction)
Deficiency Judgments, 1099s, and Short Sales
When a lender forecloses, or allows a short sale, there is, of course a loss to the lender involved. When this happens, there are really, only 2 options. Either the lender will write off the debt, and therefore issue a 1099-C (Cancellation of Debt) OR They will pursue a Deficiency Judgment.
The best case for everyone, typically, is if they issue a 1099. They get the write-off, and the homeowner doesn't' have to worry about a judgment against them. is the homeowner then liable for taxes on that 1099, you might ask? Well, there are multiple ways to answer that, and I am NOT an accountant. (nor a lawyer, this is not accounting advice or legal advice, there, got that out of the way :P) The first is IRS form 982, which can be found HERE This basically is used when the homeowners debts or liabilities are MORE than their income or assets, in what is called insolvency. When this form is used, there is typically very little to no taxes owed. The other solution is a change in the tax code that former President Bush signed into law in December 2007 (retroactive to January 2007) called the Mortgage Forgiveness Debt Relief Act of 2007 a.k.a HR 3648 (for a brief overview and not the actual law, click HERE. I won't get into all the details, but it works similar to form 982. If the home was your primary residence, or a qualifying second home there will be no tax ramifications to the 1099.
Now on to Deficiency Judgments. This is BAD. A lender, if they have a judgment, can garnish wages, bank accounts, and generally make life miserable for the homeowner, or former homeowner as it were. Now, a lot of times, the people in a short sale situation, are unemployed, or have literally nothing to take, other times, they ARE still employed, and the lender knows the employer. They can garnish wages for this judgment. (I do it to deadbeat tenants as well, it actually quite simple!) The thing with deficiency judgments is that if the lender is going to pursue one after a short sale, there's probably a 99.99999% chance (nope, not a statistician either. :P) that they will pursue one after a foreclosure too. So the decision needs to be made by the homeowner to either continue on with the short sale, and accept that either there is a possibility that the lender will pursue the deficiency, or let the home go to foreclosure instead. A lot of times, we are able to negotiate a full settlement or payment in full and have it in writing that the lender will not pursue the deficiency. There is just no guarantee going in that this is the case however, just as there is no guarantee that the lender will accept any short sale.
What I tell all sellers that I am working with on short sales, is that regardless of how the lender will treat a deficiency, we will communicate with them and advise them of the facts as we know them. (again, we don't offer legal or accounting advice and suggest that all sellers consult their own attorney and/or accountant) If the lender does not give us in writing that they will not pursue the deficiency, we will present this to the seller and ask them if they wish to continue. We also let them know that if they do not, that's okay, but to keep in mind that if the house goes into foreclosure and the bank ends up with possession, they will likely only be delaying any deficiency judgments.
Honestly, I'm seeing more and more that lenders are writing off these losses. They know that in most cases they can't collect on the judgments, and are making an already rough and terrible situation, worse for the homeowner. We will continue to work with them as well to ensure that our sellers are in the best possible situation and get away from any deficiency judgments.
If you want more information on this topic, please comment and let me know what you'd like to hear about. Also, please comment and let me know what you think of this post, and this blog. Your comments will help make this blog a more useful tool for homeowners, agents, other investors, and anyone that wishes to learn more about Short Sales.
The best case for everyone, typically, is if they issue a 1099. They get the write-off, and the homeowner doesn't' have to worry about a judgment against them. is the homeowner then liable for taxes on that 1099, you might ask? Well, there are multiple ways to answer that, and I am NOT an accountant. (nor a lawyer, this is not accounting advice or legal advice, there, got that out of the way :P) The first is IRS form 982, which can be found HERE This basically is used when the homeowners debts or liabilities are MORE than their income or assets, in what is called insolvency. When this form is used, there is typically very little to no taxes owed. The other solution is a change in the tax code that former President Bush signed into law in December 2007 (retroactive to January 2007) called the Mortgage Forgiveness Debt Relief Act of 2007 a.k.a HR 3648 (for a brief overview and not the actual law, click HERE. I won't get into all the details, but it works similar to form 982. If the home was your primary residence, or a qualifying second home there will be no tax ramifications to the 1099.
Now on to Deficiency Judgments. This is BAD. A lender, if they have a judgment, can garnish wages, bank accounts, and generally make life miserable for the homeowner, or former homeowner as it were. Now, a lot of times, the people in a short sale situation, are unemployed, or have literally nothing to take, other times, they ARE still employed, and the lender knows the employer. They can garnish wages for this judgment. (I do it to deadbeat tenants as well, it actually quite simple!) The thing with deficiency judgments is that if the lender is going to pursue one after a short sale, there's probably a 99.99999% chance (nope, not a statistician either. :P) that they will pursue one after a foreclosure too. So the decision needs to be made by the homeowner to either continue on with the short sale, and accept that either there is a possibility that the lender will pursue the deficiency, or let the home go to foreclosure instead. A lot of times, we are able to negotiate a full settlement or payment in full and have it in writing that the lender will not pursue the deficiency. There is just no guarantee going in that this is the case however, just as there is no guarantee that the lender will accept any short sale.
What I tell all sellers that I am working with on short sales, is that regardless of how the lender will treat a deficiency, we will communicate with them and advise them of the facts as we know them. (again, we don't offer legal or accounting advice and suggest that all sellers consult their own attorney and/or accountant) If the lender does not give us in writing that they will not pursue the deficiency, we will present this to the seller and ask them if they wish to continue. We also let them know that if they do not, that's okay, but to keep in mind that if the house goes into foreclosure and the bank ends up with possession, they will likely only be delaying any deficiency judgments.
Honestly, I'm seeing more and more that lenders are writing off these losses. They know that in most cases they can't collect on the judgments, and are making an already rough and terrible situation, worse for the homeowner. We will continue to work with them as well to ensure that our sellers are in the best possible situation and get away from any deficiency judgments.
If you want more information on this topic, please comment and let me know what you'd like to hear about. Also, please comment and let me know what you think of this post, and this blog. Your comments will help make this blog a more useful tool for homeowners, agents, other investors, and anyone that wishes to learn more about Short Sales.
Wednesday, April 8, 2009
What is a Short Sale?
What is a short sale?
A short sale is when a seller facing foreclosure works with the lender and they agree to accept less than the amount owed as payoff on a home as a means of avoiding foreclosure.
Generally, lenders will only accept a short sale when the homeowner is behind on payments, and is facing a financial hardship. There are cases when a lender will entertain a short sale when the homeowner is facing a hardship but are not yet behind. If there is no financial hardship, the homeowner is not behind, and there does not appear to be an imminent hardship, the lender will not accept a short sale. The property simply being upside down in value does not constitute a hardship in the lender's eyes.
How does it work?
The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. That department is called the "loss mitigation" or "workout" department, depending on the lender.
The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:
• Income documentation such as W-2s or tax returns (typically the last 2 years' worth) and pay check stubs (usually the last 2) to verify the borrowers’ income.
• Bank statements to verify the borrowers’ assets (last 2 months worth)
• Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.
• Fair market value for the property – The lender will order a BPO (Broker's Price Opinion) or sometimes a full appraisal on the property, depending on the lender, to determine their own value.
• Preliminary proceeds sheet from the sale of the property. (Sometimes called a Net sheet, HUD-1 settlement statement or "HUD" for short) This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.
• Listing agreement and purchase agreement when they are available. (a lender will not even talk about a short sale in most cases until an offer is received.)
When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.
When the lender accepts a short sale, the bank will either pursue a deficiency judgment, or write the loss off. If the lender writes the loss off, they will issue a 1099-c statement. There are many situations and ways to avoid any tax on that 1099-c. I will create a separate post to address this issue as it deserves its own post.
A short sale is when a seller facing foreclosure works with the lender and they agree to accept less than the amount owed as payoff on a home as a means of avoiding foreclosure.
Generally, lenders will only accept a short sale when the homeowner is behind on payments, and is facing a financial hardship. There are cases when a lender will entertain a short sale when the homeowner is facing a hardship but are not yet behind. If there is no financial hardship, the homeowner is not behind, and there does not appear to be an imminent hardship, the lender will not accept a short sale. The property simply being upside down in value does not constitute a hardship in the lender's eyes.
How does it work?
The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. That department is called the "loss mitigation" or "workout" department, depending on the lender.
The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:
• Income documentation such as W-2s or tax returns (typically the last 2 years' worth) and pay check stubs (usually the last 2) to verify the borrowers’ income.
• Bank statements to verify the borrowers’ assets (last 2 months worth)
• Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.
• Fair market value for the property – The lender will order a BPO (Broker's Price Opinion) or sometimes a full appraisal on the property, depending on the lender, to determine their own value.
• Preliminary proceeds sheet from the sale of the property. (Sometimes called a Net sheet, HUD-1 settlement statement or "HUD" for short) This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.
• Listing agreement and purchase agreement when they are available. (a lender will not even talk about a short sale in most cases until an offer is received.)
When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.
When the lender accepts a short sale, the bank will either pursue a deficiency judgment, or write the loss off. If the lender writes the loss off, they will issue a 1099-c statement. There are many situations and ways to avoid any tax on that 1099-c. I will create a separate post to address this issue as it deserves its own post.
Tuesday, April 7, 2009
Michigan Short Sales
Are you a real estate agent, trying to work short sales?
Are you tired of waiting on hold for bank endlessly, and sick of them cutting your commissions after all of YOUR hard work??
OUTSOURCE your short sales to us!
Property Solutions of Michigan also known as Michigan Short Sale Solutions has a PROVEN track record, established relationships with major lenders and loss mitigation departments.
What is Property Solutions of Michigan?
We guarantee Realtors FULL commissions! If the bank tries to cut your commissions, WE'LL make up the difference!
So Attention Real Estate Agents!
We guarantee Realtors a full commission for...
...just bringing us short sales...
We do all the negotiating...
...You do what you do best...
Market the property for us...
...FULL Commissions for YOU...
Unlimited funds to buy...
Property Solutions of Michigan
Michigan Short Sale Solutions (under construction)
Are you tired of waiting on hold for bank endlessly, and sick of them cutting your commissions after all of YOUR hard work??
OUTSOURCE your short sales to us!
Property Solutions of Michigan also known as Michigan Short Sale Solutions has a PROVEN track record, established relationships with major lenders and loss mitigation departments.
What is Property Solutions of Michigan?
- A short sale OUTSOURCING, negotiation & consulting service.
- A business that does NOT subscribe to "equity skimming"
- Is here to assist real estate agents with short sales
- Is here to provide solutions and answer questions
- Has over 3 years experience negotiating short sales
- Has over 12 years experience in title insurance
- Has almost 20 years experience in real estate investing!
- Has national partners in 30+ states!
We guarantee Realtors FULL commissions! If the bank tries to cut your commissions, WE'LL make up the difference!
So Attention Real Estate Agents!
We guarantee Realtors a full commission for...
...just bringing us short sales...
We do all the negotiating...
...You do what you do best...
Market the property for us...
...FULL Commissions for YOU...
Unlimited funds to buy...
Property Solutions of Michigan
Michigan Short Sale Solutions (under construction)
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