The role of the mortgage company/loan servicer in a ‘short’ sale
In the first article of this series, discussion centered around who the players are in a short sale transaction. If all other options have been exhausted and the only reasonable solution is a short sale, the lender/loan servicer should be contacted as quickly as possible. If payments have not been made on the mortgage for a lengthy period of time and/or there has already been a Notice of Trustee Sale recorded, completion of a successful short sale becomes more difficult. Homeowners should consult with a real estate attorney and a qualified tax advisor to understand their individual situation and options, and should seek the help of a qualified and experienced real estate agent. To find an agent, visit www.longrealty.com/shortsales.
Before calling the mortgage company, there are several items a homeowner should have readily available. First, be prepared to provide the lender an explanation of the financial situation and to demonstrate the inability to make mortgage payments. Typical acceptable hardship situations include life events such as catastrophic medical illness, job loss, job relocation, divorce or curtailment of income. The lender will require income verification or evidence of unemployment, bank statements and a financial analysis outlining monthly expenses. Homeowners cannot simply stop making mortgage payments because the mortgage is “underwater.” Homeowners who are able to make monthly mortgage payments may not be approved for a short sale. Most mortgage company websites are now providing comprehensive information for homeowners in distress outlining the steps and documentation that will be required by that lender.
There are multiple short sale programs available for borrowers in distress. If a homeowner has an FHA loan, FHA may approve a pre-foreclosure sale through the FHA Pre-Foreclosure Sale Program. The financial hardship is documented and the lender/loan servicer submits a request for a pre-foreclosure sale to the Department of Housing and Urban Development also known as HUD. If approved, HUD provides the homeowner and the listing agent a timeline for marketing, typically 120 days, a pre-approved list price and the minimum proceeds requirement. HUD may also provide up to $1,000 financial incentive to assist in the homeowner with relocation expenses. For more information on this program, visit www.hud.gov.
Under the Making Home Affordable Program introduced by the Obama administration, homeowners may also qualify for Home Affordable Foreclosure Alternatives or HAFA. The US Treasury first introduced this program effective April 30, 2010 to assist homeowners who did not qualify for a modification under the Making Home Affordable Program and therefore, needed to short sale a property. Fannie Mae and Freddie Mac have now issued very similar versions of HAFA. Under these programs, primary and junior lien holders must agree to release the debt completely with no deficiency balance judgments permitted in the future. Homeowners may also receive up to a $3,000 financial incentive to assist in relocation expenses. The lender/servicer will require your home to be listed with a professional REALTOR. These programs can be complex and are administered slightly differently with each lender/servicer. However, the guidelines and forms used have been streamlined. Hiring the right professional who has experience and training in navigating these programs is imperative. For more information on how these programs work visit www.makinghomeaffordable.gov, www.fanniemae.com or www.freddiemac.com or see a list of qualified and experienced real estate agents at www.longrealty.com/shortsales.
In the next article: further discussion regarding the potential impact of a short sale; credit, tax and deficiency implications.