Benefits and draw backs of a short sale.

Hi and welcome to day two of the free test drive of the Short Sale Your Home and Get Paid to do it home study course. Hi I’m Andy Morris and today I want to go over the question: Is a short sale right for you? Today will be a little shorter than yesterday, and I’m not going over so many options. I’m just going to cover pluses and minuses of doing a short sale.

The benefits of a short sale are the following:

• Short sale benefit #1- Credit good faith- You show good faith when you apply for credit in the future. When a potential creditor looks back and sees that that you did a short sale they can see that you took proactive action to get out of a common situation. Although the FICO score is proprietary, evidence shows that in general a short sale will be similar to a 90 day late as to the affect it has on your your credit immediately. It will typically lower your score by 150 points and it will dip down and slowly dissipate in the following months as opposed to say 250 points that would be the typical credit score drop down if your home is actually repossessed. If your home is reposessed not only will your score typically drop more but that notation will typically effect your score negatively for a longer period of time.
• Short sale benefit #2- Future mortgages- Underwriter rules are changing to overwhelmingly favor the person who does a short sale as a opposed to have their house foreclose. When you go to apply for a loan in the future, for instance, Fannie Mae has now made a rule that an otherwise qualified borrower can not get a mortgage with them if he or she has lost his or her home to foreclosure in the last 5 years. However if if a prospective borrower did a short sale he or she will only have to wait 2 years. Fannie Mae is probably the biggest lender in the country, or the biggest mortgage holder in the country.
• Short sale benefit #3- Avoid a defficiency judgement- Also as far as a short sale goes, you have the opportunity to negotiate and avoid a deficiency collection. This gives you the opportunity when you do a short sale to be able to talk with the lender about the outcome of that deficiency judgment that could come against you. Typically you can get that forgiven and move on free of mortgage debt. However if you let it go to foreclosure you don’t have that same negotiation opportunity and why would a lender even want to work with you after you let it go. They may as well come after you for the difference or keep it on your credit.
• Short sale benefit #4- Save your dignity- Doing a short sale is a dignified way to sell your house. It’s much more dignified than just letting it be sold at the auction steps in a public way that is  publicly advertised… so it’s a much better way to go.
• Short sale benefit #5- Benefit financially- If you use my method for short selling your house there is a potential to get paid for your efforts in several different ways and possibly get some of your unsecured debt paid off as well. The drawbacks of a short sale are the following because I don’t want to just tell you a positive of doing a short sale so you buy my course.

The following are potential short sale drawbacks:

• Short sale drawback #1- Hard work and lots of follow up- I want you to understand that there’s a lot of hard work and intense follow up to do a short sale.
• Short sale drawback #2- Your credit may still suck- Just because you do a short sale your credit is not necessarily going to be hunky dory and immediately jump back to that pre-foreclosure, “I can go any amount of money for any thing I want at any time I want” credit score. If you missed payments those missed payments are going to be on your credit report unless you can somehow negotiate that out which you may be able to if you ask for it. My Short Sale Your Home and Get Paid home study course includes a section on this. Typically you’re still going to have a hit on your credit from doing a short sale.
• Short sale drawback #3- May not work in your situation- There will be times when because of your requirements a short sale simply will not work for you. It could be that you don’t have enough time to do a short sale and we’ll talk about time frames in the next two video lessons. It could be that for whatever reason a short sale does not end up working for you.
• Short sale drawback #4- Tax consequences- Also something to consider is that any time that there’s a forgiven debt or written off debt that a bank is required to report that to the IRS just as if you had made that money as income. They would report it in a 1099, and this could happen with a short sale deficiency or even if it ends up being a deficiency after it goes to foreclosure. The tax consequences in a foreclosure situation should always be discussed with a knowledgeable advisor and there are many ways to get around this and so you should discuss it with a knowledgeable tax advisor. Just recently in 2007 congress did pass a law that allows you not to have to claim this as income. This law applies to people who actually lived in their home before it was foreclosed or sold on a short sale. If you are insolvent or filed a chapter 7 bankruptcy typically that would allow you not to have to pay taxes on from the forgiven debt as well. Depending on your tax basis and the actual numbers you may be able to write off the loss from selling your house against the 1099 income from debt forgiveness as well. There are other ways to not have to pay taxes on forgiven debt so I can’t emphasize enough the need to work with a competent accountant.
• Another drawback is that you have to disclose to a buyer that this is a short sale for they make an offer, so you won’t be able to completely hide that this is in foreclosure. You probably have gotten a bunch of letters anyways from people if it’s actually gone to the point of foreclosure. So it won’t be completely private anyways. A short sale is something that you can do in a dignified way to get your home sold have the least negative effects.

A bonus benefit to short sales that I didn’t mention is that you can combine a short sale with a lease option, so you can sell a house to somebody and have them lease option it back to you. Now you want to make sure that your letter of acceptance given to you by your bank to do a short sale doesn’t specifically say that you can’t do a lease option back. FHA loans for example have provision that says you can’t sell your house on a short sale to any friend or family member or person with whom you have an outside arrangement with.

I worked with client who was referred to me by a loan officer. She owed $145,000 on a house, which was probably worth $105,000 at the time. I was able to negotiate the price all the way down to $85,000 and her husband was actually going to purchase it. However, she ended up backing out of the transaction at the last second because the lender offered her a loan modification plan that was more certain to her than her husband’s new FHA loan that he was getting. It’s to bad she didn’t complete the transaction because the household debt would have been lowered by over $60,000. Instead she chose to continue making payments on the $140,000 which is admirable.

Your homework question today is to consider the following: Based on these benefits and drawbacks is a short sale something you should pursue?

Please leave your questions and comments regarding this transcript and or video content below and I will do my best to answer or reply! Thanks:)

Foreclosure options for delaying foreclosure

If you have chosen to move you have plenty of options. You may want to use a delay option along with any of the move options to facilitate a sale and to facilitate your move. A note regarding litigation which I mentioned in two of the previous strategies, if you do any kind of litigation it increases the motivation of the lender to work with you and suddenly you’re a much high priority because costs them money even if they win. Attorney time is very expensive for your lender and it just increases the loses that much more. Litigation is a good thing when you’re looking to do a short sale.

My foreclosure option #12- Sell with short sale- If if based on your current financial situation you really can’t afford the you will obviously be moving. If that is the case the short sale is your only other option than a voluntary or forced reposession. A short sale is a great option because it gives you the oppurtunity to negotiate your debt.

What is a short sale? A short sale is simply where your lender agrees to lower the balance so that your mortgage can be paid off and you can sell your home. This is especially necessary in areas where the market has fallen drastically. As of this writing that happens to be the case for much of the United States right now. When this happens people end up oweing much more than what their house is worth. If he or she has a financial situation then a short sale may be a sellers option.

Nearly every single lender in the U.S. can do a short sale. Most lenders have a department called the loss mitigation department that would handle all short sale requests. Sometimes short sales are handled by the collection department of your lender.

My foreclosure option #13- Sell with full pay off- Since we’re talking about all the options for moving, you could sell your house and maybe pay it off in full. If you don’t require a short sale there’s no need to do one, if the market hasn’t dropped below what you owe then you can afford to sell and pay everything off in full. Like option number one this is the obvious option and you don’t want to over look it.

My foreclosure option #14- Deed in lieu- Other moving options your lender may offer you include deed in lieu of foreclosure, the cash for keys program and/or a negotiated delayed move. A deed in lieu of foreclosure is simply when you sign the deed of your house back to your lender and move out. The main benefit for you is it shows good faith to your lender and you won’t have to be dragged through a long and drawn out foreclosure process. You can hope that your lender is more lenient if there is a deficiency after they sell the house themselves. However a deed in lieu has an identical effect on your credit as a foreclosure and you may end up being on the hook for the loss to the lender. You typically will not qualify for a deed in lieu if there are any othe liens like junior mortgages or judgements attaching to the property. Doing the deed in lieu may make you eligible for the for the cash for keys program or the negotiated delayed move program.

My foreclosure option #15- Cash for keys- Cash for keys is when is you move out and you give the bank the keys to the property and they give you a small amount of cash (500 to 1500). Don’t expect cash if you have allready moved out and given your lender the deed and the keys however if your lender accepts you for that program a little bit of extra cash could come in handy. A cash for keys program may be offered to you in combination with the deed in lieu of foreclosure or you may be offered a cash for keys program as an alternative to the bank having to evict you after having repossessed the house as a way to ensure that you have not damaged it.

My foreclosure option #16- Negotiated delayed move- A possible alternative to a cash for keys program is a negotiatied delayed move. It may be that someone in foreclosure has special circumstances like health issues and they need an extra month to move. Or a 90 year old women needs some time to arrange her stay in a nursing home. In special situations it is not uncommon for a lender to allow a delayed move especially for public relations reasons. This may not be something you are offered but if you think a solution like this could be justified you may want to ask for it.

Foreclosure option #16- Leave, do nothing and let it foreclose- We’ve talked about a lot of options here including a few obvious ones. You can obviously make the choice to leave, do nothing and just let your home foreclose. In fact you may have allready moved out and your home is headed to foreclosure. If this is the case you might as will make the extra effort to sell your house on a short sale. If you are just too busy and overwhelmed you could make this choice and it won’t kill you however you owe it to yourself and your credit to atleast turn it over to a short sale proffessional to let them work a short sale on it if you no longer live in your house.

Foreclosure option #17- Stay, do nothing, let it foreclose and get evicted by the bank- The benefit of this is free living and that is about all you get if you choose to stay in your home, do nothing about it, let it foreclose and then get evicted by the lender. You may want to atleast try and avoid a mess in your future by putting it on the market for a short sale a few months before it is to go to sale. This may even cause you to have some extra time to live in your home if your bank extends the foreclosure sale date so you can sell it. Obviously you will benefit more by doing something proactive. There are plenty of other options right here in this artcile that set you up for more success in life.

There you have it; I’ve talked about as many ways as I can think of to stay in your house, to sell your house and move, and strategies for delaying foreclosure on your house.

I’ve included some homework for you below so you actually get your value for this portion of this course. I want you fill out the hardship worksheet that I’ve included below in a link (note all this information is available to subscribers. Please subscribe to the free foreclosure help video course here). This work sheet is a Fannie Mae standard work sheet. Fannie Mae owns more loans than any entity in the United States so, it’s a standard work sheet, most lenders require something like it or this exact one and it will help you kind of come to a moment of truth. It’ll help you evaluate your own income. Also there’s an equity analysis here to kind of help you understand how much you owe and how much can you conservatively get out of this market. You also need to think about if your hardship long-term or short term hardship. It’s very easy to hope and believe that you can do something, but you don’t want to waste precious time, money and energy on path that is unfeasible. You simply cannot continue robbing from Peter to pay Paul if that is something you are doing.

If you’re completely done with your hardship and you just need a little help to get started making payments, then you want to pursue one of the keep your house options. One of the worst things that you can do is fight to keep a house that even when your hardship is over, there’s no way you can keep it because of the costs.

You need to understand that and just move ahead and make a proper decision based on your knowledge of what reality really is. Some questions for you are: Could you make the payment if your bank lender would just allow you to make payments with out having to catch up the arrearage? With your current income, could you immediately start making the original payment amount on your loan? Do you want to keep your home? Can you afford your home and still afford to eat? How many payments are you behind? Ask yourself these questions and write them out on paper. Do a little journaling to clear your mind so that you can make a good decision regarding all of your options. Follow up your decision with immediate action.

If you have decided a short sale may be a good option for you please consider Short Sale Your Home and Get Paid course. Even if you don’t plan on getting paid this is something that you could use to educate what ever proffessional you work and make sure your short sale is successful.

Please leave your questions and comments regarding this transcript and or video content below.  Thanks!

Strategies for delaying foreclosure

Let’s cover some of the strategies for delaying foreclosure. There are many different ways to delay a foreclosure and I recommend that you combine these strategies along with the strategies for a stay in your house strategy or a move out of your house strategy that I have here. Delaying can be necessary when you are trying to figure out where to go or what to do next. Not to mention the fact that every extra day you can stay in your home it is a good thing. A future one of these free lessons will include over 15 different delay strategies that you can use to assist you in whatever you’re looking to do.

My foreclosure option #9- Delay foreclosure with chapter 7 bankruptcy- Chapter 7 bankruptcy wipes out all your debt and will also delay a foreclosure. It won’t completely stop it but it’ll allow you to stay in your house for the two to four months that it takes for the bankruptcy to be processeed. Because the mortgage attached to your house, and your house is like a person that cosigned on the loan, your lender can still collect against the house by foreclosure whether you file chapter 7 bankruptcy or not.

My foreclosure option #10- Delay foreclosure with a chapter 13 bankruptcy- I just discussed chapter 13 bankruptcy as a way of staying in your home however like I mentioned normally it doesn’t work out anyways. I have been told by a bankruptcy attorney that fewer than 10 percent of chapter 13 bankruptcy plans are ever completed. However chapter 13 bankruptcy can work great as a delay. If payments are not made it will at the minimum delay everything for the date that that you file the bankruptcy to the time it takes to drop back out and be released out of the bankruptcy for foreclosure. Typically this is a minimum of a 60 day delay and can end up being much more of delay depending where the foreclosure was in the local court system. Remember that a bankruptcy of any kind is a federal court process and it trumps any lower court process and will halt it in its tracks immediately as soon as its filed until it can be pulled back out.

My foreclosure option #11- Delay foreclosure by litigation- Also there are delay strategies that involve litigation. You can file an answer pro se. Usually it is in your best interest to file an answer when you are facing judicial foreclosure. You can also file a continuance after you file your answer which simply means you would file a paper saying “I can’t meet at this hearing could you reschedule for further on” and that type of thinking will give you extra time in a judicial foreclosure. I spend a whole lesson on tips for filing an answer and continuance as well as offering a sample answer and continuance in pdf format in a future lesson. You can sign up for that by taking a test drive of my free stop foreclosure videos.

Also there are other options for litigation where if you get an attorney where you definately need an atorney and I always recommend you get an attorney when you are in foreclosure. A good attorney who’s experienced can find places where the foreclosure attorney maybe didn’t file his or her paperwork properly or good attorney can defend you based based on the compliance of the lender in the way they wrote the loan and serviced it and attempted to collect the debt. In so challenging the case your case can be delayed or it could easily get thrown out of court. A good attorney can probably delay a foreclosure case indefinitely through counter suits that focus on a variety of different levels. So I always recommend an attorney if you’re trying to delay or move or whatever you do. Make sure sure the attorney you hire has experience doing what you’re looking to have them do.

Stay tuned to these video lessons. I will be focusing on 15 separate strategies for delaying foreclosure.

Please leave your questions and comments below… thanks!

Your options for avoiding foreclosure and staying in your home

My foreclosure option #1- Catch everything current- Let’s start with your options for staying. Some of these options are obvious like you can cure the default and catch everything current. That’s an option if you have money. Obviously I’m assuming that you wouldn’t have gotten in the situation if you had money to pay your loan current.

My foreclosure option #2- Litigation to erase your loan balance- Another option that you may have is litigation. Although we live in a litigious society for most of us or atleast for my self I know that I don’t enjoy going to court and it’s never fun. However, there are attorneys that have made their business to challenge lenders on predatory lending practices. Even if there was no predatory lending often times banks will violate any one of the many sections of the volumes of banking code. Some attorneys have been known to find violations of these banking codes and actually bring those to light in the court room and try to erase your loan. If you’re lucky you’ll stay in your house forever for free. At the very least it can become a delay tactic to give you more time to live in your house. (note- I am currently looking for attorneys that have experience actually erasing mortgage debt. If you know of a good one or you are one please contact me by filling out the feedback form on my FORECLOSURE PREVENTION ATTORNEYS page.

My foreclosure option #3- File Chapter 13 Bankruptcy- Another option if you want to stay in your house indefinitely to be able to do that is to file a chapter 13 bankruptcy. If you want to stay in your house chapter 13 bankruptcy is an option for some people. For most people it doesn’t work and it ends up simply being a delay tactic which is might not be a bad thing. Chapter 13 bankruptcy is a federal court action that trumps all other lower court actions, foreclosure actions and a trustee appointed by the federal court will actually require force all your creditors accept payment arrangements.

Chapter 13 rarely works because because usually the payment plan created is extremely aggressive. I’ve been told the trustees in charge managing these bankruptcy’s have a financial incentive to create very aggressive payment plans that can make nearly impossible to succeed in completing them.. If you make your agreed payments on time every single time according to the plan you lender has to accept those payments. However if you’re a day late even once any lender can pop out of the chapter 13 and pursue you, say for foreclosure or judgment or something like that. You have to be aware of that and be able to possibly increase your income, increase your likely hood of being successful in a chapter 13 plan.

My foreclosure option #4- FHA partial claim- Another option you may have is something called partial claim. Partial claims are available for people who have FHA loans. A lender may be able to help you get out of foreclosure by actually making a claim on the FHA insurance. HUD insures or backs the loan and so that claim ends up being extra money that you owe on top of the mortgage. It will bring you current and then that amount of money that you borrow basically ends up being put on the back of the loan when it gets paid off. This is one of the added benefits you recieve if you happen to have an FHA loan.

My foreclosure option #5- Loan modification- Another option is a loan modification program. A loan modification is basically a complete change in the terms of your loan. Your lender actually remakes the loan. The lender has a lot of leeway to modify a loan. When they choose to allow you to modify a loan, they can do things like: extend the terms, lower the payment and lower interest rates. Or they may increase rate but reamortize the loan and to make the payments more affordable. They have a lot of different ways you can modify a loan. Generally a lender is going to try and not do a loan modification if possible and possibly do a forbearance plan instead, which requires you to put more money up front. We’ll talk about the forbearance plan, however loan modification is one of the most beneficial things you can do if you can get a lender to do it. More and more lenders in their desperate state are going straight to loan modifications. They are not playing the games they use to several years back where they try to force you into a much more difficult plan that just sends you further into foreclosure. In fact lenders are now so desparate that I even saw a first mortgage lender offer to pay off a second mortgage and on top of that reduce the balance by 10 percent just to avoid taking their borrower to court.

My foreclosure option #6- Forebearance plan- The forbearance plan is a sibling of the loan modification plan. A lot of people don’t know the difference however it is very significant. If you are already in foreclosure and you do a forebearance plan your lender will typically just pause the foreclosure. This means the foreclosure is not canceled. They don’t redo the loan at all they simply ask you to start making payments plus a little bit or a lot of bits extra to repay the back payments. Typically they ask you to put pretty large deposit up front to help with the attorneys legal fees and other bull shit fees. Normally for the average person who’s having a hard time handling a loan anyways and they got behind, a forbearance plan simply is not a realistic option unless the lender is very generous in the terms they offer.

My foreclosure option #7- Foreclosure Bail Out Refinance- In addition to the other methods for staying in your home that I have already talked about there’s something called the foreclosure bail out refinance. Federal law has created a lot of opportunities with the crises in mortgage and loans they’ve increased incentives for banks to work with you. One of the things they’ve done is if you were in a subprime loan that adjusted up and you went behind after that adjustment up you may qualify, even though your credit is totally shot and your score is zero. Your income still has to be qualify but not your credit. And you can get a FHA loan at a good rate that’s fixed for 30 years. If your property appraises for what your new loan amount is going to be when you refinance that’s something that very well could be an option for you and you should look into.

For most people refinancing is not an option for foreclosure if you’ve got 90 days late your credit is so shot that no lender will touch your except if you owe very small percentage of what your house is worth or if you fit into this foreclosure bailout refinance plan.

My foreclosure option #7- Foreclosure Mediation- Another potential option for you works along side some of the other options is something called court mediation. This is a relatively new phenomenon. It didn’t use to happen very often but with all the things that are happening the courts are stepping up to try to do their part so that they don’t have to be the condiute for so many people losing their homes to foreclosure. For instance, Ohio created a plan which is being adopted by most of the judicial foreclosure states. The county courts are encouraged to offer mediation to all foreclosure cases. If the defendant (you) accepts the offer from the mediation the court can actually force a lender plaintiff to fly a representative from across the nation, to come meet with you face-to-face. In mediation no party is required to actually do anything other than meet however anything agreed upon in mediation is legally binding and everything is recorded by the proffessional court ordered mediator. If a lender has to spend the money to send someone to meet you face to face they suddenly become much more motivated to make that money count and to make something happen. This could be an oppurtinity work with a person from that actually lives in our country and speaks english to create a loan modification or forebearance plan that actually can work for you.

Mediation can also be worked into some of the other strategies other than staying in the house. You can get a lot of different results from mediation that are beneficial to both you and the bank. It is one of the most effective ways to work with your lender on a level playing field if you have the oppurtunity.

My foreclosure option #8- Lease back- Another way you could possibly stay in your house is called a lease back. Lease backs aren’t always legal so you want to check with an attorney that understands your local and state law as well as the federal regulations.. If you’re doing a short sale and you combine that with the lease back then you’re going to want to make sure that the details of the lender acceptance letter for the short sale doesn’t specifically say that you can’t do a lease back or that you can’t sell it to an purchaser that you’ve made extra arrangements with.

A lease back is where you would actually short sale or just sell it like normal to say a friend or “friendly person” or investor. That person would then lease it back to you, usually with a purchase price agreed to at a certain point in the future. This gives you time to repair your credit and purchase your home back. I have to warn you credit repair doesn’t always work. However if you sell the house and pay off the loan and avoid actuall foreclosure, you should be able to purchase a house within two years. I’ll talk more about lease backs in the future but all the strategies in the full “Short Sale of Your Hme and Get Paid” course will work even if you’re selling it to a friend on a a lease back.

I invite your comments and questions regarding this transcript or the video below. If I don’t answer you directly on the comments section I am going to attempt to answer your questions by video on this blog. Thank you!