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Michael Ceparano's Blog

By Michael Ceparano | Broker in 33647

Short Sales. The Good, The Bad, and The Ugly


    Let me first apologize, as this is my first time writing a real blog, and I am quite sure it will show. I am not a lawyer, nor a CPA and recommend you speak with both if you are considering any and all options that I am about to outline. I am a Realtor and consider myself a Short Sale Expert and they seem to have taken over my life, as there is probably not a hour that goes by that I am not talking, typing or working something Short Sale. There is so much bad information out there, I have decided that instead of shaking my head or arguing with others, I would write this and hopefully give some good, sound advice to use. Yes I consider myself an expert, but do I know everything, NO. What I do know I will tell you here with the best of my ability and if you don't agree, that is fine, as I know I will continue to help my clients and strive for 100% successful short sales, while the national average is 10%. The good is in the fact that a Short Sale becomes a Win-Win-Win situation. The Seller gets out from under a home they can no longer keep or afford. The Buyer can usually get a great deal on a home, that only a couple of years ago they maybe couldn't afford. Lastly the Lenders get some of their investment back now, rather then later, where they would probably get less money with a foreclosure, and are able to use that capital to offer new loans and such to other customers and start to earn interest on their money once again.
    Simply put, a short sale is a real estate transaction where the homeowner owes their lender more than what their property is worth and they need to sell. In a short sale, the lender must approve and accept less than what they are owed as full payoff. If they don't accept, the next step is foreclosure. It is happening all over the country and if you are in this position, you are not alone. There is also a term called 'deed in lieu' or D-I-L, which means you fill out paperwork and give the keys back to the bank, but guess what? It's still foreclosure, whether you want to call it deed in lieu or foreclosure, the credit agencies and the banks still see it one way, foreclosure. I like to think of a D-I-L as the 4 leaf clover, while there are some, they are rarely seen. Banks don't want the keys to home, same as they don't want the keys to your car. Try giving your car keys back and see what comes up on your credit report, Repossession. The other issue with D-I-L is that it is impossible for anybody who has more then one lender or mortgage, because the second, or junior lender, in this case won't just agree to take a complete loss just because you decided to stop paying. If the second is going to wiped in a foreclosure sale, meaning they will get nothing from the proceeds because the first, or senior lender is already taking a loss and has senior position, they will get all proceeds up to what is owed to them, the second would rather approve a short sale where they get something now, usually $1k-$5k, rather then get nothing later.
    Now for some of the Bad and the Ugly. Some common misconceptions, some of which I used to believe are...  
    You must be behind at least two payments in order to qualify. This is probably the most inaccurate one of them all, you need only prove a hardship to qualify for a short sale, maybe a job transfer, military move, or loss of job, etc. Many of the people you deal with at the lender don't even know how late you are, or if you are at all.
    Short sale is just as bad for your credit as a foreclosure or D-I-L. Wrong, if you are not behind on payments and your agent negotiates with the bank to show the mortgage as paid in full, and it is stated that way on the Approval Letter, you may still have decent credit. Where as with your first 30 day late, it is estimated that your credit will take an 80 point hit and another 40 for your second or 60 day late. 
    The bank reviews and excepts the best offer. NO, that's the agents job to get the best offer for his seller, not the bank. The bank has a bottom number, called the net, which is the lowest they will accept, there isn't a magic percentage or dollar amount that you can use to figure it out. The bank simply gets notice from the borrower that a short sale is requested, so they send out someone for what is called a Broker Price Opinion, or BPO, which is similar to an appraisal, although it isn't certified or as expensive. The BPO is usually done by Realtors at a very cheap cost, compared to a true appraisal. The BPO lets the bank know what the Fair Market Value, or FMV is and uses that number to help them figure their net. The net is derived from calculating every dollar needed to sell the home now, including but not limited to, owed taxes, other mortgages and liens, commissions, title work, etc, with a short sale and then is compared to every dollar needed to sell the home later, after foreclosure, taking in to account the same expenses, plus they must figure in decreasing market values and holding costs (maintenance, property taxes, liability, etc). The bank simply compares these numbers and decides whether it is fiscally better to sell now with the offer presented or wait to sell after foreclosure. Will they try to get more now, of course they will.
    The IRS will send you a 1099. NO, the lender issues a 1099 and reports it to the IRS. A 1099 is like a W-2 that most people get from their employer, and it basically states how much money you made. You might be asking what I mean by made? If you owed $300k on your home and you Short Sell it and the lenders/bank net is $200k, then they just technically gave you $100k in income. Did you see and touch this money, I think so, every time you walked in the front door to your home, but now you lost it. There are ways to help with this issue and are outlined in the Mortgage Debt Relief of 2007, as well as some other "programs" but only a qualified financial advisor or CPA can give you the ins and outs of this. The 1099 can be "negated" (probably not the best word to describe) if the short sale was on the sellers primary home and the lender(s) being shorted was from the money used for the purchase of the home, again...call a CPA.
    The seller will get a 1099 and a deficiency judgment after the sale. NO, you will get one or the other, you can't get both, by law.     
    You won't get a 1099 with a foreclosure but you will with a short sale. WRONG, you will get one with both, although they will be a little different, one will be a 1099A and the other will be a 1099C and depending on what your CPA says, may not effect you. The other difference will be that the amount of taxable income on them will usually be much higher with the foreclosure, as they usually sell for much less then with short sale. 
    The lenders will ask you to accept a unsecured note, to be paid back over a certain amount of time after the sale of the home. YES and NO. Reason being the lender always wants more, so yes they may ask, but it is the job of the Realtor or Negotiator to know whether this is a true request or simply just an attempt to get some more money. In a typical Short Sale, the first will not request anything additional and once they have approved it they will send out an approval Letter, which will give the terms of the deal. Hopefully, whoever negotiated the deal took the time to try and have the lender put in writing that the loan will be noted on the credit reports as "Paid in Full" the bank may or may not agree, but remember, this is all a negotiation. The unsecured note that many speak of, usually comes from the second or junior lien holder, and is typically when that second isn't truly a real second, but is a Home Equity Line Of Credit, or HELOC. As I noted in the end of my second paragraph, if the second knows that they will be wiped in a foreclosure sale, they will take a little now, rather then nothing later. The trick with the HELOC is this, it is really a revolving credit line, same as with a credit card. The lender in reality, gave you ( your name and credit worthiness) the line of credit, and only used the home as collateral, but just because the collateral, or the actual equity is gone, this doesn't mean that the responsibility to the credit line is gone. You can lose the house by short sale, D-I-L, or foreclosure but you will still owe the HELOC, all of it. The lenders know this and they also realize that they can keep coming after you for it for years, in order to collect, so they use this as a bargaining chip. The first lender must approve how much the second lender will get in the short sale and only then can you really negotiate with the second. Now lets say the first only approves $5k to be given to the second, if this is a true second and they will wiped in foreclosure, they will usually except, as they know they will get nothing. Will they say they want more or that they want an unsecured note, of course they will  as it is there job to recover as much as they can from the borrower, all the way to the last minute if they choose. If this second is really a HELOC, that is when the lender has more play and can require and almost always get the unsecured note. First thing they will ask for is the total note to be repaid, remember this is a negotiation, then you must work it down as low as you can and on the best terms, hopefully interest free. All the while in these negotiations, trying to get the lender to note the account, Paid In Full. 
    This is probably more like a book then a blog, so I will end it here and save some more for another time. One more very important item, if you are successful in coming to terms on a short sale with the lender, READ the Approval Letter and be sure it is what you agreed to, don't just take the lenders word that it is what all parties verbally agreed to. Again, please except my apologies, as I said this is my first time and it will show. Good Luck.
Michael Ceparano, 813-417-6698

www.BuyAndSellTampa.com

Copyright © 2008 By Michael Ceparano, All Rights Reserved.. *Copyrights- Short Sales. The Good, The Bad, and The Ugly*

Comments

By Alma Rose Kee, P.A.,  Wed Aug 27 2008, 06:13
Thanks for taking the time to share your short sale experience.

I saw one realtor make a comment that the Private Mortgage Insurance company required a short seller to sign a promissory note.
By Michael Ceparano,  Wed Aug 27 2008, 06:36
That is usually not the case, as the PMI company doesn't usually get involved. Is it possible, sure, but not typical and is usually a way to "bluff" the client in to giving additional funds, like I said, it is the banks job to recover as much as possible. (To update this, PMI has definitely gotten more involved in each file through 2009 and have asked for more notes, but remember, the notes are based on what the seller has stated in their financials and what they will have as disposable income after the sale of the home. This doesn't mean that the Lender still doesn't use it to bluff)The other BIG bluff, I believe, is when the bank tells you they have to call the "investor," do you really think that the investors are all sitting by the phone, just to review billions of dollars worth of mortgage notes, and answering the call from your negotiator, NOT. Do they have some guidelines, sure. Many of these investors probably aren't even in the country. If you ask me, this is just another bluff to see how much more they can recover and they will use them nearly every time, I actually had one where the offer was more then their BPO and they tried it, sometimes they make no sense, needless to say, it didn't work. I will say this, just as in poker, you better know for your clients sake, whether it is a bluff or if it is real, so unless you know and believe the "numbers" you better tread lightly.
By Michael Ceparano,  Sat Aug 30 2008, 04:55
As far as the lawyer, I should have added the number to the Florida Bar, who are offering FREE legal advice, the number is 866-607-2187
By Michael Ceparano,  Wed Sep 3 2008, 06:53
Note to my last paragraph of my blog. I just received an Approval Letter, via email, that stated my client would be responsible for the whole balance that was shorted, even after I had negotiated it down to nothing. So remember, READ the Approval before having it signed by your seller or submitted to title and make sure the bank doesn't try and sneak one by you. Good Luck
By Mike Kim,  Wed Sep 3 2008, 08:12
Michael,

How do you find distresssed homeowners who would benefit from a short sale?
By Michael Ceparano,  Wed Sep 3 2008, 09:03
Marketing at first, but once you help a couple people, word seems to spread, especially if you helped the owners stay, instead of sell. Not to say I still don't utilize marketing.
By Michael Ceparano,  Fri Oct 24 2008, 12:55
By the looks of some other posts, I wanted to get this back up. I will try and write the next part this weekend.
By Lellean,  Mon Oct 27 2008, 18:49
does anyone know what happens if a bank accepts a counter offer in a short sale then decides to sell the offer to another bank? I have been told the new bank has to honor the original counter offer but others (the new back) say otherwise
By Michael Ceparano,  Wed Oct 29 2008, 08:28
They would only have to honor it if the approval is in writing, and still they could probably find a way out if they wanted.
By Yee,  Wed Oct 29 2008, 17:09
Hi Michael,
The article is very informative. Thanks for posting this up.
I have a question: If the property has three people (husband and wife and their daughter) on title, but only the husband and wife are on the loan. They want to request a short sale. Eventually, both the husband and wife will get their credit damaged, but will this affect to the daughter's credit?
By Mott Kornicki,  Fri Oct 31 2008, 11:36
There are many stones yet to be unturned in the short sale process. It seems like everybody wants out of their current mortgage and selling short is the best option. Time will tell as the sage unfolds.

Nice blog !
By Michael Ceparano,  Fri Oct 31 2008, 11:53
Yee, if you continue to pay the mortgage, nobodys credit should get damaged severely, depending on how the negotiations go and final approval letter is written. Even if you stop paying, which you don't have to do to complete a short sale, the daughters credit will not be effected in either case, as she is not responsible for the mortgage and is not obligated to it.
By Michael Ceparano,  Fri Oct 31 2008, 12:03
Thanks Mott
By Michael Ceparano,  Fri Nov 7 2008, 11:23
On top of the M.D.R.A of 2007, even for non primary homeowners, you may also be able to file a Form 982 with the IRS, if you are truly insolvent ,and "negate" the 1099 this way as well. Again, speak with a CPA or someone e;se who is knowledgeable with taxing issues. Good Luck
By Jim,  Fri Nov 7 2008, 21:24
Any experience with a Nat City heloc 2nd mtg. The said they want $6,000 from the $60,000 I owe them and still want a unsecured note. Typically what are the rate and term of these
By Michael Ceparano,  Fri Nov 21 2008, 19:51
Sorry Jim, didn't see yourquestion. The HELOC is much harder to work because it is a revolving line of credit, much like a credit card. The $6k is the typical 10% the want at closing, not to say it is always 10%. Each note is different, many times it can be a no interest, but it will depend on how much they are looking for in the note. Is it another 10% or are they pushing for 40% more? Let me know some more details if I'm not to late. You can also just email me if you choose.
By Michael Ceparano,  Fri Nov 21 2008, 20:02
All, after reading some Blog post and answers, I wanted to point out a couple more misconceptions.

1. You CAN get closing costs included in almost any Short Sale. If you never got them, you either never asked for them OR you never presented it correctly. The numbers are the numbers.

2. You CAN get repairs done, this is a little tricky, but it can be done.

3. You don't always ruin your credit with a short sale. It all depends on how it is negotiated. It IS possible to get it reported as PAID IN FULL, very difficult, but possible.

4. I think I need to write the second part of Short Sales, The Good, The Bad, and The Ugly soon.
By Michael Ceparano,  Fri Jan 9 2009, 19:47
YOU DO NOT HAVE TO BE LATE ON YOUR MORTGAGE PAYMENTS IN ORDER TO QUALIFY FOR A SHORT SALE OR A LOAN MODIFICATION.
By Jermaine,  Sun Jan 25 2009, 21:54
Thanks for writing that article Michael very informative! I was wondering i recently was told by the pmi company in my short sale that the seller needs to sign a promissory note for 25,000 dollars is this a bluff or real have not even dealt with the lender yet?
By Sean,  Mon Mar 16 2009, 11:21
I AM COMPLETLY UPSIDEDOWN IN MY HOUSE I PAID 408000.00 ITS WORTH ABOUT 199000.00. I WAS CUT 20 HRS A WEEK FROM JOB. I AM NOW LOOKING FOR WORK. I HAVE NOT BEEN LATE ON ANY PAYMENTS. SHOULD I SHORTSALE OR SHOULD I TRY ANYWAY POSSIBLE TO STAY IN THE HOUSE. IT SEEMS USLESS TO ME IM SO FAR UNDER. IS IT WORTH THE EFFORT TO STAY.
By Michael Ceparano,  Tue May 12 2009, 19:41
Wow, guess its been a while since checking this blog. Jermaine and Sean, please forgive me, as I did not see these till just now. To be honest, I have been so busy with closing short sales, I haven't had time to talk about them.

If you ever have a question, click on the contact me link, this way I am sure to get it.

Jermaine, there is so many variables, I would have needed to speak with you to try and determine if it was a bluff.

Sean, same thing, but I would have definitely recommended you to speak with an QUALIFIED Accountant and/or attorney, to discuss much of what we would have discussed on the phone.
By Michael Ceparano,  Tue May 12 2009, 19:51
FYI, closed 3 short sales this past week and 2 of them were current on their mortgage and both had a PMI company. DON'T believe them when they tell you that you must be late. LIES!

All 3 were my listings, but I have been negotiating for other Realtors, from all over, and continuing to close them all. The best part......FOR FREE in most cases and the Realtors walk with full commisions.
By Mommy0917,  Fri May 22 2009, 08:19
Would information be in the approval letter regarding the PMI company agreeing to the short sale and releasing me from any deficiency or do you usually have a separate approval letter from the PMI company? Also I have been reading many of your question/answer sessions and read some about how Fannie Mae reports a short sale (no late payments ever), do you have any information or experience working with Freddie Mac and how they would report a short sale when the seller has never been late on a payment? Thank you, Andy
By Michael Ceparano,  Fri May 22 2009, 15:53
It depends on the lender, on the verbiage that will be in the approval. Most lenders leave the door open if they can. It will also depend on whether you live in Recourse(Florida) or Non Recourse State(California), as to what the letter will read. Typically, you will not see the MI approval letter, only the lenders, but if you get Written Approval from the lender, then you have already received approval from MI. Freddie and Fannie will both report it very similarly.
By Dwayne Murtaw,  Tue Jun 9 2009, 17:40
Unfortunately, I bought at the height of the boom in Dec 05. At the time, a buddy and I got into an interest only loan with LPMI Lender Provided Mortgage insurance my interest rate is for 7%. My buddy and I were co-borrowers. Since then, my buddy lost his job, moved out, got married and left me with this loan. At the same time the construction company I own has hit the skids and my income has dropped more than half. However, there is still some equity in my business. I receiived a loan modification which has helpted, however My loan mod will adjust back to original loan in less than 4 years and if my income doesn't change, there is no way I can qualify to refinance a 500,000+ loan. Short sales in neighborhood for same house are going for 200,000 less than the 500,000+ I paid.

Because of my current financial hardship, it makes sense for me to try to short sale now, because in 4 years I could be in worse shape. I would rather start rebuilding my credit now.

My question is, will the lender take into account that a co-borrower left me high and dry, and is not making any payments, and resides in an apartment with his new wife. Will the lender look at my business as an asset even though there is equity but diminishing. Have you seen lenders write off over 200,000, I've got a bad loan and a huge mortgage and I need help.
By Michael Ceparano,  Tue Jun 9 2009, 20:51
The lender will take in to account whatever hardship you provide them, as long as its valid. So yes, they would take that hardship. Your major issue will be that the lender will require you and the co borrower to prove a hardship. Meaning you will both need to write the letter, they will need the last 2 bank statements, tax returns and pay stubs for both of you, as well as the current financial report for each of you. The difficulty may be getting your co borrower to agree to do the sale and provide his info. Your last question, is the easy part, be it $10.00 or $10,000,000.00, the lender will write it off, if that is what the value currently is.
By Dwayne Murtaw,  Wed Jun 10 2009, 15:32
Michael, thank you for the reply. Do you know how in depth the lender will get with trying to value the business I own. Will they need tax returns and financial statements on my business as well ? My Company is a C Corp that pays me a salary.
By Michael Ceparano,  Wed Jun 10 2009, 16:31
Give me a call, 813-417-6698, and we can discuss it in more detail
By Mommy0917,  Fri Jun 12 2009, 12:20
If I sign a promissory note for the PMI company in a short sale and the lender/servicer agrees to report the short sale of my home as paid in full to the credit bureaus would I be able to purchase another home/get another mortgage immediately while still carrying the promissory note mentioned above?
By Michael Ceparano,  Sat Jun 13 2009, 09:09
Technically yes. In most cases, the notes are not reported to any credit agencies, at least that I know of.
By Michael Ceparano,  Wed Jul 29 2009, 11:03
FYI, if your working a short sale or you as a homeowner are trying to get one approved, then DO NOT try to do a Loan Mod, unless you are willing to start the whole short sale process over in most cases.
By Michael Ceparano,  Thu Aug 27 2009, 10:59
Mommy0917, I checked with a couple people that took notes over 8+ months ago. The note has not been placed on either of their reports
By Linda S. Cefalu,  Fri Sep 25 2009, 13:52
Excellent Blog!!!!!

Linda
By Michael Ceparano,  Thu Oct 8 2009, 08:47
Thanks Linda, I appreciate it.

Today was a good day, as I got 4 more approvals.
By Shortsalehelp,  Sun Jan 17 2010, 19:03
Hi,
I am being told to stop making my mortgage payments as that will give the bank more reason to approve the short sale.
i dont like not paying though...
any advice?
By Michael Ceparano,  Sun Jan 17 2010, 19:23
KEEP PAYING! Sure it makes it easier for whomever is handling the negotiations with your lender, but why ruin your credit for the next 5+ years just to make someone elses job easier. They will approve your short sale when your current, as long as you have a hardship. I have closed more short sales when they are current, then many agents have closed short sales.

Being required to be late is definitely the biggest misconception with short sales, sadly people continue to believe it.
By Deezo,  Thu Mar 4 2010, 18:57
Hey Michael,

I am a buyer and I have just came into an inheritance, so I don't need to get approved for a loan. My Realtor has been telling me that Shortsales are a bad decision and refuses to help me find them. She keeps saying that the banks will ignore my bid for months on end. I was just wondering what is your take on a short sale from the buyers POV. Is it a good idea because the assessed value is so much higher than the house is going for? I also have a time scale of around three months, would this be a negative for a short sale? Also as a buyer am I able to put bids on multiple short sales or am I stuck with the one I chose first?

thanks
By Michael Ceparano,  Mon Mar 8 2010, 12:58
Feel free to call or contact me direct, as every short sale is different.

As for the assessed value, I wouldn't use that to determine value, at least not in FL. Assessed value doesn't have anything to do with FMV (Fair Market Value), which is what you'd most likely pay when buying a home, assuming of course that when you say assessed, you mean the value that the County is placing on it for property tax determination. Reason being, the assessed values are really based on sales from 2 years ago. For example, your 2009 property taxes are due no later the April , 2010. The proposed bill was sent to all homeowners in I believe Aug 2009, in the form of whats called a "Trim Notice" The trim notice uses comparable sold properties that sold from Jan, 2008 - Dec 2008. After compiling all those sold comps during the first and second Quarters of 2009, they send the TRIM Notice. If you don't dispute it within the time allowed, that typically becomes your new tax bill, as long as the county approves. There is a little more to it, but that's the jist of it.
By Sabrina,  Thu Apr 1 2010, 07:21
We were involved in a short sale which closed in November 2009. The bank sent a letter of approval and we signed an unsecured note for repayment of 2/3's of the amount due at 5% over 20 years. In January I found out that the bank had put the full amount owed as a "charge off" on my credit report. Upon research I found the bank had violated the Fair and Accurate Credit Act #1681 and after two months the bank updated the account to say "collections" settled for less than owed. I asked them why they are not putting my unsecured promissory note on the CRA's and they stated that they did not have to put that note there. UPON further research I found that "collections" did not have to report to the CRA's. When we signed the promissory note, there was nothing on the note to indicate "collections". There was also no indication from the bank that they would not be disclosing what we are paying them back. The amount remaining is only $13,000. ( honestly, that is small compared to some!) It was my understanding that when you received a letter of approval from the bank and signed a promissory note with INTEREST, then the bank was in agreement with the short sale and would give you credit for doing the right thing and paying them back. Ironically, the bank asked for the full amount up front and if we were paying them in full with interest, they would still not be giving us credit for it! Please have your short sale personnal know how deceitful the banks are being with this "negotion" process. Please let me know of any web sites or information that could help us in this situation. Please let me know how others are doing who have signed promissory notes to pay back the lenders in short sale situations. Thank you!
By Help!,  Tue Apr 6 2010, 14:34
Michael, thank you for your blog. It's great and very informative for those of us having to deal with this mortgage crisis. I own a home that has been on the market for 6 months. I just remarried and my husband and I bought a new house. Our issue is that the house I used to live in will not sell. We've just been told by our realtor to drop the price for about the 7th time and this time we are in negative equity by about 16k. I just called my bank - I have a first and second with them - to ask for their help as I do not want to foreclose and/or damage my credit, and they have given me the option of DIL or short sale.

A short sale requires a great deal of paperwork and the bank still has to approve the deal. They are also asking for an unsecured note for entire mortgage to not add this transaction to my credit (something my realtor said she'd negotiate), but i'm leary of whether or not this can happen or if this makes a short sale my better option.

I'd like to consider a DIL because it seems that no matter what, i'm left owing something and my bank will still ding my credit even as I try to work with them on the best possible solution for all.

My question is then... is a DIL a better option in my case?

Thanks so much for your help!
By Michael Ceparano,  Tue Apr 6 2010, 16:59
Sabrina, I would agree, you must definitely read the note and approval before signing, as it will typically tell you exactly what will take place after the closing and how they will report to the Credit Bureau.

I would recommend you go to, http://www.DeletedForeclosure.com as I know Sean has helped several clients.
By Michael Ceparano,  Tue Apr 6 2010, 17:37
Help!, I don't think that I've ever recommended a D-I-L, especially if you want to try and preserve your credit, as it will be reported on your credit as a "Foreclosure"

Also, remember that a D-I-L is impossible when you have 2 mortgages, as the 2nd mortgage holder won't just walk away with nothing. This can even be true when you have 2 mortgages with the same lender, as many times they are just the servicer and not the actual investor on one or both of the mortgages.

For example, you could have a 1st and a 2nd mortgage both with BofA, except the investor on you first mortgage is Fannie Mae, as they only purchase 1st mortgages and the 2nd mortgage could have sold to (Trust/Hedge Fund or another Lender), let's say Chase. Now BofA services both but you would have no idea about who actually "owns" your mortgage. In this case, Chase will not allow you to do a D-I-L, as they want something.

Depending on what type of lender you have, I would find a rare occasion that a lender would require so much of a soft note. In fact, I can probably count on 1 hand out of hundreds of short sales, how many actually took a note at all, especially with first mortgages. Of those few, they were all at 0% interest.

I don't know your situation, but I negotiate short sales all over the country, and I have never recommended a D-I-L, nor has an "Experienced" Attorney or Accountant that I have ever spoken with. At least with the SS, everything is negotiable and is always better then Foreclosure, especially on your credit.
By Help!,  Wed Apr 7 2010, 10:30
Michael,

Thank you so much. And thank you for your quick reply. The sale of this house is quickly becoming a nightmare and I feel that I have no where to turn for good, honest, and the latest information on what is happening with the market. So, I appreciate your help. My first and second are with the same bank and are neither owned by a seperate broker/bank. I did confirm that with my lender. I think that may be good news. I'm not sure. The exact words from the SS department at my bank said they would only agree to a SS if I signed an "unsecured not for the entire mortgage." I thought I heard wrong, so I asked her to repeat this for me. This worries us, because we don't know exactly what that means. My realtor assures me that this is a negotiable piece of the transaction.

We are proceeding with a SS - but waiting for a buyer. The negative equity on the property is currently at 16k, which is not nearly as bad as what I've read of other homeowners. Still, if we had to come up with that kind of cash at closing, we would essentially wipe out what little savings we currently have.

Is it typical of banks to drag their feet in providing a mortgage release form? Do you know? I can't seem to get anyone at my bank to send this to me so that my agent is able to speak on my behalf to the SS department.

Thanks again.
By Michael Ceparano,  Wed Apr 7 2010, 14:02
I would suggest you email me direct at, ShortSaleDoc@yahoo.com as I don't want to make all you business public. Let me know who the Lender is, as it sounds like it may be a Credit Union or similar type. Once I know that I will let you know some info.

As for the "mortgage release form" I'm guessing you mean a "3rd party Authorization" You typically do not have to have one completed on the lenders own form, as I use my own form and have done so on hundreds of files and never had an issue, except once. You Realtor should have their own that you can complete and will suffice the lender.
By Sabrina,  Mon May 17 2010, 08:33
Michael, I am wondering how the banks are treating the credit reporting of those who short sale and sign promissory notes with interest to pay a portion of the deficit owed back to the bank. All this is done after the bank sends an approval letter. I would really appreciate any information I can get. Thank you very much! Sabrina (I must also stress that we did not miss any mortage payments prior to the short sale.) Thank you again.
By Fantasia,  Fri Sep 24 2010, 13:03
Hey Michael,

I'm working with a sellers agent who seems to be giving me a hard time with our closing date. Our bank wants to close on Tuesday but the sellers agent said that the bank will not give an extension for 1 day!! Why do you think the bank would want to start this whole short sale thing all over again and not extend for an additional day? Do you think the sellers agent can convince them or is the bank just being that unreasonable?
By Nicole,  Fri Oct 22 2010, 07:20
Hi Micheal,
I live in Maryland, not sure what state the loan originated in but my home is in short sale and my realtor was able to get a contract in fairly quickly. The bank wanted more of course and the buyer was willing to come close to what the bank wanted. The bank approved the short sale but at the very end they said the PMI company wants $34,000 in a soft note 0% interest over 15 years. This is not something my husband and I can afford to do. Negotiator is out of the office until Monday and the realtor says maybe we can counter at $15,000. I am not happy about this whole situation. Why did the bank wait until the end to bring this up and can anything be done so that we won't have to pay anything back?

Nicole
By Michael Ceparano,  Sat Oct 23 2010, 11:55
Fantasia, The biggest issue I have getting a property closed, is not the sellers lender approving the short sale, but typically is the buyer and their lender closing in the time frame that has been approved. Sadly, many buyers lender think they control the deals and it is like it was during the boom. The Buyers lender fails to either realize or care, that they could seriously jeopardize, not only their client chance at buying the home they want, but far worse, they are playing with the sellers lives and possibly risking the sellers ability to be released from this home free and clear and exposing them to a foreclosure.

The sellers lender has guidelines to follow, and while sometimes they are being difficult, you must remember that they are not the only ones involved in the SS approval process. The Lender you deal with is typically just the servicer of the mortgage, you still have the investor who owns it and the PMI company that insures it. They also must approve it and they have their internal guidelines to follow as well. The best thing I can tell you, is to instruct your Loan Officer to close by the date given by the sellers lender and get your requested docs to your lender ASAP.
By Michael Ceparano,  Sat Oct 23 2010, 12:08
NIcole, the bank isn't the one who waited till the end, the PMI company approves the deal, along with the investor of the mortgage, after the Lender reviews and internally approves the SS. Once the Lender "approves" they submit to both the PMI and Investor, for their approval. Once these 2 review they can approve, ask for soft not and/or ask for cash at closing, or deny.

Since some PMI companies, depending on the type of policy they took out, are forced to pay the entire balance you short the Investor, so they want to recoup as much as possible, to offset that loss. Your only true protection is to qualify for a HAFA approval, unless you live in a non-recourse state, which means the lender can't pursue you for the deficiency balance.
By Unsettled In Saint Cloud Fl,  Sun Mar 20 2011, 07:20
Hi MIchael, I am not sure if you can give me some insight on this. I live in Central Florida and found a short sale and sign a contract Jan 7th 2011, with in 2 weeks BPO and counter happened, Then we countered back and got it agreed on by the bank by the 27th of January 2011. I was told paper work/letter would be faxed and we would get really to close. Well by the 14 we had nothing again we contacted seller realator. SHe advised that seller Lawyers were told there was PMI and it was sent over to PMI carrier Feb 14th 2011. " No woory it wont take longer than a week or so " . 2 weeks later I ask again and was advised that PMI carrier sent counter to lawyer to on wrong file/house. SO file went back. March 14th I push even more. I am now being told PMI carrier hasn't put up a $$$ at all on the file ( correct file) to the laywer. I am guessing it has to be assigned if wrong file went to begin with;corrct? Is it normal for PMI to take so long? My realator called sellers realator everyday now for info and she just responds when she feels like tell us "WHen I hear something I will let you know".
ALot has changed since the PMI nightmare of 2009 of them just not wanting to sell the house and stale or even cancel the sale. how long do I wait and is there anything I can do ???

"Unsettled in Saint Cloud Florida"
By Timothy M. Garrity,  Sun Mar 20 2011, 08:35
Short sale sellers need a lot of education before diving into this. It can be a sticky subject.

TG
By Michael Ceparano,  Sun Mar 20 2011, 09:21
The PMI company can take as long as they want, sometimes it's the same day, some times it's a month later, depends on how busy they are. This doesn't mean there are not some horrible negotiators out there who really don't work the files, the way they should be, as I have run across more then a few. I realize you want answers now, but your agent calling the other agent and/or attorney every day is not helping anyone and it limits the amount of time to actually be on the phone with the lenders. If you call a lenders negotiator every day, they will surely put you at the bottom of the pile and it's a HUGE pile. Negotiators typically have anywhere from 200-500 files they are working on, at any one time. There is a fine line between looking for updates and being overbearing. Because of the overbearing, the lenders limit giving out direct numbers and emails to the negotiator, which makes it more difficult for people who are looking for status updates on files, to get up to date status info. Obviously there comes a point to escalate the file, but you must allow them some time to get the file worked. The Sellers agent is waiting, same as you, and will surely let your agent know, as soon as they know something, as they want it sold, probably more then you do, as they have typically been working on it for months. You must remember that with many loans, as the case with the property you are buying, there are 3 different approvals that are required to get an "approved short sale" You have the servicer, the investor and the PMI company. If the file is being reviewed for HAFA, that is another internal approval you are dealing with also which makes 4. In short, there can definitely be some delays and sometimes some confusion on files, I suggest you stick with it, and give them the time they need to get it done. There is really nothing you can do to expedite it and threatening that your going to walk does nothing, the lender hears that a hundred times a day. If you want more detail, read below, as this will most likely be a bit long winded.

The servicer is the company that takes your payment, but they are typically not the investor, which is the company that actually owns the mortgage. In most cases the lender you got your mortgage from and pay every month, sells the loan to an investor, which could be Fannie Mae & Freddie Mac (2 largest), another bank or even possibly a hedge fund or other financial vehicle.

The PMI (Private Mortgage Insurance) company is the company that insures the loan for any loss. The PMI could have been required to be taken out in order for the Seller to get the loan from its inception and will be noted on their mortgage statement as an additional charge on top of their payment, much like escrows are listed out OR the investor could have placed their own MI policy on it, which would be paid out of the monthly mortgage payments, but the Seller would have no knowledge of it, as it is not added to their mortgage payment, the investor pays for it from their funds for increased protection.

There are two basic types of MI Policies, Primary and Pool. To give you an example, if the home was purchased for $200k, with 100% financing and is now being sold, either by SS or foreclosure, to allow a net (funds remaining after all closing cost, commission, taxes, fees, etc are paid) to the lender of $100k.

Primary MI has percentage guaranty coverage. Claim benefits are calculated on the outstanding UPB (Unpaid Principal Balance) plus delinquent interest and fees. The original $200K will most likely be closer to $220-240K and if there is 20% coverage, the MI’s maximum exposure would be $44-48K. The MI Company also has the option to acquire any property and pay the total indebtedness to the Insured. This option rarely occurs given current market conditions.

With pool coverage, the entire loan is insured. Prior to claim settlement, the Insured is required to liquidate the property (SS or Foreclosure Sale) and the MI benefit would be based on the Insured’s actual loss, or $200K less $100K (net proceeds) = $100K claim benefit.

Depending on which PMI company it is, some are more stringent on recovery of their loss then others, they may ask for cash at closing and/or for the seller to sign a soft note, for several thousand dollars, in order for them to approve the sale. Should the property be sold by SS or foreclosure, they are still paying out for the loss, so if the Seller wants to limit the credit hit and their future ability to get credit, the SS is typically the way to go, especially since they will waive the remaining unpaid balance. In states such as FL, the lender can pursue the owner for the remaining balance in a foreclosure and a SS, so it is better to agree to pay a small portion of the loss, in order to protect yourself from the entire deficiency balance. The only time the MI company can't ask for cash or a note, is when they have agreed to participate in the HAFA program, which prohibits them from additional funds and releases the seller from future liability of the unpaid balance.

Without all 3 or 4 internal approvals, you can't get your approval. The worst part of the SS for the buyer is waiting, but for the Seller and their agent, it means months of work, repeated document collection requests, an exorbitant amount of stress, amongst other things. In the case of so many SS's, the buyers either walk, end up not qualifying for their new mortgage, or their loan takes to long to get approved. I have one that the buyers lender has taken over 3 months to get buyer approved and think I can just call the Sellers lender to get an ANOTHER extension for the approval. They only give so many extensions, once it goes out to far from the original approval date, all 3 must re-approve and in most cases the value must once again be determined, which will require additional BPO's and/or appraisals. Hopefully, the new values are in line with the last one on file, otherwise you may end up having to pay more, as the required net is now higher.

Once a buyer walks, many lenders make the seller start all over, once a new buyer is found, as they simply don't allow you to switch buyers. It is the Buyer who needs to be more educated on the process, not the seller.
By Unsettled In Saint Cloud Fl,  Tue Mar 22 2011, 16:20
Thank you for the insight.I do have patience , but sitting in the dark is not my specailty LOL.
My realator stated yesterday the sellers realtor contacted him and said MI wanted 35,000 and wouldnt take less , she offered 10,000 and got shot down. "We get 35,000 or we close the file"
Seller went to his attorney today and his attorney told him to file bankruptcy. Soooo, Now we have asked the seller agent to allow our side to neg the deal with MI. My realator said it's very apparnet that communication was not held up on their realtors side.Truths have not been told, to the point she now said she was the negotiator and not their attorneys. If I hadn't been asking or doing as much research I would be even further lost .
I have just never dealt with this type of business practice. But I am going to hold on and see what our negotiator comes up with for seller. It has to be better than the 35,000.
Will keep you posted.
By Unsettled In Saint Cloud Fl,  Tue Mar 22 2011, 16:23
Thank you for the insight.I do have patience , but sitting in the dark is not my specailty LOL.
My realator stated yesterday the sellers realtor contacted him and said MI wanted 35,000 and wouldnt take less , she offered 10,000 and got shot down. "We get 35,000 or we close the file"
Seller went to his attorney today and his attorney told him to file bankruptcy. Soooo, Now we have asked the seller agent to allow our side to neg the deal with MI. My realator said it's very apparnet that communication was not held up on their realtors side.Truths have not been told, to the point she now said she was the negotiator and not their attorneys. If I hadn't been asking or doing as much research I would be even further lost .
I have just never dealt with this type of business practice. But I am going to hold on and see what our negotiator comes up with for seller. It has to be better than the 35,000.
Will keep you posted. ..
By Unsettled In Saint Cloud Fl,  Sun Mar 27 2011, 04:09
As of Friday MI company has come back at 25,000. Lets hold on for the next week and see where it goes.
By Cami,  Thu Apr 28 2011, 16:53
Hi Michael, I have 5 properties. I am behind in payments on all o f them. I have a trial loan mod on my primary and a rental. I am behind 8 payments on the other rentals. I have talked to many people about what to do and I still dont know what to do. I have the resorces to come current on about three of the properties which have equity in them. The other two I do not . I have considered short sale and I have also seen an attorney about filing chapter 13. The attorney said i could surrender the "poisoned properties" and keep the rest. My realtor said that is a bad idea. . If I short sale can the banks come after my other properties that i have equity in. How can I protect my other investments with a short sale or chapter 13. Thank you for any information, Cami
By Kristen,  Thu Sep 29 2011, 13:40
Hi Michael, my husband and I live in Oregon, we bought our house 3yrs ago, and have refinanced to a lower rate about a year ago. We applied for a loan mod through BofA, and they said they could reduce our payments by $4.00 per month, this is not going to help us.
I feel like our hardship is not as bad as others, so i am wondering if the bank will consider us for a SS or not. We currently have 0 equity in our home, our house appraises for $20,000 less than what we bought it for, we are current on mortgage and all bills. My husband has a good job, and I am a private contracted nurse, so my income fluctuates alot. We could stay in our house and keep being strapped for cash at the end of every month, and wait out the economy, but my husband is getting ready to go back to school, which will mean quitting his job and moving to another city. So this is why we need to sell, or SS since we can't get out of the house in the current market. Will the bank consider this a hardship?
If we could short sale the house, would this effect our credit, not allowing my husband to get federal school loans?
By David & Samuel Rifkin,  Mon Apr 1 2013, 13:15
Thank you for this great information.

Samuel Rifkin
The Rifkin Team
By Michael Ceparano,  Mon May 5 2014, 12:49
Thanks Sam, some of that needs to be updated, but for the most part it still all holds true. Sellers need to be careful at this point because of the expiration of the Mortgage Debt Relief Act of 2007 which protected many of the Sellers from the tax implication of the 1099 that the Lenders issue. There are still ways to be protected for some Sellers, just not as simple..and I don't mean by filing Bankruptcy
By jessievera10,  Fri Jun 20 2014, 15:55
No need to apologize since it's your first time writing a real blog. Thank you for sharing your thoughts and story on a financial and investment advisor. Keep writing and just because it's your first I sure hope it's not your last!

Jessie Vera | http://www.landsbergbennett.com/

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