Short Sales, Foreclosures & Loan Modifications

Short Sales Foreclosure Mortgage FAQ Short Sales, Foreclosures & Loan ModificationsFrequently Asked Questions

When does foreclosure begin?

Lenders will initiate foreclosure proceedings when homeowners become delinquent in their mortgage obligations, usually after two payments are missed. The lender will then notify the buyer in writing that he or she is in default. The lender can request a trustee’s sale or a judicial foreclosure, in which the property is sold at public auction. A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property’s sale.

Some sales allow the successful bidder to take possession immediately. If the former owner refuses to vacate the premises, the court can issue an unlawful detainer that allows the sheriff to come out and evict them. Borrowers should do everything they can to avoid foreclosure, which is one of the most damaging events that can occur in an individual’s credit history.

How long do bankruptcies and foreclosures stay on a credit report?

Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider an borrower earlier if they have reestablished good credit.  The circumstances surrounding the bankruptcy can also influence a lender’s decision.

For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

What are the qualifications for a Home Affordable Refinance/Modification?

According to the resources released by the government, following are a list of qualifications:

  • You are the owner and occupant of a one to four unit home
  • The loan on your property is owned or securitized by Fannie Mae or Freddie Mac.
  • At the time you apply, you are current on your mortgage payments (you haven’t been more than 30 days late on your mortgage payment in the last 12 months, or if you have had the loan for less than 12 months, you have never missed a payment)
  • You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house
  • You have income sufficient to support the new mortgage payments, and the refinance improves the long-term affordability or stability of your loan

How do I qualify for a mortgage modification?

The first call you make should be to your lender, have the information above ready to discuss with them and call your customer service line to ask them what options you have available. If the person you speak with does not understand what you are asking, you can ask to be referred to one of the following departments (different lenders have different names for these departments):  H.O.P.E. for Homeowners, Loan Modification, or Loss Mitigation.

Prior to contacting your mortgage lender you can quickly complete an eligibility test at MakingHomeAffordable.gov  This test will let you know if you are eligible for a modification through the government-sponsored Home Affordability and Stability Program (HASP). For a list of mortgage lenders and servicers, visit the HopeNow.com website 

What if I don’t qualify for a mortgage modification, can’t afford my home, and owe more than it’s worth?

You are not alone and foreclosure is not the only option. If your mortgage lender or servicer will not work with you to reduce your payment, you may want to consider a short sale. Agents like me, with the Certified Distressed Property Expert® Designation, have undergone extensive training in how to process and negotiate short sales. A short sale allows you to sell your home for less than what you owe and avoid foreclosure. Speak to your market expert to see if you may qualify.

Can a home seller sell a home for less than its mortgage?

Yes, in some case you can sell your home for less than what you still owe on the mortgage. But it is complicated and depends on the lender. This situation is known as a “short sale.” Sometimes a lender will be willing to split the difference between the sale price and loan amount, which still must be paid. A short sale may be more complicated if the loan has been sold to the secondary market because then the lender will have to get permission from Freddie Mac, the two major secondary-market players. If the loan was a low down payment mortgage with private mortgage insurance, then the lender also must involve the mortgage insurance company that insured the low-down loan.

Can I qualify for a mortgage after a short sale?

YES, in as little as 24 months, a homeowner that successfully completes a short sale may qualify for a FHA mortgage.  If a homeower is foreclosed on, it may take up to 7 years before they can qualify for another home mortgage.

How does a home go into foreclosure?

Foreclosure proceedings usually begin after a borrower has skipped two mortgage payments. The lender will record a notice of default against the property. That allows the borrower to satisfy the past due amount within 90 days. Unless the debt is satisfied within that time period, the lender will foreclose on the mortgage and proceed to set up a trustee sale.  The trustee sale can take place 20 days after the 90 day Notice of Default was recorded.

I’ve already received my foreclosure notice. Is it too late for a short sale?

  • The quick answer is no, but there are a few variables that can affect the foreclosure timeline.
  • A qualified Realtor®, or better yet, a Certified Distressed Property Expert, can help you extend the foreclosure timeline.
  • A home sale can be completed and approved up to the day the bank sale or auction date for the home.

How long does it take to complete a short sale?  

Depending on the lender, it can take anywhere from 3-9 months.

Can I stay in the home during the short sale process?

Yes!  You can stay in the property until the short sale is complete.  It’s often a great opportunity to help you build up some funds before the sale and move.

Will I receive any money from the sale of my home?

Usually, the answer is no.  But in some situations, qualified home owners may received up to a $3,000 moving allowance.  Ask me if you qualify.

What is the cost to a home owner wanting to sell a home as a short sale?

Some companies do charge for this service, but my charges to homeowners for selling the home is zero.  The lender will pay for the marketing fees and closing costs in a short sale.

When is the best time to begin a short sale?

The best time is as soon as you know you will be no longer to make payments.  Time is limited, and it’s best to begin communicating with lien holders to attempt to negotiate a short sale.  Sometimes the clock can run out, and they investor/bank will foreclose.

How does a short sale help me?

  • It helps you avoid an emotionally draining foreclosure process.
  • Avoiding a foreclosure can help save your credit rating. Typically, a foreclosure will drop you credit score up to 200 points per loan.
  • You avoid having a foreclosure on your credit report. That affects your future purchasing power and interest rates.
  • It might help you avoid a “deficiency judgment” from the lender after the foreclosure as they try to recover their loss.

Why would a lender agree to lose money?

  • Financially, it’s a smaller loss to accept a short sale than it would be to incur the additional expenses involved in foreclosure.
  • Lenders are in the business to lend money. They are not in the business of owning homes. The more resources they have tied up on a property, the less they have to lend out.
  • With prices dropping so rapidly, even if the lender decides to foreclose it will lose even more money when the property is put up for sale at a later date.

How do I pay the Realtor commissions and other expenses associated with a home sale?

  • The homeowner does not pay any of the expenses associated with the home sale, such as commissions and other closing costs. Those expenses are paid by the lender.
  • The lender may ask you to reduce the lender’s loss by making a payment, if you have any “extra” money in savings, investments, etc., or by signing a promissory note.
  • The Mortgage Forgiveness Debt Relief Act (December 2007) eliminates the income tax that used to be levied on the forgiven portion of the primary home’s sale. However, this tax is still in force for second homes and investment properties.

What banks do you work with?

We have extensive short sale experience with all the major lenders, including but not limited to:

Bank of America (BOA), Carrington Mortgage, Chase, Citi, Wells Fargo, Litton, Green Tree, GMAC, EMC, FHA Government Loans, First Horizon, HSBC-Beneficial, Metlife, Nationstar, Ocwen Loan Servicing, LLC, PNC – National City, Residential Credit Solutions, USDA Rural Development

How can I speed up the short sale process?

Short sale approvals take lots of time; and Loan Officers do have incentives for completing the short sale in a timely manner. By providing the lender with timely, complete, and accurate information in a form that satisfies the lender’s requirements, your short sale package is easier to undertake. That means that it goes to the “top of the stack” for processing. We are familiar with the lender’s requirements, and can help you get your short sale expedited.

Why should I use a short sale instead of go through foreclosure?

View the Foreclosure versus Short Sales chart for a comparative overview.