E Book

How to Short Sale Your House
and Walk Away!
CincinnatiShortSalePros.com Page 1
TABLE OF CONTENTS
The Short Sale: A Simple Explanation ………………………………...……….……….. 7
Experienced Realtors® Speed Short Sales ……………………………...……………… 8
A Sad Scenario: ‘For Sale By Owner’ Goes Into Foreclosure ..…….....………. 9
Determine The Cause Of The Problem …………...………………………..………..... 11
Common Causes of Financial Problems .………………………………………….…….. 13
Analyze Income vs. Expenses …...…………………………………..……..………………. 13
Act Right Away ….………………………………………………………………………..……….. 14
Steps To Take If You Can Not Make A Mortgage Payment …………………….. 15
1. Don’t Ignore The Problem ……..…………………………………………….……… 15

2. Contact The Lender As Soon As There Is A Problem …………………….. 15
3. Open And Respond To All Mail From Your Lender ………….…….……... 16
4. Know Your Mortgage Rights ………………………………………………..…...... 17
5. Understand Foreclosure Prevention Options …………………..…………… 17
6. Contact An Approved Housing Counselor …………………………..………… 17
7. Prioritize Your Spending ………………………………………………………………. 18
An Alternative To Consider ………………………………………………………….……….. 19
8. Use Your Assets ………………………………..…………………………….…………... 20
9. Avoid Foreclosure Prevention Companies …………………..…………..…… 20
10. Avoid Foreclosure Recovery Scams! …………………………...……………… 21
Equity Buy-Out/Rental Scheme ……………………………………………………….. 21
Buy-Back Schemes …………………………………………………………………………… 21
Vacant Houses At Risk ……………………………………………………….……………. 22
Pay A Fee, Keep Your Credit Record Clean ……………………………….. 23
Curing A Default ………………………………………………………….…………... 23
Avoid How-To Courses …………………………………………….………………. 23
Is Bankruptcy An Answer? ………………………………………………………………...... 24
Safeguards For Homeowners In Natural Disasters ………………..…………….... 25
Answer Four Basic Questions …………………………………………………..…………... 25
How To Obtain FHA Disaster Relief ……………….……………………….…………...… 26
An FHA Loan Was Current Before A Disaster, But Now You Can’t
Make The Next Payment ……………………………….…………………………..……….... 26
How Can FHA Disaster Relief Help? …………..……………..……………………….….. 27
How to Qualify for Foreclosure Relief …………..……………………..…..……….….. 27
Falling Behind On FHA Loan Payments ……………………................................ 29
FHA Loans Already In Foreclosure …………..…………………............................. 29
Department of Veterans Affairs ………………………………………………….………… 30
Federally-Insured Mortgages For Military Service Members ……….………... 30
Who Is Eligible? ……………………………………………………………………………………. 31
Am I Entitled To Debt Payment Relief? ………………………………………………….. 31
Is The Interest Rate Limitation Automatic? ………….………………………………… 32
Am I Eligible Even If I Can Afford To Pay My Mortgage At A

Higher Interest Rate? …………………………………………….….………………………….. 32
What If I Can’t Afford to Pay My Mortgage, Even At The Lower Rate?....... 32
Are Service Members Protected Against Foreclosure? ………………………….. 33
What Information Do I need to Provide To My Lender? ……………….……….. 33
Will My Payments Change Later? Will I Need To Pay Back The

Interest Rate “Subsidy” At A Later Date? ………………………………….………….. 34
How Long Does The Benefit Last? ………………………………………………………... 34
Escrow Accounts ……………………………………………………………….……….………… 34
Predatory Lending …………………………………….…………………………………………. 35
Who Can I Call For Help? ……………………………………………………………………… 35
Talk To A Housing Counseling Agency …………………………….………….………... 36
Prioritize Your Debts ………………………………………………..………….………………. 36
A Reinstatement ………………………………………………………………..……………..... 38
Forbearance …………………………………………………......................................... 40
Repayment Plan ………………………………………………………………………………….. 41
Mortgage Loan Modification …………………………………………………………….... 41
Loan Assumption ………………………………………………………………………………... 42
Mortgage Insurance And Loan Guarantees ……..………………………………….. 43
Reamortization …………………………………………………………………………………... 44
Refinancing …………………………………………………………..……………………………. 44
A Deed In Lieu Of Foreclosure …………………………………………………………..... 45
Pre-Foreclosure Sale …………………………………………..…………………………...... 46
Post-Foreclosure Sale ………………………………………………….………………………. 47
A Short Sale ………………………………………………………………………………………… 48
Upside Down Sellers …………………………………………………………………………... 50
Some Lenders At The Root Of The Problem ……………...………………………... 51
More Than One Mortgage …………………………………………………….……………. 54
Foreclosures ………………………………………………………………………………..……… 55
How Foreclosures Vary ...……………………………………………………………..……… 55
Judicial State Procedures …………………………………………………………………..… 56
Non-Judicial State Procedures …………………………………………………………….. 56
Lists of States And Their Procedures ……………………………………….…………… 57
Foreclosure And How To Avoid It ………………………………………………………… 60
HUD, VA Have Special Alternatives ……………………………………………………… 60
Workout Solutions ………………………………………………………..……………………. 61
Private Mortgage Insurance …………………………………………….…………………. 63
Short Sale vs. Foreclosure? ………………………………………….……………………... 64
Steps To Do-It-Yourself Homeowner Short Sales ……………….………………... 65
Comparable Sales ……………………………………………………………..………………... 65
Preliminary Title Search Essential …………………………..…………………..………. 65
Short Sale Hindrances ………………….……………………………………………….……… 66
Contact Mortgage Holders ………………………………………….………………...……. 67
Compromise Claims …………………………………………..………………………………... 69
Workout Package ………………………………………………………………………………... 70
Write A Hardship Letter To The Lender ………………………………………..……… 71
Prepare A Preliminary Net Sheet ………………………………………………..…….… 72
What Will It Take To Put The House In Shape? ………………………..…………… 73
What To Send With The Hardship Letter ……………………………………………... 74
Contract For Sale And Purchase …………………………………….…………………….. 75
List Community Pro’s, Con’s ………………………………….………………….……….... 77
Items Necessary To Qualify For A Compromise Sale …………………………..… 79
Assuming A VA Loan ……………………………………………………..………………….... 79
The Lender Will Work With A Homeowner ……………….………………………... 81
Necessary Paperwork ……………………………..………………………………………..... 83
Loss Mitigation Department ………………………….……………………………………. 85
Other Complications …………………………………………………………………….…….. 87
The Buyer …………………………………………………………………………………………… 88
Comparable Prices Hard To Determine …………………….………..……………….. 89
Why You Need A Real Estate Agent ………………………………..…………………… 91
Advantages Of Using A Real Estate Agent …………………..…………………….…. 93
The Attorney ………………………………………………..……………………………………... 95
Essential Steps ……..……………………………………………………….. 96
Jim and Elizabeth’s Conclusion …………………………………………… 97
More Detailed Information ………………………………………………... 98
Glossary Of Terms …………………………………………………………. 99
The Short Sale: A Simple Explanation
When a homeowner has a mortgage on a property and cannot afford to
make the monthly payments a short sale is often the best way to avoid having the
bank foreclose on the property. If a foreclosure is the only answer in such a
situation the homeowner’s credit record suffers and the foreclosure stains their
record for from seven to 10 years.
A short sale avoids foreclosure by selling the property at a discounted price,

below what is owed on the mortgage. If a property owner has a buyer that is
willing to purchase the property, it is a win-win-win situation in which the owner
is able to get out from under the mortgage obligations, the buyer is able to
purchase the property at a reduced rate, and the bank is able to avoid foreclosing
upon the property.
When a lending institution takes over a foreclosed property it leaves them

with a lot of headaches and time-consuming procedures they would rather avoid.
When a foreclosure occurs, the bank has to hire an attorney, who charges
exorbitant fees to repossess the property; the lender ends up owning the
property; and then has to assess the condition and value of the property; fix up
any damages or weaknesses to make the property saleable; and put the property
on the market.
While the foreclosed property is owned by the bank it also incurs a long list
of expenses for maintenance, lawn care, property taxes, homeowner fees and a
whole list of expenses the bank has to pay.
A short sale avoids all these expenses, so banks are quite willing to consider
them.
Experienced Realtors® Speed Short Sales
A Realtor® is essential both right before and during a short sale due to their
experience with many short sales they can be invaluable in providing the bank
with an assessment of how much the property is worth.
Before a homeowner can submit short sale paperwork to the bank, they
must be able to show detailed records that the homeowner has made an attempt
to sell the property by having it listed with a Realtor® for at least three months.
In an ideal situation the Realtor® will have found a buyer that is prepared to
make an offer on the property and has the financing in place to pay the bank if it
agrees to a short sale.
A Realtor® is also valuable in that they can provide detailed information on

how many similar properties in the neighborhood have sold for and give the bank
a good idea of the home’s value.
The downside of a short sale is a mountain of paperwork and red tape to

complete before a short sale package can be submitted to the bank.
Realtors®, who have completed many short sales, are experts that have set
up established procedures and check-lists to make it possible to complete a short
sale in a hurry with a minimum amount of effort. Having a Realtor® makes it
possible to go through a step-by-step procedure to prepare all the necessary
information necessary to complete a short sale. Then after a thorough and
complete evaluation of the property has been done, a short sale package can be
submitted to the lender for their evaluation.
A Sad Scenario: ‘For Sale By Owner’ Goes Into Foreclosure
I recently stopped by a beautiful two-story house in a nice neighborhood
that had a “for sale by owner” sign in the front yard.
I rang the front doorbell and a young mother in her 20s, with three young
children in tow, answered. I explained I was a real estate agent and would like to
list their house. I was surprised at how readily she agreed to a presentation. We
made an appointment that evening for 8 p.m., after her husband came home
from work and they finished eating.
That evening at 8 p.m., I again rang the doorbell and was escorted into the
house. The husband, Jim, showed me through the house, while the Elizabeth held
her six-month-old son. Two older children, a girl aged two and a boy aged four,
followed us through the house as the couple showed off their four bedroom, two-
story house.
The spacious house, with a second story balcony overlooking the

downstairs living room was any family’s dream home. It had been built two years
earlier by a well-known local builder in a beautiful area on a one-acre, fenced
corner lot.
We sat down at the dining room table to discuss listing the property. The
couple said this was their first home, they were having trouble making the
payments, and they were three months overdue on their mortgage payments.
When I added up the couple’s investment in the house, I discovered that

when they financed the house the bank had offered them a low-interest
adjustable mortgage, which had dramatically escalated during the two years they
had lived in the house. Their original mortgage was for $230,000, at 6 percent
interest, with no money down.
Two years into the mortgage they had been making interest-only payments
and still owed $230,000 on the house. The husband had lost his job, taken
another job an hour’s drive away, and they wanted to sell the house so he would
not have to commute so far.
To complicate matters, the home builder was still building exactly the same
house, in the same neighborhood, for $198,000—including better appliances and
more amenities.
A comparative market analysis (CMA) showed they could realistically

expect to receive only $190,000 for their house.
Real estate agents hate to turn down listings, but I explained that I could
not take the listing, by the time they made several cosmetic changes necessary
before the house could be listed, and paid my commission, they would only clear
$180,000, and would still owe the bank $46,000, plus the interest accrued until
their house sold.
After turning down the listing, as I left the house, the Elizabeth stood at the
door holding her six-month-old, with tears running down both cheeks.
I had heard about distressed homeowners, but that was my first encounter
with one, and it was an experience I won’t forget.
Since then, and due to everyone’s feelings of helplessness in that instance, I

have analyzed the situation and outlined what I discovered, what caused the
situation and what steps are necessary to overcome it.
Our goal in this book is to spell out, step-by-step, how anyone can avoid
foreclosure by initiating and completing a short sale.
Determine The Cause Of The Problem
The first step in figuring out how to solve Jim and Elizabeth’s problems is to
determine what caused them.
There were a combination of causes that attributed to Jim and Elizabeth’s

being unable to meet their payments.
They bought their home for $230,000 in 2006, when the market was hot;
they paid no money down and agreed to an adjustable-rate mortgage. Their
monthly mortgage payments were $1,500, of which a majority of the payment
was for interest.
Both parents were working, Elizabeth was an elementary school teacher,

making $3,500 per month; and Jim was a mechanic, making $3,000 per month.
After Jim lost his job, he began driving 180 miles to and from work each day.
A year later interest rates began to jump, as did the couple’s monthly house
payments, from $1,500 per month to $1,900 per month.
A year and a half after the couple moved into their new home, Elizabeth
found out she was pregnant and about a month later lost her teaching job.
The rising price of gasoline, Cobra health insurance payments and mounting
doctor and hospital bills took all of Jim’s earnings; after they paid their mortgage
payment, there wasn’t anything left for essentials. At the same time their
property taxes and home insurance premiums also spiked.
Elizabeth’s parents were retired, on Social Security and had limited income.
When their daughter asked them for a loan so that they would not miss their first
mortgage payment, they lent them $1,000.
The following month there was no one to ask for money, Jim’s mother and
father were deceased and Elizabeth’s parents had tapped into their savings to
obtain $1,000 the previous month. There was nothing they could do but miss the
payment.
When they missed their first payment, Jim and Elizabeth didn’t do anything,
they didn’t have any idea what they should do. They didn’t call the lender; they
just went on with their lives as usual, hoping they would somehow have the next
payment when it came due.
When the lender called to ask why they missed their first payment,
Elizabeth didn’t answer the phone. The lender left a message on their answering
machine but they did return the call.
Their next payment was due June 1, but they didn’t have anywhere near
the amount necessary to make three payments.
They had been avoiding the lender’s frequent phone calls and now a
certified letter arrived, asking them to contact the lender immediately. They owed
$5,700 in overdue payments, plus other late charges.
Elizabeth called the lender and explained their predicament, but the loan
officer she talked to said that if they missed one more payment and did not pay
their over-due payments the matter would be turned over to the foreclosure
department.
Common Causes Of Financial Problems
Up to that point the family had a sign on the house saying, “For Sale By
Owner,” but began anxiously looking for a real estate agent to list the house for
sale and bail them out.
Financial problems are often associated with:
• loss of job;
• cuts in work hours or overtime;
• retirement; illness, injury or death of a family member; and
• divorce or separation.
Analyze Income vs. Expenses

If a homeowner is facing any of these changes and cannot pay bills it
is essential to immediately analyze what is owed, what is earned, and
eliminate unnecessary spending. If this analysis shows a homeowner’s
financial obligations cannot be met, it is essential to and reach out for help.
Taking action immediately can help protect the homeowner and his
family from losing their home.
There are several solutions to Jim and Elizabeth’s problem, a

reinstatement, a deed in lieu of foreclosure, a short sale and a foreclosure.
The options are listed in order of preference.
Act Right Away
A homeowner having trouble keeping up with mortgage payments or who
has received a notice from a lender should contact the bank or mortgage
company right away.
Mortgages are often insured by the Federal Housing Administration (FHA),
the U.S. Department of Housing and Urban Development (HUD) and the Veteran’s
Administration (VA).
These organizations federally insure home loans. If a property is insured by
FHA, HUD or VA, a short sale or foreclosure must be approved by them.
When a homeowner encounters difficulty and cannot keep up with
mortgage payments, HUD advises:
• Don’t ignore the letters from the lender;
• Contact the lender immediately;
• If a mortgage is insured by the FHA, HUD or the VA a homeowner should

contact them directly and they will put the mortgage-holder in contact with
an approved housing counseling agency.
Steps To Take If You Can Not Make A Mortgage Payment
1. Don’t Ignore The Problem

The more behind a homeowner becomes in not making payments, the
harder it will be to reinstate the mortgage loan and the more likely they will lose
their house.
HUD warns, “do not assume that your problems will quickly correct
themselves. Don’t lose valuable time by being overly optimistic. Contact your
mortgage lender to discuss your circumstances as soon as a homeowner realizes
that they are unable to make payments.”
While there are no guarantees that any particular relief will be given, most
lenders are willing to explore every possible option.
2. Contact The Lender As Soon As There Is A Problem

Many homeowners are confused and embarrassed. They avoid
acknowledging or calling their lenders when they have money problems and
cannot make their mortgage payments.
Many homeowners assume their problems are only temporary and avoid
notifying the mortgage-holder.
Some homeowners are embarrassed to discuss money problems with

strangers or believe that if lenders know they are in trouble, they will rush to
collection or foreclosure.
Lenders do not want your house. They have options available to help
borrowers through difficult financial times.
Lenders want to help borrowers keep their homes. Foreclosure is expensive

for lenders, mortgage insurers and investors. The fees involved in foreclosing on a
property cost thousands of dollars.
Federal organizations such as HUD, FHA, private mortgage insurance
companies and investors like Freddie Mac and Fannie Mae, require lenders to
work aggressively with borrowers who are facing money problems and the
possibility of foreclosure.
Lenders have established workout options to help homeowners who are

facing financial difficulties to keep their residences. However, these options work
best when a loan is only one or two payments behind. The farther behind a
homeowner is in payments, the fewer options are available and the more
expensive it becomes to get the mortgage holder back on track.
If a homeowner does not contact a lender, the lender will try to contact the
homeowner by mail and phone soon after a payment has been missed.
It is very important for a homeowner to respond immediately to mail and

phone calls from the lender offering help.
If a lender does not hear from a homeowner, they will automatically flag
the account and initiate steps to take legal action which could lead to foreclosure.
Due to accrued interest charges and other resulting fees, this will substantially
increase the cost of bringing a homeowner’s loan up-to-date.
3. Open And Respond To All Mail From Your Lender

The first notices a homeowner receives will offer good information and
foreclosure prevention options that can help them overcome financial problems.
Later mail may include important notice of pending legal action. Your
failure to open the mail will not be an excuse in foreclosure court.
4. Know Mortgage Options
Find your loan documents and read them so that as that a homeowner you
know what your lender may do if you can’t make payments.
Learn about the foreclosure laws and timeframes in your state (as every
state is different) by contacting the state Government Housing Office. (see page
0000)
5. Understand Foreclosure Prevention Options

There is valuable information available from your lender about foreclosure
prevention (also called loss mitigation).
6. Contact An Approved Housing Counselor

Many federally insured mortgage companies, like HUD, fund free or low-
cost nationwide housing counseling.
Housing advisors help homeowners understand the law and their options,
organize finances and represent them in negotiations with their lender.
If you have a federally-insured property, like HUD, it is very easy to consult

with the counselor on the phone, discuss your situation and attempt to find a
solution without ever seeing the advisor.
At the same time, by talking to this person for a half hour on the phone you
fulfill HUD’s requirement that you obtain guidance before they will consider a
short sale.
7. Prioritize Your Spending
After making your healthcare payments, keeping your house should be your
first priority.
Review your finances and see where spending can be cut in order to make
the mortgage payment. Eliminate optional expenses: cable TV, memberships
eating out and entertainment.
Pay only the minimum amount or delay payments on credit cards, and
other “unsecured” debt until the mortgage is paid.
The electric company, property tax office, car insurance companies and
other creditors often offer extended payment plans so that if a customer is having
trouble paying their bills, they will accept partial payments over an extended
period of time.
An Alternative To Consider
If a homeowner feels uncomfortable talking to a lender, they
should immediately contact a federally-approved housing
counseling agency and make an appointment.
A federally-approved housing counselor will help a mortgage

holder assess their financial situation, determine what options are
available and help negotiate with the mortgage holder.
Counselors are familiar with various workout arrangements

that lenders will consider. They also know what course of action
makes the most sense for a homeowner and his family, based on
the each individual’s circumstances.
In addition, the counselor can call the lender with the

homeowner or on the homeowner’s behalf to discuss a workout
plan. By meeting with a counselor before mortgage payments are
too far behind, a homeowner can be protected from future credit
problems.
A federally-approved or HUD housing counselor can help a

homeowner analyze monthly expenses and establish a monthly
budget to ensure all monthly expenses and mortgage payments are
met.
The counselor will help a homeowner prepare a financial plan

to clearly show how much money is available to make mortgage
payments. This analysis will help the homeowner and the lender
determine whether a reduced or delayed payment schedule could
help.
A counselor will also have detailed information on local

services, resources, and programs available to provide the
homeowner with additional financial, legal and medical assistance.
8. Use Your Assets
Do you have saleable assets, like a second car, jewelry, or a whole life
insurance policy that can be sold for cash? Although it is hard to realize the
necessity of selling such items, don’t hesitate to do so if it will help bring your
mortgage payments up to date and reinstate the loan?
Can anyone in the household get an extra job to bring in additional income?
Even if these efforts don’t significantly increase available cash or income, they
demonstrate to the lender that a homeowner is willing to make sacrifices to keep
the home.
9. Avoid Foreclosure Prevention Companies
A homeowner doesn’t need to pay fees for foreclosure prevention help--

use that money instead to pay the mortgage.
Many for-profit companies contact homeowners that are in trouble,

promising to negotiate with the lender. While these may be legitimate businesses,
they charge a hefty fee (often two or three month’s mortgage payments) for
information and services that many lender and federal housing counselors
provide at no charge.
Never sign a legal document without reading and understanding all

the terms and getting professional advice from an attorney, a
trusted real estate professional, or a federally-approved housing
counselor.
10. Avoid Foreclosure Recovery Scams!
Homeowners about to face foreclosure are vulnerable.
Avoid firm that claim they can stop a foreclosure immediately.
These firms want a homeowner to sign a document appointing them to act

on their behalf. In some instances like this homeowners have signed over the title
to the home and in effect become renters in their own homes!
Equity Buy-Out/Rental Scheme

A variation of this theme occurs when someone gives cash to an owner
facing foreclosure for “equity” in the home. Therefore, by making a small cash
payment the unscrupulous person or business gains control of the property.
The new “owner” then rents out the property, but does not make any of
the “real” homeowner’s payments to the lender.
The new “owner” pockets all rent received while he delays the foreclosure
as long as possible.
Most homeowners are forced into foreclosure because they have very little
or no equity in their home. When the bank finally forecloses on their home, their
mortgage-holder is still legally responsible for paying the loan—and the “paper”
owner who has been renting out the property vanishes with the rent—usually
leaving behind a property that is in a lot worse condition and needs extensive
repair.
Buy-Back Schemes
Another twist to this scam occurs when an investor offers to purchase a
home and give the original homeowner an “option” to buy back the property.
The reality is that IF the former owner tries to buy it back they will need a
new, larger loan from the bank than the one they previously had, with a higher
interest rate and higher payments. The odds are very good the former owner
won’t qualify for the loan.
Lenders make a lot of money, much of it in fees, for refinancing loans.

Unless a homeowner is paying the various refinancing fees from out-of-pocket,
every time they attempt to refinance a loan the balance will go up and use up
their equity.
Vacant Houses At Risk

Another common scam occurs during or after foreclosure when a house is
vacant and someone breaks in, changes the locks and rents out the property.
The scam artist advertises the property for rent at below market prices with
a phone number.
When a potential renter calls, the phone number goes to his voice mail. The
potential renter soon receives a call from the scam artist, in which he directs
them to meet him to sign the rent agreement at a restaurant or other public
place.
The tenant signs a bogus rental agreement, pays whatever money he can
get from them for first and last month’s rent and a reasonable security deposit
and gives them the key.
When the tenant goes to the house they either find it in total disarray and
impossible to occupy; or they move in and occupy the house until either the real
owner or a bank representative comes by to check on the house and finds them
living there.
Pay A Fee, Keep Your Credit Record Clean
Unscrupulous credit-saving firms often approach homeowners about to go
into foreclosure offering to buy the property and then when the bank forecloses,
it will go on their record, not the homeowners.
The unscrupulous firms obtain lists of homes about to go into foreclosure

and then approach them claiming that if the homeowner pays them a small fee
and signs the house over to them, the foreclosure will be recorded against the
credit-saving firm, not the owner.
In reality, the foreclosure is reported against the borrowers on the note,

not anyone else.
Curing A Default
Other firms promise that IF the homeowner will sign the house over to
them, they will cure the default.
It a person or firm promises to cure a default, the homeowner needs to

know exactly how much equity they are selling and to make sure the purchaser
carries through. There is a strong likelihood that the purchaser will not carry
through and the homeowner will still be responsible for the mortgage.
Avoid How-To Courses

Many firms advertise courses about how to avoid foreclosure, some
provide worthwhile information, but others are sales pitches to get desperate
homeowners to spend more money—that could have been used for essential
expenses, like making health insurance or mortgage payments.
Is Bankruptcy An Answer?
Despite what some people claim, bankruptcy will not stop foreclosure.
Filing for bankruptcy can give a homeowner time to reorganize their finances, but
it will not delay foreclosure.
Bankruptcy might be an option, but consult a lawyer to fully investigate

your options.
Safeguards For Homeowners In Natural Disasters
If your home of your ability to make mortgage payments was harmed by an
event that the President declared a national or state disaster, a homeowner can
qualify for federal relief to help repair and keep the home.
Federal insurers like HUD are committed to assisting borrowers whose lives
and livelihoods are thrown into turmoil by a natural disaster. Occurrences
included in these safeguards include hurricanes, tornadoes, floods, earthquakes
and chemical accidents.
If a homeowner can’t pay a mortgage due to a natural disaster, their lender

may be able to help. If a homeowner is at risk of losing a home due to a natural
disaster, a lender may stop or delay initiation of foreclosure for 90 days.
In times of a natural disaster, lenders often decide on their own to waive

borrower’s late fees if they are delinquent on their loan payments.
A bank or mortgage company will be able to provide more information, and

to see if a creditor is eligible for relief.
A homeowner located in a disaster area should ask the following questions

to determine if they qualify for help. If a homeowner answers “yes” to these
questions and has a federal mortgage they should contact their lender to discuss
their options.
Answer Four Basic Questions

1. Did my expenses rise or income fall?
2. Were these changes in my finances caused directly or substantially by the

disaster?
3. Have I missed any mortgage payments?
4. Am I without other resources, such as insurance settlements, to catch up?
How To Obtain FHA Disaster Relief
The next step is to determine if a homeowner is an affected borrower. In
order to qualify for a moratorium on foreclosure a homeowner must be in one of
three basic groups:
1. A homeowner or his family must live within the geographic boundaries of a

Presidentially-declared disaster area. Homeowners living in such an area
are automatically protected by a 90-day foreclosure moratorium.
2. If the homeowner is a household member of someone who is deceased,

missing or injured directly due to a disaster, they automatically qualify for a
moratorium.
3. If a homeowner’s financial ability to pay their mortgage debt was directly or

substantially affected by a natural disaster, they automatically qualify for a
moratorium.
An FHA Loan Was Current Before A Disaster, But Now A

Homeowner Can’t Make the Next Payment
A special FHA program is designed to help borrowers who are at risk of
imminent foreclosure, so a moratorium won’t apply to their situation.
However, if the homeowner’s inability to pay a mortgage payment or loan

resulted from a natural disaster, a lender may waive any late fees normally
charged and advise the homeowner of other options.
If a homeowner foresees ongoing problems in making their mortgage

payments that resulted from changes in their financial status, they should contact
the lender immediately.
How Can FHA Natural Disaster Relief Help?
HUD has instructed FHA lenders to use reasonable judgment in determining
who is an “affected borrower.”
Lenders are required to reevaluate each delinquent loan until it is reinstated or

foreclosed upon and to identify the cause of default.
Contact your lender to let them know about your financial situation. Some of
the actions that a lender may take are:
• During the term of a moratorium, a loan may not be referred to foreclosure

if a homeowner was affected by a natural disaster.
• The lender will evaluate the homeowner to determine if they qualify for
any loss mitigation assistance to help the borrower avoid foreclosure and
keep their home.
• A lender may enter into a special forbearance plan, or execute a loan

modification or a partial claim if these actions are likely to help reinstate a
loan.
• If saving a home is not feasible, lenders have some flexibility in using a pre-
foreclosure sales program or may offer to accept a deed-in-lieu of
foreclosure.
How To Qualify For Foreclosure Relief

A foreclosure moratorium applies only to borrowers who are delinquent on
a FHA loan.
If a mortgage holder is current on loan payments they should continue to

make them.
When contacting a lender for further instructions, be prepared to provide
them with information about disability or other insurance that may be available
to the homeowner to assist in making payments.
FHA lenders will automatically stop all foreclosure actions against families
with delinquent loans on homes within the boundaries of a presidentially
declared natural disaster area.
If a homeowner was physically or financially impacted by a natural disaster

and is in default or foreclosure, they should contact the lender immediately to ask
for assistance.
Borrowers who were injured or whose income relied on individuals who

were injured or died in a disaster will be asked to document the occurrence with
medical records or death certificates.
A lender will ask a homeowner for financial information to help evaluate

what assistance it can provide to help the homeowner make mortgage payments
and reinstate the loan.
Falling Behind On FHA Loan Payments
Falling behind in FHA mortgage payments requires quick action. Never

ignore it. Always act immediately to avoid foreclosure. A housing counselor can
support a homeowner and show them how to maintain FHA loan payments.
Under certain special circumstances, a FHA mortgage may be protected

from foreclosure for 90 days after the payment due date. Special circumstances
include a reduction or loss of income from natural disasters and other events if a
home is in an area the President declares as a natural disaster.
Those who are current on their FHA mortgage payments should continue to
pay if possible. But if your income was reduced because of an injury related to the
natural disaster, contact your FHA loan officer right away. A homeowner may
have more support than they realize with a FHA loan.
FHA Loans Already In Foreclosure

If a disaster occurs, it is very important that a homeowner notify the
lender to be sure that they realize their customer is an affected
borrower.
A lender may request a borrower to provide supporting

documentation and use it to determine if a homeowner meets relief
criteria.
Once identified as being a borrower affected by a natural disaster,

foreclosure action may be delayed for the duration of the
moratorium period established by the federal government.
Department Of Veterans Affairs
When a Veteran’s Administration mortgage payment goes unpaid VA
receives notification that the loan is in default.
After this notice is received, VA will attempt to contact the homeowner to

discuss their account and offer assistance to bring the loan current or avoid the
foreclosure process.
About 90 percent of the reverse mortgages signed are HECM transactions.

FHA insures this type of mortgage.
Federally-Insured Mortgages For Military Service Members

Members of the U.S. Armed Services can obtain mortgage payment relief
and protection from foreclosure provided by the Service Members Civil Relief Act
(formerly known as The Soldiers’ and Sailors’ Civil Relief Act of 1940).
Who Is Eligible?
The provisions of the Servicemembers Civil Relief Act apply to active duty
military personnel who had a mortgage obligation prior to enlistment or prior to
being ordered to active duty.
This includes members of the Army, Navy, Marine Corps, Air Force, Coast
Guard; commissioned officers of the Public Health Service and the National
Oceanic and Atmospheric Administration who are engaged in active service;
reservists ordered to report for military service; persons ordered to report for
induction under the Military Selective Service Act; and guardsmen called to active
service for more than 30 consecutive days. In limited situations, dependents of
service members are also entitled to protections.
Am I Entitled To Debt Payment Relief?

The act limits the interest that may be charged on mortgages incurred by a
service member (including debts incurred jointly with a spouse) before he or she
entered into active military service.
Mortgage lenders must, at your request, reduce the interest rate to no

more than 6 percent per year during the period of active military service and
recalculate your payments to reflect the lower rate. This provision applies to both
conventional and government-insured mortgages.
Is The Interest Rate Limitation Automatic?
No. To request this temporary interest rate reduction, a homeowner must
submit a written request to your mortgage lender and include a copy of your
military orders.
The request may be submitted as soon as the orders are issued but must be
provided to a mortgage lender no later than 180 days after the date of your
release from active duty military service.
Am I Eligible Even If I Can Afford To Pay My Mortgage At A

Higher Interest Rate?
If a mortgage lender believes that military service has not affected your
ability to repay your mortgage, they have the right to ask a court to grant relief
from the interest rate reduction. This is not very common.
What If I Can’t Afford To Pay My Mortgage Even At The Lower

Rate?
A mortgage lender may allow a homeowner to stop paying the principal
amount due on a loan during the period of active duty service. Lenders are not
required to do this but they generally try to work with service members to keep
them in their homes. A homeowner will still owe this amount but will not have to
repay it until after active duty service is completed.
Additionally, most lenders have other programs to assist borrowers who

cannot make their mortgage payments. If a homeowner or spouse find
themselves in this position at any time before or after active duty service, contact
the lender immediately and ask about loss mitigation options.
Borrowers with FHA insured loans that are having difficulty making
mortgage payments may also be eligible for special forbearance and other loss
mitigation options.
Are Service Members Protected Against Foreclosure?
Mortgage lenders may not foreclose, or seize property for a failure to pay a
mortgage debt, while a service member is on active duty or within 90 days after
the period of military service unless they have the approval of a court.
In a court proceeding, the lender would be required to show that the

service member’s ability to repay the debt was not affected by his or her military
service.
What Information Do I Need To Provide To My Lender?
When a service member who is a homeowner or a representative contacts

a mortgage lender, they should provide the following information:
• Notice that you have been called to

active duty;
• A copy of the orders from the military

notifying you of your activation;
• Your FHA case number; and
• Evidence that the debt precedes your

activation date.
Will My Payments Change Later? Will I Need To Pay Back The
Interest Rate “Subsidy” At A Later Date?
The change in interest rate is not a subsidy. Interest in excess of 6 percent
per year that would otherwise have been charged is forgiven.
However, the reduction in the interest rate and monthly payment amount
only applies during the period of active duty.
Once the period of active military service ends, the interest rate will revert
back to the original interest rate, and the payment will be recalculated
accordingly.
How Long Does The Benefit Last?

Interest rate reductions are only for the period of active military service.
Other benefits, such as postponement of monthly principal payments on

the loan and restrictions on foreclosure may begin immediately upon assignment
to active military service and end on the third month following the term of active
duty assignment.
Escrow Accounts
Most FHA loans and conventional mortgages require that lenders
collect a portion of your monthly payment to pay real estate taxes,
hazard insurance, and other requirements as defined at settlement.
The Real Estate Settlement Protection Act (RESPA) defines what

actions the lender must perform, and how escrow accounts should be
established and maintained.
HUD Requirements
Predatory Lending
Today, HUD is noticing more and more incidences of abusive

practices by some business people involved in the selling or financing of
homes. This is called Predatory Lending.
Homeowners can find themselves in a just-purchased home that is

not worth the amount of their mortgage loan, or there may be property
defects that were not properly disclosed. Either of these can result in
problems for the homeowner that could ultimately lead to foreclosure.
Who Can I Call for Help?
HUD’s National Servicing Center works closely with customers who

have FHA-insured loans. Their goal is to prevent foreclosures.
Advisors also offer homeowner’s guidance about questions they
have about their mortgage and how to effectively communicate with the
mortgage lender.
For most families, a home is not only a significant financial
investment, but also a source of pride. The loss of a home due to
unexpected events such as unemployment can be financially and
personally devastating.
If a homeowner has been laid off or is facing unemployment, they
can keep their house – if the homeowner knows the right steps to take.
The Department of Housing and Urban Development/Federal Housing
Administration, the Department of Veterans Affairs, the Department of
Labor and the mortgage industry have worked together to produce
important basic information--and key links to local groups and
organizations—that can help a homeowner get through difficult times
without losing their home.
Talk to A Housing Counseling Agency

A good counselor will help a homeowner establish a monthly budget plan
to ensure that they can meet all of monthly expenses, including the mortgage
payment.
Many local housing counseling agencies are affiliates of national and

regional housing counseling intermediaries.
Prioritize Your Debts

For the unemployed, getting by will require a new, tightened budget.
Prioritize your bills and pay those most necessary for your family: food, utilities
and shelter.
Failing to pay any of your debts can seriously affect your credit rating.
However, if a homeowner stops making mortgage payments they could lose their
house. Whenever possible, any income available after paying for food and utilities
should be used to pay monthly mortgage payments.
If a homeowner’s employment income has been stopped or
reduced, first consider eliminating or reducing other expenses (such
as dining out, entertainment, cable, or even telephone services).
If that does not provide enough income, consider using other

financial resources like stocks, savings accounts, or personal
property that may have value like a boat or a second car. Take any
responsible action that will save cash.
In addition to speaking with your lender, a homeowner may want to

contact a nonprofit consumer credit counseling agency that specializes in
providing help in restructuring credit payments.
Credit counselors can often reduce your monthly bills by negotiating

reduced payments or long-term payment plans with your creditors. The majority
of credit counseling agencies are reputable and provide their services free of
charge or for a small monthly administrative fee tied to a repayment plan.
Beware of credit counseling agencies that offer counseling for a

large upfront fee or donation.
When a homeowner calls a consumer credit counseling agency, they will be

asked to provide current information about income and expenses. Make sure to
ask if the agency has a charge before signing any documents!
A Reinstatement
The goal of a reinstatement is to bail out a homeowner by attempting to
find a solution to financial problems and bring mortgage payments up to date.
After this is accomplished, the lender will reinstate the loan. Such delinquencies,
however often include legal fees if the lender has started the foreclosure process.
Many lenders require certified funds to complete the reinstatement process.
If a homeowner goes to the lender, explains that they are having financial
problems and illustrates how they have attempted to find a solution, the lender
will often suggest other options and help out.
After a mortgage holder encounters financial problems, the key is to talk to

the lender immediately. When a problem occurs, such as a job loss or major
financial setback, many homeowners try to keep their situation a secret and avoid
telling anyone about it—sometimes they go into shock. Taking this approach only
digs them deeper and makes their resulting problems worse.
When the economy deteriorates, lenders appreciate hearing from

conscientious customers right away and often attempt to assist such clients.
When dealing with the possibility of a homeowner being unable to make a regular
mortgage payment, often the lender will suggest alternative payment options
that will help them organize a budget and make their payments.
Many lenders are willing to sit down with customers in such circumstances
and set up reduced payment plans.
Using reduced payment plans, the customer pays only interest on their
mortgages. Sometimes, the lender will even offer to adjust the mortgage so that
their customers do not have to make any payments at all until they have a new
job or their financial condition improves.
The most common way to bring your loan current is to repay part of the
delinquency each month in addition to the regular payment. The easiest way to
do this is to provide the lender with a financial statement so a repayment
schedule can be established that meets the homeowner’s needs.
Again, the key here is to talk to the lender right away, BEFORE a payment is
missed. Some lenders will even work with customers to map out how they can
arrange to meet their payments with all their creditors, keep them current and
help them work their way out of the borrower’s financial problems.
Being realistic, lenders have their own interests at the forefront. They are
banking on their customer and their original judgment. They hope that within a
reasonable amount of time their customer will get a new job or overcome the
financial problem and get back on track.
Keep in mind such arrangements are only a stop-gap measure, the

lender expects the mortgage to be brought up to date, usually
within two or three months, and reserves the right to foreclose on
the property if the condition is not solved. If the borrower is able to
solve the problem the lender doesn’t give anything away and
doesn’t do anyone any favors, business is business. The borrower is
always expected to pay up all the back payments including accrued
interest and all other costs
Forbearance
If a homeowner is temporarily unable to meet monthly mortgage
obligations, a lender or mortgage company may extend forbearance until the
homeowner recovers from the financial setback.
With forbearance, the lender agrees to suspend payments or accept partial

payments for a limited period of time until the homeowner is able to begin a
repayment schedule.
A lender may allow a homeowner to reduce or suspend payments for a

short period of time, after which another arrangement must be agreed upon to
bring the loan up-to-date.
A mortgage company will usually cooperate as long as a

homeowner can show that they will be able to bring a loan current
or resume payments on a specific date in the near future.
Another forbearance option is to postpone a reinstatement to whenever a

homeowner knows they will have enough money to bring the account current at a
specific time in the future.
A lender will always be willing to discuss the acceptance of the total

amount owed to them in a lump sum by a specific future date.
Funds to bring a mortgage up to date might come from a divorce

settlement, a hiring bonus, an investment, an insurance settlement or a tax
refund.
Some state and local governments, as well as charitable organizations have
programs which will make all or part of your mortgage payment for a fixed period
of time.
Repayment Plan
A homeowner may find it possible to make an arrangement with a lender to
resume making regular monthly payments, in addition to a portion of the past
due payments each month until they are caught up.
This can be a formal or informal plan to repay the lender all of the past due
amounts and fees over a period of time. A down payment is usually required,
then monthly payments.
Mortgage Loan Modification

If a homeowner can make the payments on a loan, but does not have
enough money to bring an account current or cannot afford the total amount of a
payment, the lender may be able to change one or more terms of the loan to
make the payments more affordable.
The purpose of a loan modification is to resolve a default for long-term

financial problems. It could include reduction of the loan interest rate or reduced
payments.
A loan can be permanently changed by:
• adding the missed payments to the existing loan balance;

• changing the interest rate, including turning an adjustable rate into a fixed
rate; or
• extending the term (number of years) in which a homeowner to repay the
loan.
Loan Assumption
If a homeowner is unable to bring a mortgage up-to-date and keep it
current, the terms of some loans permit the homeowner to have a new credit-
worthy borrower assume their loan.
In these circumstances, the lender will usually require a 10- to 20-percent

down payment. Requiring a down payment enables the bank to make sure that
the borrower has equity in the home, in case they run into financial difficulty and
consider not paying on time.
Formerly, a 20 percent down payment was normal. Since then,

government-backed loans and the availability of mortgage insurance had reduced
the down payment amount to as little as 3 percent of the property purchase
price—and some banks approved mortgages with zero money down. Due to the
recent economic downturn banks are now being more cautious about
assumptions and new mortgages.
Today, only small regional lenders originate and service their own loans.
Most loans are originated by one lender, using guidelines provided by the
institution to whom they would like to sell the loan. Then the loan (note) is often
sold to a secondary lender who will collect the monthly payments and continue to
service the loan.
Paper Passed Around

Commonly, the home loan originates from one lender, the note is serviced
by a different lender and ownership of the note is held by a third lender or
financial institution.
When difficulties arise, the servicing lender is the foreclosing lender with its
procedures for completing the foreclosure and handling the property in post-
foreclosure dictated by the institution owning the note.
Mortgage Insurance and Loan Guarantees
Lenders are often guaranteed against loss on their notes by HUD, the VA, or
one of many other mortgage insurance companies.
When a new home loan is originated with less than 20 percent down
payment, the originating lender qualifies the borrower using the requirements of
the guaranteeing agency: HUD, FHA, VA, etc.
These agencies do not fund the loan, they act in a capacity more like a
standard insurance company, they collect a fee and only get directly involved
when something bad happens, which in this case would be a default in payments,
a short sale or a foreclosure.
If a default in payments occurs, the guaranteeing federal agency will

require the lender to follow specific steps to attempt to make the loan perform
once again. If those attempts are unsuccessful, then the guaranteeing agency will
require the lender to follow through with the foreclosure process.
Post-foreclosure, the guaranteeing agency will reimburse the lender

for either all, or most of the loss incurred on the foreclosed loan.
Reamortization
If a loan is reamortized, the delinquency is added to the loan balance in
order to bring the payments up to date. This increases a loan’s amount and will
also increase monthly payments.
The amount of the payment increase will not be as great if the life of the
loan is extended at the same time. Federal loan insurers like the FHA and VA allow
lenders to extend or reamortize their loans.
Refinancing
If a homeowner’s current home loan interest rate is too high and the
market is right to refinance, refinancing to lower their interest rate should also
lower their monthly mortgage payment.
By refinancing an existing loan a homeowner will be creating a new

mortgage that will pay off the present one. If the loan is still FHA-insured the
homeowner can use “Streamline Refinance” to greatly reduce paperwork.
Changing the requirements of a loan often include additional new

expenses that the borrower is expected to pay, for example,
recording fees for a loan modification.
A Deed In Lieu Of Foreclosure
A deed in lieu of foreclosure precedes and supersedes a foreclosure. The
borrower goes to the bank and offers to sign paperwork to sign the mortgage
over to the bank avoiding the expense of going through a foreclosure.
For the lender, a deed in lieu of foreclosure is the least preferred option and
often unacceptable. A disadvantage to this procedure is that there can be title
issues or other loans against the property that make it impossible to easily clear
the title.
If a buyer is unavailable and a private sale does not appear realistic, a bank
or mortgage company might consider accepting a deed in lieu of foreclosure.
If there are no liens on the property, and the mortgage company agrees to
accept a deed, a homeowner will have to sign legal papers transferring ownership
to the bank.
Although this option sounds like the easiest way out for a borrower,
generally, a homeowner must attempt to sell the home for its fair market value
for at least 90 days before the lender will consider a deed in lieu of foreclosure.
This option may not be available if a homeowner has other liens such as
judgments of other creditors, second mortgages or IRS or state tax liens.
When the lender and the homeowner agree to execute a I of foreclosure of

it is a favorable situation for both parties. It is an easy way for the mortgage
holder to avoid the damage to his credit done by a foreclosure; and the bank
avoids the legal hassle and expense of completing a foreclosure, which would
accomplish the same end result—the bank owning the property.
A deed in lieu of foreclosure is usually only practical if there are no second

mortgages or other liens on the property.
Often, when a lender accepts a deed in lieu of foreclosure, the homeowner

avoids a number of other damaging credit effects. The lender will often agree not
to file any other collection procedures or deficiency judgments.
Normally, when VA becomes involved in a deed in lieu of foreclosure it will
pay the bank or mortgage company claim for the difference between the value of
the property and the amount a homeowner owes on the mortgage.
If a deed in lieu of foreclosure is accepted, a homeowner can be released

from all further liability or may be asked to agree to repay all or part of the
amount paid to the mortgage company.
In such cases, instead of reporting a deed in lieu of foreclosure as a

“foreclosure” the homeowner’s mortgage company will usually report it as a
“voluntary foreclosure.”
Lenders do not usually like to accept deeds in lieu, because that

makes them the owner of the property and it is up to them to fix it
up, hire a realtor to sell the property and be responsible for keeping
the property in good condition until it is sold. Bank’s positions on
this are usually that they are in the business of lending money and
writing mortgages, NOT owning property.
Pre-Foreclosure Sale
A pre-foreclosure sale occurs with homes in which the owners have fallen
behind in payments, but have not yet gone into foreclosure.
Sometimes, these types of homes are sold before the foreclosure can be
completed.
If proceeds from the sale aren't enough to fully repay the loan, a pre-
foreclosure sale is often referred to as a “Short Sale.”
Post-Foreclosure Sale
The best time to buy foreclosed property is right after the bank takes over
the property and before it begins to fix it up. The bank or mortgage holder makes
repairs in an effort to increase the market value and recover as much equity as
possible they can on their loan after they sell the property.
Banks and mortgage companies realize that the best way to get the most
money from a property they have taken over is to fix it up. To do this they
schedule necessary repairs to bring a property back into marketable condition.
To make a post-foreclosure offer on a Real Estate Owned (REO)

property it is necessary to track down the lender’s REO department.
After you determine who is in charge of the REO department, be

prepared to provide as much information as possible to identify the
property.
A SHORT SALE
A short sale occurs when a homeowner must sell a home--as in the
example of Jim and Elizabeth--and has to sell the property for less money than
they owe on the first mortgage.
Jim and Elizabeth’s problems occurred before banks and mortgage

companies became deluged with numerous short sales and foreclosures and
encountered the economic slump. Their lender was unprepared for short sale
applications. In fact, at that time short sales were practically unheard of.
In ideal circumstances, in the scenario mentioned above, Jim and Elizabeth

would sell the house for $185,000, the bank would “forgive” them the $48,000
owed and write it off, and the buyer of the house would obtain a two-year-old
house for thousands of dollars less than the price of a new house.
In practice, however, a short sale transaction rarely works that way. For
one thing, while banks sometimes agree to short sales (estimated at 20 percent of
all applications), at the same time they want the mortgage holder to be
accountable for the loss. Often, before agreeing to a short sale, the lending
institution sometimes requires the borrower to sign a promissory note, agreeing
to pay off the difference within a set amount of time, for instance 10-years.
Even if the lending institution agrees to write off part of the loan, tax
complications result when the bank forgives the loan amount, but reports the loss
as 1099 income to the seller. When this occurs, on paper the transaction appears
as “income” to the homeowner and can result in higher year-end taxes.
While completing a short sale sounds simple, in order to accomplish

this goal there is a ton of paperwork, approval is required by
several bank departments and the buyer must have the patience to
wait on a transaction that could take months.
Or, even worse, the bank could file a legal judgment against the mortgage
holder for the full amount, which then shows up on the credit report for 10 years.
Such judgments stay in the public record for 10 years and hurt the person’s credit
rating.
When the lender goes to court and obtains an unsatisfied judgment, the
court finds in favor of the lender and the bank can attempt to collect the award
by a variety of methods, including garnishing the mortgage-holder’s wages.
With today’s glut of homes, many of which are either being sold short or
foreclosed upon, banks are deluged with paperwork. It usually takes their
mitigation department months to dig through the paperwork and obtain a
decision. Add to that the fact that due to the economy, many banks are also often
short-staffed and often discouraged by bank officers and stockholders from
writing new mortgages and disallowing existing ones.
The new hurdles involved in buying a home established due to a

foreclosure are also a major obstacle. Lending institutions of all types have
tightened up on mortgage requirements, now looking for 10- to at least 20-
percent down, long-term employment and a good credit rating. The days of zero-
down mortgages are long-gone. Even if an applicant meets the minimum
requirements for a loan, the odds of being approved, and having the property
approved are now extremely tight.
A real estate agent who was recently escorting his customers through new
homes was surprised to see several new home builders displaying signs in the
front yards of the houses offering “easy terms with zero money down.”
The first thing a lender looks at is an applicant’s financial condition.

Banks only consider short sales if all other possible options have
been exhausted.
Upside-Down Sellers
The real estate industry typically refers to sellers who owe more on their
home than it is worth as “upside-down” sellers. These homeowners often do not
qualify for short sales because they have income, assets and the ability to make
monthly payments.
These property owners have visible assets. Therefore if they sell their home
at a loss, the lender expects them to liquefy their assets in order to pay the
difference between the sales price of their property and what they owe the
lender.
In today’s economy this condition is common. Homeowners discover to

their dismay that the market value of their home has dropped by as much as 40-
to 50-percent. At the same time other expenses, for essential items like
homeowner’s insurance and property taxes, increase from 10 percent to 20
percent each year.
Despite the fact that property values have dropped, somehow that
reduction is not reflected in either homeowner’s insurance or property taxes.
Somehow these costs seem to always be based on the highest value of a property
and despite downturns, don’t ever seem to adjust accordingly.
Florida Taxpayers Revolt Against Property Taxes

In several Florida counties, consumers revolted and retaliated
at the ballot box against high property taxes.
Their resistance to ever-increasing property taxes resulted in

the defeat of several incumbent tax assessors who had been in
office for many years.
Some Lenders At The Root Of The Problem
Some borrowers have actually discovered that their lender is actually at the
root of the problem.
During 2004 to 2006, real estate purchasers thought the only way home
values could go was up. Lenders offered buyers mortgages with absolutely no
money down; exotic mortgages with adjustable rates; and negative amortization
loans, in which the principal goes up while the homeowner only pays a portion of
the interest due on the loan.
Two major influences on the housing market are supply and demand and
availability of funds. Two or three years ago, the demand for housing was high, as
were the prices, lenders had money readily available, so the prices of houses
went up and up. At that time buyers saw no end in sight. Lenders made cash
available to anyone who needed it, and even high-ticket properties were sold
with no equity to buyers who had barely enough income to make the payments.
Today, the market has reversed, there are a monumental number of houses
for sale, short sales and foreclosures are numerous. This condition is due to the
fact that homeowners who bought in 2004 to 2006 have no equity in their homes
and the prices have dropped as much as 40 percent.
Many loan applicants also ignored the fine print in their mortgage
paperwork. If they had read this information, it clearly stated:
• that their payments would increase proportionally, based on the

interest rate;
• that they were assuming balloon mortgages, on which they were
only paying the interest with the entire mortgage amount due within
a few years; and
• that if they attempted to sell the house and pay off the mortgage
early they would have to pay a pre-payment penalty.
In June, 2008, Florida Attorney General Bill McCollum filed a lawsuit against
Countrywide Financial, one of the nation’s largest mortgage companies, for
allegedly engaging in deceptive and unfair trade practices.
Florida’s suit claims that Countrywide put borrowers into mortgages they
couldn’t afford or loans with rates and penalties that were misleading.
“It is unthinkable that a company would try to take advantage of someone’s

dream of homeownership,” said Attorney General McCollum. “Florida
homeowners who are trying to protect their homes from foreclosures shouldn’t
have to worry about their mortgage brokers or lenders unfairly profiting at their
expense.”
The suit claims that similar to other mortgage lenders, Countrywide

attempted to generate large numbers of mortgage loans for resale on the
secondary mortgage market. In doing so, the attorney general contends the
company purportedly originated loans with little concern about whether the
borrower could afford and maintain payments on these loans.
In the process, the company allegedly eased or ignored its own

underwriting standards and encouraged borrowers to enter into “teaser” rates
while concealing or misrepresenting that much larger payments would later
become due.
“Our legal services programs throughout the state have seen a large
number of clients who are now in default on mortgages written by Countrywide.
It appears to us Countrywide did no due diligence and accepted applications
which were patently fraudulent and reflected no ability on the part of the
borrowers to make the required payments,” said Marc Taps with Legal Services of
North Florida. “We cannot help but conclude that the most financially
unsophisticated segment of the population was targeted by the brokers who
knew Countrywide would write these mortgages.”
The lawsuit also claims Countrywide hid any potentially negative effects of
these “teaser” loans, including rising rates, prepayment penalties and negative
amortization, which borrowers would inevitably face if they were making
minimum payments or trying to refinance.
Traditionally, lenders require borrowers to document income and assets,
but investigators with the Attorney General’s Office believe Countrywide offered
reduced or no documentation loan programs to increase its loan sales.
Countrywide also allegedly paid greater compensation to brokers for loans with
higher interest rates and prepayment penalties because it could sell those loans
for higher prices on the secondary market.
According to the attorney general, the company’s deceptive marketing

practices were supposedly designed to sell costly loans while hiding or
misrepresenting the terms and dangers. Countrywide’s deceptive sales practices
resulted in a large number of loans ending in default and foreclosure, with the
company reporting earlier this year that more than 25 percent of its subprime
loans were delinquent. The Attorney General’s Office received more than 150
complaints about Countrywide, prompting a subpoena in February and ultimately
leading to the lawsuit.
As indicated in the attorney general’s statement, Countrywide was only one

of many lending institutions applying these tactics.
The first step a homeowner who is having financial difficulties should take is
to contact the mortgage holder, discuss their financial situation and negotiate
alternatives that will enable them to stay in the house. Lenders, especially in
today’s financial climate, are usually willing to negotiate alternatives to short
sales and/or foreclosure.
Lenders often agree to allow homeowners to miss two or three

payments or will sometimes agree to restructure the loan. They are
in business to lend money and profit from payments made on those
loans.
Lenders lose money whenever a client has a foreclosure or short

sale—if at all feasible, banks would rather negotiate with
customers to make it possible for them to continue their payments
and avoid foreclosure.
More Than One Mortgage
Other complications occur when homeowners have more than one
mortgage. In such circumstances, it often seems impossible to get representatives
from two different banks to agree on short sale terms.
In order to go through with a successful short sale it is first necessary to

gain approval from everyone involved, the buyer, the seller, and one or more
lending institutions holding mortgages on the property. The odds against
completing such a transaction within a reasonable amount of time are often
momentous.
The first essential to instituting a short sale is to have at least one buyer
that is willing to buy a property if an agreement can be made.
This also complicates matters, because buyers have to realize that

completing a short sale transaction could take many months.
To qualify for a short sale, a CMA must show that the market value of the
home has dropped. The value of the home must be less than the unpaid balance
of the mortgage.
To qualify for a short sale, the applicant has to be close to

foreclosure, have no visible source of income, or assets.
If the homeowner has been scraping together mortgage payments

and not missed any, the lender has no motivation to approve a
short sale.
Foreclosures
When homeowners fail to make their mortgage payments on time,
mortgage holders foreclose on their property in an effort to recover the loan
amount they are due.
If a lender forecloses on a property they own the home, something they

prefer not to do. They make money on having mortgages paid off, including loan
payments with interest.
Property owners would also like to avoid foreclosure and keep their home,
but due to extenuating circumstances they get behind in their loan payments.
Federal loan insurance organizations such as the VA, HUD, Fannie Mae and
Freddie Mac, all have programs employing experts to counsel homeowners and
keep them in their property. If this is not possible, by following their
recommendations it is possible to minimize the credit and financial implications of
a foreclosure.
How Foreclosures Vary

Foreclosure processes vary depending upon whether the state in which the
foreclosure is taking place is a judicial, non-judicial state or a state that uses both
procedures. It’s important to understand the differences from state-to-state.
From state-to-state terms used and length of time required to complete a
foreclosure vary greatly. Some states require the bank to send a Notice of Default
in which the homeowner is notified by mail; while other states only require that
the notice be published, with no direct owner notification required.
To avoid foreclosure homeowners can successfully complete this process by

properly assembling and submitting complete documentation.
Judicial State Procedures
In judicial states, a civil lawsuit must be filed against the homeowner to
foreclose on the property. This procedure can take several months before a
foreclosure sale can be held.
In judicial states foreclosure efforts begin when the lender files a complaint
and records a notice of Lis Pendens to begin a judicial foreclosure. The complaint
states:
• the nature of the debt and how much is owed; and

• why the default should allow the lender to foreclose and take the property.
Using regular mail, direct service and publication of the notice, the
homeowner will be served notice of the complaint and given a court date.
Depending upon the defense provided by the homeowner the court will
determine if the debt is valid and in default, and if so, find in favor of the lender
issuing a judgment for the amount owed, plus the legal and other foreclosure
costs.
The court will issue a writ to collect the debt and authorize an auction or
sheriff’s sale, to be held in a public place and open to everyone. Such sales require
cash to be paid at the time of the sale or a substantial deposit.
During the auction, the property is sold to the highest bidder, subject to
court approval. A sheriff’s deed will be prepared after the court approves the sale
and delivered to the bidder, who then owns the property.
Non-Judicial State Procedures

In non-judicial states the foreclosure process does not require the lender to
file a civil lawsuit to repossess property; they have to prove to a state foreclosure
trustee that the homeowner has defaulted on mortgage payments.
When a loan default occurs in a non-default state the homeowner will be
served a notice of complaint using regular mail, direct service and publication of
the notice. At the same time a Notice of Default will be recorded.
The homeowner must cure the default within a prescribed amount of time.
If not, a Notice of Sale will be mailed to the property owner, posted in public
places, recorded at the county recorder’s office and published in area legal
publications.
A public auction will be held after the legally required time period has
expired and the highest bidder will become owner of the property after the
property is paid for and the deed recorded. Non-judicial foreclosures require cash,
or cash equivalent either at the time of sale or soon thereafter.
The trustee then sets a trustee auction date for the foreclosure process to
be carried out within from a few weeks to two months.
Short sale proceedings can be a problem in non-judicial states because

foreclosures are so fast that it is often necessary to request extra time to work
out the paperwork and accomplish a short sale before an auction is held. It is
often necessary to obtain approval from the lender to postpone the auction
because without this provision there won’t be enough time to complete the short
sale.
Both, Judicial and Non-judicial States:
Alaska, three to four months;

Arizona, three-to-four months;
Arkansas, four-to-five months;
Colorado, two-to-five months, 75 days redemption;
Iowa, five-to-six months, 120-days redemption if judicial;
Michigan, 60 days, 180 days redemption;
Minnesota, 60-to-90 days, 180-day redemption;
Rhode Island, 60-to-90 days;
Utah, 120-to-150 days; and
Vermont, 210-to-300 days.
Judicial States:
Connecticut, five-to-six months;
Delaware, three-to-seven months;
Florida, five months;
Illinois, seven-to-10 months;
Indiana, five-to-seven months, 90-days redemption;
Kansas, four months, six-to-12 months redemption;
Kentucky, 180 days;
Louisiana, 60-to-180 days;
Maine, six-to-10 months;
Maryland, 60 days;
Nebraska, 150-to-180 days;
New Jersey, 90-to-300 days, 10-day redemption;
New Mexico, 120-to-180 days;
New York, 120-to-240 days;
North Dakota, 90-150 days, 60 days redemption;
Ohio, 150-to-210 days;
Oklahoma, 120-to-210 days;
Pennsylvania, 90-to-270 days;
South Carolina, 180 days; and
Wisconsin, 300 days.
Non-Judicial States:
Alabama, one to three months to foreclose with a 12 month redemption

period;
California, four months;
District of Columbia, two-to-four months;
Georgia, two months;
Hawaii, three-to-four months;
Idaho, five-to-six months;
Massachusetts, 90-to-120 days;
Mississippi, 60-to-90 days;
Missouri, 60 days;
Montana, 150 days;
Nevada, 120-days;
New Hampshire, 60-to-90 days;
North Carolina, 60-to-120 days;
Oregon, 150 days;
Tennessee, 60 days;
Texas, 60 days;
Virginia, 60 days;
Washington, 120-to-150 days;
West Virginia, 60 days; and
Wyoming, 60-to-90 days, 90 days.
Sometimes, it takes weeks or as long as a month to get a bank to assign a

short sale to a loss mitigator and then another month to get the paperwork
completed.
Often, however, lenders, who are often deluged with short sale
applications, simply prefer to ignore their customer’s plight and let a property go
into foreclosure. Some statistics show this often happens 80 percent of the time!
A short sale is often a last-ditch resort to avoid foreclosures.
Foreclosures occur for a wide variety of reasons when the mortgage holder
does not have the income to continue paying off the mortgage.
Common reasons for foreclosure are when a homeowner loses a job, has
an accident, has a disabling medical condition, has gone through a divorce, or has
excessive debts or credit card bills. If there has been a divorce, it is essential to
have a copy of the divorce decree to be able to determine whose names are
actually on the property.
When a property is in foreclosure the lender can facilitate a pre-

foreclosure sale, which will save a variety of fees that will occur if
the property goes into foreclosure; the property can be sold by the
lender at a sheriff’s or trustee’s auction; or the lender will repossess
the property as REO property and list it with a Realtor.
Foreclosure And How To Avoid It
There are many different reasons why homeowners fall behind on their
mortgage payments.
Perhaps a homeowner is behind on their mortgage payments because of a

job loss, decrease in income or an increase in debts. If a homeowner is behind in
mortgage payments, they could lose their home.
Federal organizations like HUD and the FHA provide a wide range of relief
options for borrowers. There are many alternatives and ways to get help. These
include mortgage modifications, special forbearances and other actions that will
avoid foreclosure.
HUD, VA Have Special Alternatives

HUD’s National Servicing Center works closely with homeowners who have
FHA insured loans.
The VA has discretionary authority to buy a loan from the mortgage

company. This is called “refunding.”
The VA considers this alternative for every loan before a foreclosure is

completed. To qualify for VA refunding the existing mortgage company must have
already decided not to modify the loan, extend additional forbearance or approve
another repayment plan.
If a homeowner occupies the property and has the ability to make

the mortgage payments, or will have the ability in the near future,
they may qualify for refunding.
Workout Solutions
A lender has to be able to determine that the homeowner has suffered a
financial hardship and will have the capability to keep the loan current in the
future.
If a homeowner can keep up with their mortgage payments, it makes it

more likely that a lender will consider working with them to solve their problems.
Remember to submit all your paperwork together as a package and be sure

to keep copies of everything. The lender needs all of the information to be able to
make a decision about which type of workout may be appropriate.
Owner income, assets and expenses, along with personal and financial
information and supporting documentation is collected and forwarded to the
lender to review and determine if a workout is possible. Most lenders would
prefer a homeowner workout a defaulted loan by preparing a repayment plan.
After considering the homeowner’s individual circumstances lenders have a

number of options available:
Claim Advance: If your mortgage is insured, a homeowner may qualify for

an interest-free loan from the mortgage guarantor to bring the account current.
Repayment of this loan may be delayed for several years.
Reverse Mortgages: A good option for some seniors. A reverse mortgage

counselor can counsel homeowners about their options and what to avoid. Older
homeowners usually qualify for larger reverse mortgages because they own more
equity in their homes. These mortgages require the homeowner to keep property
taxes, insurance and maintenance fees up-to-date.
About 90 percent of the reverse mortgages signed are Home Equity

Conversion Mortgage (HECM) transactions. The Federal Housing Administration
(FHA) insures this type of mortgage.
There are a variety of reverse mortgages available, HECM, Fannie Mae

Home Keeper (FMHK) & Home Keeper for Home Purchase (FMHKHP), Financial
Freedom Cash Accounts (FFCA), and Canadian Home Income Plan (CHIP) Reverse
Mortgages for Seniors.
Maximum lending limits vary from county to county, so the home’s location
is a factor. FHA loan limits vary from around $200,000 to $350,000. HECM up-
front fees are also capped by FHA so that a homeowner that takes out a loan pays
about 2 percent of the maximum claim amount, plus an annual .5 percent of the
loan balance. The mortgage insurance premium (MIP) is paid directly to FHA,
which guarantees the loan. It guarantees that if the loan servicer goes out of
business, FHA will provide the homeowner with the guaranteed funds. MIP also
insures that the homeowner will never owe more than the value of the home.
If a homeowner takes out one of these loans he has to pay standard closing
costs including title insurance, attorney’s fees, recording fees, taxes, etc.
FMHK is an alternative to HECM loans that caters to individuals with higher

property values, condominium owners and seniors looking for a reverse mortgage
to finance a new home. Applicants for this product must be 62 or older.
A FMHK applicant has several ways to accept the funds: in fixed monthly
payments for live, as long as the borrower occupies the home as a principal
residence; a line of credit; or a combination of monthly payments and line of
credit. Borrowers pay a 2 percent origination fee, a monthly servicing fee and
other closing costs. The interest rate on this type of loan adjusts on a monthly
basis equal to a fixed spread above an index rate.
Conventional reverse mortgages are not insured by the federal government

but have many similar consumer protections. These enable someone living in a
high-priced home to obtain larger loans based on the price of the home. This type
of loan routinely offers lower upfront costs.
A CHIP Reverse Mortgage is common in Canada and enables senior

homeowners over 62 to obtain a tax-free loan for as much as $500,000. No
payments are required until the home is sold or the owners move out. Once
approved for a maximum amount, homeowners may request an initial low
amount and then later request additional funds up to that amount.
Private Mortgage Insurance
One aspect of short sales and foreclosures that homeowners and real
estate agents often overlook is that most lenders have private mortgage
insurance, paid for by the homeowner, but paid to the bank if the property goes
into foreclosure.
Private mortgage insurance is required to cover properties on which

minimum down payments are made, and often amount to as much as 20 percent
of the home’s price.
If a homeowner has a FHA-backed loan, the mortgage insurance premium is

paid directly to that federal organization.
If private mortgage insurance is held on a property, the insurer also

has a say in the final decision about whether to approve a short
sale.
If the PMI approves an amount, then the lender will usually approve
it—but if they do not, no deal.
Short Sale vs. Foreclosure?
The main difference between a short sale and a foreclosure is that in a
short sale the bank “forgives” the homeowner and in the best circumstances does
not hold them responsible for the difference between the sale price and the
amount of the mortgage.
In a foreclosure, the bank holds the homeowner responsible and often

requires the homeowner to pay the deficiency.
A short sale cannot take place without agreement of the lender (or lenders)
to accept less money to clear the title than the amount of the mortgage. The
homeowner, however, can never be sure that the lender will not hold him
responsible for the shortfall.
Steps To Do-It-Yourself Homeowner Short Sales
A homeowner can do their own short sale, but it is an involved procedure.
It is advisable to sign up with a real estate agent.
A current market analysis (CMA) is a report generated by a real estate

agent, using the multiple listing service, to detail what properties have sold for
within a close-by radius of the property.
CMAs list sold properties, comparable sales based on properties on the

market, and pending sales in the neighborhood.
Comparable Sales
In addition to a CMA, a real estate agent can obtain comparable sales data
about home sales near the property.
These prices should validate the price the seller asks and the buyer has offered
for the home.
If a homeowner asks a real estate agents to establishing comparative data they

can have three agents from different offices do a study, it’s free and will give the
homeowner a good idea on the property’s value.
1. Preliminary Title Search Essential

It’s essential and well worth the expense to order a preliminary title search.
A preliminary title search is relatively inexpensive and will determine

exactly who has interests in the property, what mortgages, liens, encumbrances,
assessments, property taxes are outstanding and who will have to agree to the
terms of the short sale.
The information provided during a preliminary search by a title company
can be essential in providing an accurate breakdown of all expenses involved in a
short sale and provide the lender with a precise idea about what it will net from
the transaction.
Short Sale Hindrances

The homeowner needs to assemble a package of information about his
property, including copies of all paperwork.
The potential of successfully completing a short sale decreases dramatically

if there is a second mortgage. If there is a second mortgage on a house it means
all mortgage holders must approve the terms of the short sale.
And, the odds of completing a successful short sale are reduced even more
if there is a contractor’s lien, material lean or tax lien on a property.
After the title company takes an initial look at the property it will prepare
an initial draft statement indicating whose names are on the title and what
mortgages, encumbrances and liens exist. This information will indicate the
procedures and amounts needed to clear the title for the buyer. Such statements
indicate what it will cost to pay off lenders and at the same time satisfy the needs
of both the seller and buyer.
If a judgment is found on a title it is not the end of the world, judgments,

like mortgages, are negotiable. If a contractor with a lien against a homeowner
thinks he is going to be paid part of the amount of a lien, he will most likely accept
a partial payment in lieu of no payment at all.
If the homeowner has a choice between a short sale and a foreclosure, the
short sale is always the best way for the homeowner to go. Short sales appear on
homeowner’s credit reports as a pre-foreclosure redemption; while foreclosures
appear as a deficiency and can hamper credit for 10 years.
Legal fees involved in short sales will average a few thousand dollars, while
just the legal fees involved in a foreclosure can easily cost $30,000 to $40,000.
To qualify for a short sale, a mortgage-holder must demonstrate that a
house cannot be sold for the value of the mortgage. There is no requirement that
a seller be behind in mortgage payments.
The easiest way to demonstrate that a house cannot be sold is to list it with
a Realtor for three months.
The property owner should maintain detailed records about when the
house was listed, including copies of the MLS listing, broker’s agreement and how
many times a prospect visited the house. Most Realtors will be able to provide
this information on a week-to-week or month-to-month basis.
If a homeowner cannot afford to make payments and the only solution is

foreclosure or bankruptcy, in these scenarios, the short sale is an inexpensive and
logical way to solve both problems.
Prior to applying for a short sale, sellers should avoid extravagances, like running
up credit card bills for nonessential items.
The first step involved in attempting to do your own short sale is to

determine who holds your mortgage.
Information about your mortgage-holder should be on your monthly

mortgage billing statement, your coupon payment book, web links or customer
service numbers found under, “help for homeowners,” or “lenders,
Assembling all available data on the property and communicating that

information to the lender are key factors that make it practical for homeowners
to arrange their own short sales.
Contact Mortgage Holders

The first step in initiating a short sale is to contact the lender to obtain
information about how much money is necessary to pay off the mortgage.
If there is a second mortgage holder, the homeowner will need to obtain

the same information as from the first mortgage holders.
Title companies and lenders have standard mortgage payoff forms. Call the
lender, tell them there is a potential buyer for the property, and send them the
appropriate form to request information about the total amount required to pay
off the mortgage.
Obtaining this information will confirm whether or not a short sale is

required and possible.
In short sale transactions most lenders have individual departments

handling that type of transaction, they may have different names, but their
purpose is the same—to advise the bank what type of transaction would be most
beneficial for the lender, either a short-sale or foreclosure.
Depending on the lender, it could be easy, or very hard to contact the

person responsible for short sales. Depending on the size of the bank, the short
sale department is often understaffed and overworked. There could be a
supervisor, overseeing a staff of one or two evaluators—but most likely there will
only be one person, whose desk is stacked with short-sale applications. For this
reason it is often necessary to call this person two or three times a week to make
sure the application has not disappeared or been moved to the bottom of the
stack.
Homeowners have to be patient while waiting for initial bank approval. The
real disadvantage during the long wait, often as long as two or three months, is
that while waiting for the transaction to be approved, interest rates or other
details can change. This often motivates the prospective buyer or the bank to
cancel the agreement.
In anticipation of the possibility of a long wait before a bank or

mortgage company makes a decision on a short sale, safeguards
should be written into the contract to protect the seller in case there
are claims of failure to perform.
Compromise Claims
Homeowners with a VA loan may qualify for a “compromise claim” for the
difference between what a buyer offers and the amount of the loan.
A homeowner with a VA loan must contact them to discuss their financial

situation and obtain approval for a sale. The VA will review the situation and
discuss it with the mortgage company. If approved, the VA will pay the bank or
mortgage company the difference between the mortgage balance and the
proceeds of the sale.
Sometimes the mortgage company can approve the sale on behalf of VA

through the organization’s “Servicer Loss Mitigation Program.” A majority of the
VA approved mortgage companies now have a Loss Mitigation Department
authorized by VA to process VA compromise sales.
If a VA loan originated on or before December 31, 1989, the seller may be

required to sign a promissory note. A promissory note obligates the seller to pay
the VA the difference between the mortgage balance and the proceeds of the
sale. The amount is always less than the amount the homeowner would owe VA if
a foreclosure sale took place, with monthly payments arranged based on the
homeowner’s financial ability.
When a homeowner or real estate sales associate contacts their lender

they typically need:
• the loan account number;

• a brief explanation of the circumstances;
• recent income documents, such as pay stubs, benefit statements from
Social Security Disability, Unemployment, retirement or public assistance;
• if self-employed, the homeowner needs to provide complete tax returns for
the last two years;
• a year-to-date profit and loss statement; and
• a list of household expenses.
Workout Package
Typically, the lender will fax or mail the homeowner a loan-workout
package. These packages contain information, forms and instructions.
Any homeowner who wants to be considered for assistance must complete

the forms and return them to the lender right away. The lender will discuss a
solution with the homeowner after they review the completed package.
It is very important to document everything done by a homeowner or real

estate agent, everyone a homeowner talked to, when, the topic of the
conversation and what was said.
Each lender has its own requirements a homeowner or real estate agent
must meet in order to qualify for a short sale.
It’s a good idea to start the short sale application process by calling the
lender and ask them to send a list of their requirements.
After the homeowner or real estate agent has obtained this list from the
bank or mortgage company it is essential to gather information from personal
paperwork about the property.
While assembling essential property information to submit to the

bank or mortgage company an ideal way to keep it organized is to
buy a file-folder organizer at an office supply store and organize all
pertinent documents alphabetically.
Write A Hardship Letter To The Lender
After a property owner has an offer, the first thing to do is send the
mortgage-holder a hardship letter. A hardship letter describes why the loan went
into default, why the owner had to put the house up for sale and asks the lender
to accept a short sale.
The hardship letter should not be cut-and-dried, it should be an emotional

letter describing each and every hardship the borrower encountered and what
other calamities resulted. The hardship letter should appeal to the lender to have
sympathy for the borrower.
At the same time, if you describe hardships, such as major debilitating car
accident, then it is a good idea to back up the hardship letter with a police report
about the accident and information from the insurance company about the claim.
If a letter describes a hospital stay and expenses racked up by that stay, it

should be accompanied by a doctor’s statement and copies of the bills.
After a homeowner has assembled detailed budget information about why

they have been unable to make mortgage payments and how bad the picture is,
the homeowner should write a hardship letter describing why the seller is
requesting a short sale.
Information provided by a real estate agent can be used to organize the

information a homeowner should include in a hardship letter.
The hardship letter should not be cut-and-dried, it should be an

emotional letter describing each and every hardship the borrower
encountered and what other calamities resulted. The hardship
letter should appeal to the lender to have sympathy for the
borrower.
This letter should describe involuntary reasons why the loan went into
default.
It should describe in graphic terms how the homeowner got financial

difficulties, was there a major tragedy or other obvious cause?
Was the main income provider laid off or lose a job?
Are payments on the mortgage up-to-date, or in arrears, and how many

payments have been missed?
The hardship letter should illustrate why the homeowner is unable to meet
the terms of the mortgage and make an appeal for the lender to accept a short
sale.
This letter should be kept relatively short, four or five paragraphs. The
homeowner should describe what solution is suggested to bring the loan current
and why you think these efforts will succeed.
Prepare A Preliminary Net Sheet

The second step should be to prepare a preliminary net sheet. This sheet is
very similar to net sheets prepared in a normal property sale, except that the
bottom line will indicate a shortfall instead of a profit.
A real estate agent has standard net sheets, or they are available from any
office supply store. These show the sales price and then spell out all the costs of
the sale, unpaid loan balances, outstanding payments due, late fees and
professional fees for attorneys, accountants and real estate commissions.
A normal real estate transaction the net sheet would show a
positive balance to the property owner—in a short sale the bottom
line will show a negative balance. The mortgage holder must agree
to for the transaction to be completed.
What Will It Take To Put The House In Shape?

In addition to the net sheet, the homeowner should provide a truthful
evaluation on the condition of the house and what repairs will be needed to put it
into saleable condition.
The lender will have his own appraiser go out and look at the property, but
it helps to advise him in advance of repairs that will be required to bring the
property into good condition.
It is even advisable to have your real estate agent send in an appraiser to

get a professional opinion on the condition of the property. When the bank sends
in its own independent appraiser, the homeowner can provide them with what
the other appraiser said and make their job easier.
The seller should have a real estate agent prepare a comparative market
analysis (CMA) of the property to give to the bank with the hardship letter. The
CMA should indicate that property values have fallen in the area and therefore
the property value is less than the mortgage value.
In order to authorize a short sale it will be necessary to show that the

property was actively, but unsuccessfully listed for sale by a realtor, and that
there is a buyer, or that no one was interested in buying the property. Many
lenders refuse to even consider a short sale unless a property has been listed for
90 days or more.
What To Send With The Hardship Letter
The hardship letter should include information about everyone named on the title
and mortgage.
Information included with the hardship letter should give the lender an overview
of the homeowner’s financial status and verify that they have encountered a
financial setback.
Most banks, lending institutions and mortgage companies run credit checks on
short sale applicants to obtain an unbiased view of the homeowner’s credit.
An addendum to the hardship letter should be a detailed outline of the property

owner’s income and assets, which should be accompanied by the following
paperwork:
• salary information provided by the employer which verifies the

homeowner’s income, including two pay stubs;
• a bank statement, including information about all bank, checking and

savings accounts and other funds;
• complete copies of personal income tax statements covering the last two
years;
• a profit and loss statement for self-employed borrowers;
• a financial statement outlining all income, assets and liabilities; and the
listing history of the house.
• The lender will use these to determine the feasibility of any repayment
plan, or to determine if foreclosure is unavoidable.
Contract for Sale and Purchase
The ideal situation, of course, is to have a buyer and an option contract for
sale and purchase.
Option contracts for sale and purchase are available from real estate agents
and at office supply stores. This document should be clearly written and have all
the essential information about the buyer and seller completely filled in.
With an option contract the homeowner agrees to sell the property and the
buyer agrees that if the bank approves the short sale he will buy the property for
a set amount, which is usually less than the amount of the mortgage on the
property. The contract should specify that the contract approval depends upon
the lender.
It is important to specify an actual price the buyer is willing to pay

for the property, without it, the lender will not even consider a short
sale.
The price the buyer is willing to pay for the house is only the starting price,
but must be specified. The actual price will depend on variables such as mortgage
balances, liens and closing costs.
This contract is usually accompanied by a $20 to $50 earnest money

deposit, which is non-refundable. The earnest money deposit guarantees the
buyer that he will have an option to buy the property at the proposed amount.
The agreement will only take effect after the lender approves the bid.
The bid amount is the purchase price, which will be adjusted by the bank or
mortgage company after considering all liens, mortgages and closing costs. It
should be specified in the contract that the bid amount is payment in full to the
buyer and the lender.
Cash transactions are the norm for short sale transactions, so the contract
should specify that completion of the deal is contingent upon obtaining financing.
It should also be specified that, due to the fact that the transaction is a short sale,
the seller will not receive any funds at the closing.
Even if the short sale is approved by the bank, the lender will most likely
counter-offer at a higher price, and the buyer will have to submit another offer.
Therefore, it is a good idea to have the seller sign an agreement stating that it is
ok for a real estate agent or the buyer to place a counter-offer directly with the
bank.
The contract also signifies the term the agreement is in effect, with short
sales, often at least three to six months.
It is important to make sure that all property owners listed on the

title sign the agreement.
The lender will want to see a copy of the initial listing agreement and the
short sale listing agreement. During the process of reviewing a short sale most
lenders will attempt to renegotiate commission amounts and cut other expenses
listed on the closing statement to the bone. It may refuse to pay for normal real
estate transaction essentials, like home inspections, buyer warranties or other
inspections.
The information submitted to the bank should include loan or mortgage

information, including the date the mortgage was taken out, its reference
number, the amount of the loan, and payment information.
Quite likely, the lender will also want to have its own appraiser to
independently review the property.
The third step would be to prepare a preliminary information sheet that
includes detailed information about any offers on the property, associated costs,
like real estate commissions, second mortgages or liens, and the estimated net
information. This sheet should include all relevant information about the
property:
Property information must include the names of the property owners, as

listed on the title and mortgage; their current address, phone number,
employment information and a letter authorizing the bank to release information
and naming everyone that is authorized to receive that data. The bank will not
provide information to anyone who is not authorized to do so.
If the property was listed for sale with a real estate agent, the paperwork
should give the name of the real estate company, the name of the broker, the
name of the agent, the company address and phone numbers of the broker and
the agent.
If a title company was used to do a preliminary title search or to obtain

information about the status of the property, then the name of that company,
what employee handled the search and contact information should be provided.
The original information provided by the title company should be attached.
List Community Pro’s, Con’s

Although the bank or mortgage company issued a loan on the property, in
most instances it is very doubtful if the organization knows anything about the
area.
During the term of a 30-year-mortgage, mortgage paper is often passed

from bank to bank. In some instances the mortgage stays in the same
organization, but the lender can be sold several times during a short period of
time.
In other instances, lenders sell blocks of their mortgages to outside banks

and homeowners with mortgages written by that firm receive new payment
books requiring them to make their payments to a totally different lender in a
different state or part of the country.
Bank of America, for instance, has a small team of mitigation officers and
lawyers that usually have offices in an urban center, and cover all transactions
within a whole state or region. In Florida, Bank of America’s mitigation and legal
department is in Fort Lauderdale. If one of their banks in North Florida needs
assistance with a short sale or a foreclosure, the team drives or flies to the area,
stays long enough to study the problem, and then takes all the files back to its
headquarters.
Likewise, many regional banks have mitigation officers and lawyers that
operate out of their Atlanta office and cover territories all over the southeast.
Due to this, a homeowner submitting a short sale package should also write
a description of not only his property and neighborhood, but include the entire
community.
Considerations should include commentary on the economy of the area, is

it a busy area in which there are a lot of jobs? Or, is it bedroom communities from
which residents have to commute a long distance to find work?
What is the population of the area? How many of its residents are retired,
and how many have jobs? Is new industry coming to the area?
This description should include a brief outline of the community, its

population, crime statistics, school information and other relevant data that will
give the lender a good idea about the potential, or lack of potential a property will
sell.
After the short sale package is ready to go and before it is

presented to the lender, it is a good idea to give it to a real
estate attorney to review and make sure everything is
complete.
Items Necessary To Qualify For A VA Compromise Sale
An applicant for a VA compromise sale needs to provide:
• a copy of the earnest money contract;

• a proposed settlement statement with closing costs calculated through
the projected closing date;
• a VA appraisal;
• a payoff of assumption statement from the mortgage company
calculated to the projected closing date;
• a statement from the seller including why the property is being sold,
how much money the seller can pay at closing and how much relocation
assistance the employer is providing, if any; and
• a seller’s financial statement showing all income, assets, debts, other
obligations, marital status and ages of dependents.
Assuming A VA Loan
If a VA loan is to be assumed a release of liability package is required.
A compromise assumption will not be processed without first receiving a

statement from the lender saying that they are willing to have their guaranty
amount reduced by the amount of the claim payment.
If it appears a compromise assumption is feasible, the buyer must be

qualified by the bank or mortgage company to assume that loan.
If VA approves a compromise sale, a copy of the approval letter from the

bank or mortgage company mentioning the amount the VA will pay upon
completion of the compromise sale is submitted to the closing attorney.
The closing attorney or his staff will review the approval letter which will
include the shortage amount that VA will pay upon completion of the
compromise sale.
Approval of any additional charges or amounts needs to be submitted to VA
or to the mortgage company well in advance of the closing date.
At the closing table, the net proceeds will be paid directly to the bank or
mortgage company, which then files a claim with the VA for the difference
between the proceeds and the payoff amount.
The Lender Will Work With A Homeowner
Lenders and mortgage companies prefer to work with a homeowner to
avoid foreclosure or a short sale. If the borrower is about to default on a
mortgage payment and comes to the bank with some money in hand, the bank
will work with them to arrange a payment schedule to keep the homeowner in
the house.
The lender (mortgage-holder) has the final say on whether or not a short
sale offer is approved. The lender’s goal is to sell the property at the most profit
for the bank, this can be either by approving a short sale or a foreclosure—the
bank is only interested in its bottom line and its mitigator could care less about
how the homeowner fares in the deal.
Initially, call the lender, identify yourself and ask for the authorization to
release information form so that you can notify the bank of who should be
authorized to obtain information about a mortgage. This could include the buyer,
a realtor, or an attorney.
While many lenders have a set policy about their requirements and even
whether or not they will accept a short sale or discounted payoff—the loss
mitigation department considers each transaction individually. Many lenders have
only one or two people making these decisions, so obtaining a final conclusion
can often take a long time.
The disadvantage to the lender when they accept a short sale is

that in a foreclosure the lender takes possession and “owns” the
property. It is then up to the lender to clean up the property, list it
for sale with a real estate agent and perhaps even put it in an
auction—all of which incur high costs.
During present market conditions, the lender often sets a minimum

amount (usually the amount of the mortgage in default on the property) it will
accept at auction, and if that amount is not bid, the bank ends up buying the
property at that amount during the auction.
With a short sale, the present owner of the property sells it to a new owner
and although the mortgage holder receives no proceeds, the homeowner’s record
is clear.
Second mortgage holders are also usually less likely to agree to short sales
because during such transactions their interests are usually secondary. The first
mortgage holder gets paid first and the second mortgage holder gets paid
whatever is left over, usually nothing.
Had the same owner gone through a foreclosure that process would remain
on the homeowner’s record for 10 years. After a foreclosure, the homeowner
would be unable to purchase another home and his credit report will reflect the
foreclosure.
In a foreclosure, the lender is paid the outstanding amount, but if any funds
are left over after all other expenses are paid, the owner receives that amount.
Banks require homeowners to be able to document their hardship status in

order to be let off the hook for an amount less than the full value of the
mortgage.
A bank’s customer service representatives are intermediaries trained to

field calls. While they can provide general information about who to contact in
the bank they are rarely involved in any way or able to assist in the actual
completion of short sale procedures.
Bank policies vary from bank to bank about whether a short sale applicant
will receive the necessary paperwork from the bank or its loss mitigation
department.
After a short sale applicant has completed the paperwork it proceeds

directly to the loss mitigation department, the workout department or the loan
resolution department (different names for the same procedure).
Necessary Paperwork
In order for a short sale package to be taken seriously it must contain ALL
documents. Federally insured FHA, VHA and HUD properties all have their own
specific documents.
Necessary paperwork for federal organizations includes:
1. Fax cover sheet

2. Authorization to release information
This form should be sent by fax and mailed to the lender. It usually
takes several days for the bank to enter this information into its
computer, therefore, it is essential to follow up to make sure the
bank received the information and then later on make sure it has
been entered into the computer. (Real estate agents should make
sure their company information is also registered with the lender.)
3. Hardship letter
4. Short sale package cover letter
5. Application to participate in a short sale
6. Mortgage statements, including first- and second-mortgages, if
applicable
7. A statement listing liens, encumbrances and any other payments due
on the property
8. Repairs, include photos of areas of the property that need repaired
9. P&S agreement
10. HUD 1
11. Form 90036, an application to participate
12. Counseling Certification filled out by a certified counselor (FHA-HUD)
13. Application to participate (FHA)
14. Listing Agreement
15. Financial Form
16. Last two pay stubs
17. Last two bank statements
18. Last two years tax returns
19. Pre-approval letter/proof of funds letter
20. Comparable sales
21. Current market analysis
The lender should be asked to provide payoff information. Some banks will
provide this information freely over the phone, others require a written request.
After the organization receives the short sale application

and package, there is a copy of the listing agreement will
be requested.
Having a copy of the listing agreement enables them to

prove that an attempt has been made to sell the property
and at the same time indicates the property’s asking price.
Loss Mitigation Department
Most lending institutions have loss mitigation officers or negotiators whose
main function is to sift through short sale applications.
In many instances it is impossible to personally talk to the bank

representative handling short sales because that person often has a pile of
applications to work through.
The loss mitigation department, the workout department or the loan

resolution department are normally totally independent entities.
Before submitting the short sale package to a bank or mortgage

institution it is a good idea to obtain the name of the individual
handling the short sale.
If possible, it helps to have the person’s personal or cell phone

number and extension, mailing address and fax number.
Banks, however, due to the large number of short sale requests, are often
slow to respond to short sale applications. Banks often take at least 30 days to
approve a short sale and some take as long as 90 to 120 days.
After the bank’s mitigation officer has been provided with all required
information, it is essential to keep talking to that representative every few days to
make sure the application is active.
The loss mitigation officer often weighs the pros and cons of the short sale.
In such transactions, it is purely a number’s crunching exercise for the bank—a
comparison is made of which scenario, short sale or foreclosure, results in the
smallest loss for the bank. The bank officer adds up how much its loss will be if
the property is sold in a short sale, versus the loss if it forecloses on the property.
In general, lenders do not want to own property, which sometimes

leads to a decision to go ahead with a short sale, even if the
numbers are less favorable. Foreclosures are also more time
consuming, there is more paperwork involved, and the lender ends
up owning the property and having to dispose of it.
If the loss mitigation officer determines that the lender would make
more money by foreclosing, a short sale will be refused—often after
a two or three month wait.
When this occurs, to salvage the agreement, both the buyer and
seller have to agree to a higher purchase price, or the deal is off.
If all requirements are met and a short sale is approved, the mitigation
officer will issue his stamp of approval, but from him the file has to go to
management for its approval. If it approves, which could take from a week to a
month, the bank will issue an official letter of approval.
Going through a foreclosure is a financial tragedy for a homeowner, due to

the fact it destroys their credit rating for 10 years.
Other Complications
Short sales become dramatically complicated when homeowners have
second and third mortgages, home equity loans or a lien on their property.
In such instances it is essential for all mortgage-holders to accept the terms

of sale, and if any one does not agree, the sale cannot go forward.
Some short sales also involve properties that have been vacated by the
owners and subsequently, either directly or inadvertently damaged. This damage
can be minor, to major.
A real estate agent recently received a call from a mortgage

company looking for a buyer for a house a young couple had just
vacated.
The couple, with two children, had owned the property for five
years. They recently divorced and left the house with more than
$20,000 worth of damages. After they vacated the premises, the
husband returned and removed everything of value from the house
to sell at a flea market, including all sinks, toilets and even the
copper piping.
The real estate agent found someone interested in buying the

property, but the bank took a major loss due to the damages.
The Buyer
Completing a short sale is a good way for a first time homebuyer to obtain
property at a low price, as long as they are willing to buy a property that is “not-
quite perfect” and may need fixed-up.
Short sales enable such buyers to take over a property, do a few repairs and
clean it up and end up with a home they might not otherwise be able to afford.
This technique also provides investors with a way to increase the value of their
property by putting in a little work.
Before making an offer, such prospective buyers should consult a real

estate agent to determine how much the property is worth. Then they should
evaluate the repairs and costs necessary to fix up a property and be realistic
about their abilities to make those repairs before making their bid.
In some cases most of the required repairs are cosmetic, the grass needs to
be mowed and watered and the shrubs trimmed.
Before the short sale can be completed, it is essential to have at least one
buyer who has made an offer on the property; a second offer would be nice, but
is not required.
It is essential that short sale applicants supply the lender with a copy of the
purchase agreement from the buyer.
Short sale buyers are shopping for the best property they can find, at the
lowest price. Some buyers, therefore, put offers on a number of properties and
purchase the one that the lender approves first.
Make sure the buyer is included on the approval list sent to the
lender so that he can easily receive information about the mortgage
from the bank and more important, information about when the
bank decides to indicate the amount it will accept as a short sale.
Buyers who make offers on short sales often save money due to lower
closing costs and fees—versus buying a property after it has been foreclosed upon
and paying other fix-up and legal fees.
There are also a lot of potential property buyers in the market that expect
fire-sales, for which they make unreasonable offers.
A general guideline for short sales is that banks expect to receive offers at
around 90 percent below the mortgage value—they ignore offers below that
amount.
Comparable Prices Hard To Determine

In 2004 to 2006, buyers and sellers relied on comparables to determine the
going prices of homes in a particular neighborhood. They would look at the MLS,
compare high and low prices and adjust their bid, based on what features and
extras were in the house.
Today, the same comparables are made, but it is often hard to get a price
because no properties have sold in the area.
When comparable data is available, the buyer usually determines what the
lowest price was for a comparable property and then goes even lower on his bid.
Short sales often take months and buyers should take into
account that by the time the process is complete, the value
of the property, or comparables in the area could have
changed.
Another factor is that due to the long wait for approval, buyers often
encounter interest-rate changes during which their lock-in rates expire.
Short sale buyers are either expected to be preapproved for the mortgage
amount with another lender, or must be approved by the mortgage holder.
Lender approval often depends on the amount the buyer is willing to pay as a
down payment.
Many lenders require a pre-approval letter or a proof-of-funds letter. These

documents indicate that the buyer has the cash on hand, or is pre-approved for a
loan to buy property up to a set amount. This is comparable to a letter of credit
provided by a mortgage broker or banker with whom the buyer established
credit, or has long-term a relationship.
When a buyer obtains approval for funds to finance a short sale, those
funds are rarely available for as long as it takes to complete all the steps
necessary to complete the sale. The interest rate obtained by the buyer is rarely
locked for that long, and if they ask for an extension, the lender will charge a
costly fee.
In case the sale is denied, safeguards should be written into the contract to
cover upfront costs for appraisals, inspections and other costs to protect the
buyer.
In the best scenario the buyer will find a bargain-priced property and in the
process rescue a homeowner from a foreclosure that could have destroyed a
credit rating.
Why You Need A Real Estate Agent
It is best to have a real estate agent handle a short sale, make sure the one
you choose has completed previous short sales. Short sales are often only found
by agents on Multiple Listing Services viewed by agents using that service—they
are usually not widely advertised.
Real estate agents are used to the detailed procedures necessary to

complete a short sale and understand in advance what procedures they will be
required to take to make the sale a success. They are also experts at networking
and communications that are able to find necessary information from the seller,
buyer and relevant organizations—after carrying out short sales and regular real
estate purchases for a long time, real estate agents can accomplish projects
within a matter of minutes that would take an inexperienced homeowner weeks
to do.
Using a wide variety of information acquired from the bank, Title Company,
property clerk and other sources, the real estate agent prepares a short sale
package that is acceptable to the bank.
The real estate agent makes sure all the i’s are dotted and t’s crossed,
paperwork properly signed and in proper order. If an inexperienced homeowner
attempted to do all these procedures on their own making one mistake could
delay approval for weeks or months or perhaps even motivate the bank to turn
down the sale.
The real estate agent knows who to talk to at the bank, who the heads the
mitigation department and can easily contact them several days a week to ask
about the status of the short sale. Bank representatives realize and expect real
estate agents to follow through and be a nuisance—if a homeowner did this it
could have a negative effect and cause them to delay the process.
The bank expects the real estate agent to track the short sale process from
beginning to end, have the proper paperwork done and submitted in the correct
fashion, and to carry though with everything until the sale is completed. If
something is missing, bank officials know that they can contact the real estate
agent and obtain the information right away.
Short sales are no place for inexperienced homeowners; if one step in the
proper procedure is missed, it will result in no sale and hurt everyone involved.
Most agents have become short sale specialists simply due to the condition
of the market.
One agent who was recently showing properties to a buyer in Florida found
20 properties the customers were interested in seeing. The customers were
retiring, had their primary residence in Illinois and were looking for a second,
vacation home. They were not particularly interested in short sales.
They had no choice, however, of the 20 properties they chose from the
MLS, six were short sales, and already had offers; six were bank-owned
foreclosures; and the remaining eight were active short sales.
In completing a short sale the real estate agent must play a much more
active role than in a normal transaction, because the agent has to be the
communicator between everyone else involved in the sale.
The real estate agent has an edge in such transactions because it is possible
to order the necessary paperwork in advance, providing the lender with a
complete package.
Advantages Of Using A Real Estate Agent
Before, during and after a short sale there are many
advantages to using a real estate agent:
1. A real estate agent will do a comparative market analysis

to determine the top price at which a property can be
sold.
2. Due to their short sale experience a real estate agent will
be able to obtain comprehensive information on a
property from the bank, Title Company and county
property appraiser to determine the marketability of a
home.
3. To qualify for a short sale it is necessary to be able to
show the bank or mortgage company that a property has
been listed on the MLS for at least 90 days. Only a licensed
real estate agent can list a property on this service.
After a real estate agent has listed a property on the MLS

they will be glad provide the homeowner with a printout
showing the listing. To meet short sale requirements, the
agent will provide monthly reports indicating how many
calls have been received from potential buyers interested
in seeing the property and what their reaction was to the
property after they saw it.
The lending institution requires copies of this data as part

of its decision-making process to approve a short sale.
4. By listing a property on the MLS the agent will reach the

largest number of potential buyers and has the best
advantage of finding a buyer who is willing to place an
offer on the property.
The first thing a real estate agent needs to do is obtain a signed letter from
the homeowner authorizing them to obtain payoff information from the lender.
The second thing a real estate agent must do is to order a preliminary title
search. Most real estate agents already have a working relationship with a title
company and can obtain a preliminary title search in a hurry and at a reasonable
cost.
A preliminary title search will determine exactly who has interests in the
property, what costs will be incurred and what it will take to satisfied everyone
with the terms of the short sale.
The potential of successfully completing a short sale decreases dramatically

if there is a second mortgage. If a second mortgage exists that means two lenders
must approve the terms of the short sale.
And, the odds of completing a successful short sale are reduced even more
if there is a contractor’s lien, material lean or tax lien on a property.
After the title company takes a preliminary look at the property

information it will prepare an initial draft statement indicating the mortgages and
liens and amount needed at the closing to clear the title for the buyer. Preliminary
statements indicate what it will cost to clear the title and at the same time satisfy
the needs of both the seller and buyer.
Real estate agents should also be prepared to reduce their commission

after the lender goes over the paperwork. Bankers don’t hesitate to suggests that
an agent’s commission should be reduced. A bank or mortgage company will
rarely approve a real estate agent’s commission on short sales that is more than 5
percent. If the agent is willing to work for a smaller commission, the bank will be
more willing to absorb the loss.
Real estate agents can be especially valuable to buyer who are looking for
distressed property or homes on which the loan is in default.
Some real estate agents work closely with lenders and asset managers to
sell properties the lenders have taken back. If you look through foreclosed
property lists you will see real estate agents specializing in this field and by
choosing one of these the homeowner has a good chance of finding an expert in
this field.
The Attorney
Real estate agents are not attorneys and cannot give legal advice, in short
sales and foreclosures it is essential to obtain advice from a real estate lawyer.
Homeowners should contact a real estate attorney to evaluate their short

sale package before they give it to the lender. The attorney can also oversee the
sale, negotiate the transaction and contact a real estate agent to find a buyer.
Prior to finalizing a short sale an attorney should determine if the

implications of the sale will fall under the provisions of the 2007 Mortgage
Forgiveness Debt Relief Act.
There are several legal considerations in short sales that require an

attorney’s advice:
• If the IRS will consider unpaid debt as income; and

• whether or not the lender will pursue the mortgage holder for the
deficiency between the amount owed and the amount paid.
Essential steps
In short sales it is even more important than with a regular sale to make
sure who owes what on the property.
It is essential for a buyer to have a preliminary title report and a lien and
encumbrance report. These documents will indicate how the property is titled,
who the owners are and what liens and mortgages will have to be paid off before
title to the property can be transferred.
Due to the basic and involved nature of a short sale, the process is often
slowed down due to the overload of paperwork at the bank. The lender has
complete control over the sale, and in many instances can kill the transaction,
either by saying “no,” or often simply by delaying the decision. Short sales can
drag out for weeks or months, until the potential buyer either gives up in disgust,
or finds another property.
The lender also often wants to totally examine the buyer’s financial
situation to make sure they are financially stable.
Lenders often drag-their-feet, with a wait-and-see attitude, hoping that

another higher bidder will show up to buy the property.
Jim and Elizabeth’s Conclusion Comment [KK1]:
I’d like to be able to say that Jim and Elizabeth had a happy ending, but they
did not. They waited too long to contact the bank. Their house was listed with a
real estate agent for three months, but they could not find a buyer.
The lender foreclosed on the house. Due to a $58,000 judgment against Jim
and Elizabeth’s their credit was ruined.
The family has been living with Elizabeth’s mother and father in a small
three-bedroom house and is trying to get back on their feet.
For More Detailed Information
Federal National Mortgage Association:
http://www.fanniemae.com
Federal Housing Administration:

http://www.fha.com
Federal Home Loan Mortgage Corporation Act (FHMA):

http://www.freddiemac.com
Government National Mortgage Association (GNMA):

http://www.ginniemae.gov
Homebuyer Education Learning Program:

http://www.margert.org/education.htm
Real Estate Settlement Procedures Act:

http://www.hud.gov/offices/hsg/sfh/res/respamor.cfm
U.S. Department of Housing and Urban Development:

http://www.hud.gov
U.S. Department of Veterans Affairs:

http://www.va.gov
Glossary Of Terms
203(b): FHA's single family program which provides mortgage insurance to lenders to
protect against the borrower defaulting; 203(b) is used to finance the purchase of new or
existing one to four family housing; 203(b) insured loans are known for requiring a low
down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan
amount.
203(k): this FHA mortgage insurance program enables homebuyers to finance both the
purchase of a house and the cost of its rehabilitation through a single mortgage loan.
Abstract of Title: documents recording the ownership of property throughout time.
Acceleration: the right of the lender to demand payment on the outstanding balance of a
loan.
Acceptance: the written approval of the buyer's offer by the seller.
Adjustable-Rate Mortgage (ARM): a mortgage loan that does not have a fixed interest rate.
During the life of the loan the interest rate will change based on the index rate. Also
referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).
Amortization: a payment plan that enables you to reduce your debt gradually through
monthly payments. The payments may be principal and interest, or interest-only. The
monthly amount is based on the schedule for the entire term or length of the loan.
Annual Percentage Rate (APR): a measure of the cost of credit, expressed as a yearly rate. It
includes interest as well as other charges. Because all lenders, by federal law, follow the
same rules to ensure the accuracy of the annual percentage rate, it provides consumers
with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher
rate than the simple interest of the mortgage.
Application: the first step in the official loan approval process; this form is used to record
important information about the potential borrower necessary to the underwriting process.
Appraisal: a document from a professional that gives an estimate of a property's fair market
value based on the sales of comparable homes in the area and the features of a property;
an appraisal is generally required by a lender before loan approval to ensure that the
mortgage loan amount is not more than the value of the property.
Appraisal Fee: fee charged by an appraiser to estimate the market value of a property.
Appraised Value: an estimation of the current market value of a property.
Appraiser: a qualified individual who uses his or her experience and knowledge to prepare
the appraisal estimate.
Arbitration: a legal method of resolving a dispute without going to court.
As-is Condition: the purchase or sale of a property in its existing condition without repairs.
Asking Price: a seller's stated price for a property.
Assessed Value: the value that a public official has placed on any asset (used to determine
taxes).
Assessments: the method of placing value on an asset for taxation purposes.
Assessor: a government official who is responsible for determining the value of a property
for the purpose of taxation.
Assumable Mortgage: when a home is sold, the seller may be able to transfer the mortgage
to the new buyer.
Assumption Clause: a provision in the terms of a loan that allows the buyer to take legal
responsibility for the mortgage from the seller.
Authorization to Release information (ATR): paperwork that authorizes the bank/lender to

release account information to the persons specified on the form, ie. Buyer, lawyer,
attorney and other involved parties.
Average Price: determining the cost of a home by totaling the cost of all houses sold in one
area and dividing by the number of homes sold.
"B" Loan or "B" Paper: FICO scores from 620 - 659. Factors include two 30 day late
mortgage payments and two to three 30 day late installment loan payments in the last 12
months. No delinquencies over 60 days are allowed. Should be two to four years since a
bankruptcy. Also referred to as Sub-Prime.

Back End Ratio (debt ratio): a ratio that compares the total of all monthly debt payments
(mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross
monthly income.
Balance Sheet: a financial statement that shows the assets, liabilities and net worth of an
individual or company.
Balloon Loan or Mortgage: a mortgage that typically offers low rates for an initial period of
time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is
refinanced by the borrower.
Balloon Payment: the final lump sum payment due at the end of a balloon mortgage.
Bankruptcy: a federal law whereby a person's assets are turned over to a trustee and used
to pay off outstanding debts; this usually occurs when someone owes more than they have
the ability to repay.
Borrower: a person who has been approved to receive a loan and is then obligated to repay
it and any additional fees according to the loan terms.
C
"C" Loan or "C" Paper: FICO scores typically from 580 to 619. Factors include three to four
30 day late mortgage payments and four to six 30 day late installment loan payments or
two to four 60 day late payments. Should be one to two years since bankruptcy. Also
referred to as Sub - Prime.
Cap: a limit, such as one placed on an adjustable rate mortgage, on how much a monthly
payment or interest rate can increase or decrease, either at each adjustment period or
during the life of the mortgage. Payment caps do not limit the amount of interest the lender
is earning, so they may cause negative amortization.
Certificate of Title: a document provided by a qualified source, such as a title company, that
shows the property legally belongs to the current owner; before the title is transferred at
closing, it should be clear and free of all liens or other claims.
Chapter 7 Bankruptcy: a bankruptcy that requires assets be liquidated in exchange for the
cancellation of debt.

Chapter 13 Bankruptcy: this type of bankruptcy sets a payment plan between the borrower
and the creditor monitored by the court. The homeowner can keep the property, but must
make payments according to the court's terms within a 3 to 5 year period.
Charge-Off: the portion of principal and interest due on a loan that is written off when
deemed to be uncollectible.
Clear Title: a property title that has no defects. Properties with clear titles are marketable
for sale.
Closing: the final step in property purchase where the title is transferred from the seller to
the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and
other agents. At the closing the seller receives payment for the property. Also known as
settlement.
Closing Costs: fees for final property transfer not included in the price of the property.
Typical closing costs include charges for the mortgage loan such as origination fees,
discount points, appraisal fee, survey, title insurance, legal fees, real estate professional
fees, prepayment of taxes and insurance, and real estate transfer taxes. A common
estimate of a Buyer's closing costs is 2 to 4 percent of the purchase price of the home. A
common estimate for Seller's closing costs is 3 to 9 percent.
Comparative Market Analysis (COMPS): a property evaluation that determines property

value by comparing similar properties sold within the last year.
Compensating Factors: factors that show the ability to repay a loan based on less
traditional criteria, such as employment, rent, and utility payment history.
Compromise Claim: On a VA loan, the difference between what a buyer offers and the
amount of the loan.
Contingency: a clause in a purchase contract outlining conditions that must be fulfilled

before the contract is executed. Both, buyer or seller may include contingencies in a
contract, but both parties must accept the contingency.
Conventional Loan: a private sector loan, one that is not guaranteed or insured by the U.S.
government.
Conversion Clause: a provision in some ARMs allowing it to change to a fixed-rate loan at

some point during the term. Usually conversions are allowed at the end of the first

adjustment period. At the time of the conversion, the new fixed rate is generally set at one
of the rates then prevailing for fixed rate mortgages. There may be additional cost for this
clause.
Convertible ARM: an adjustable-rate mortgage that provides the borrower the ability to
convert to a fixed-rate within a specified time.
Counter Offer: a rejection to all or part of a purchase offer that negotiates different terms
to reach an acceptable sales contract.
Credit Risk: a term used to describe the possibility of default on a loan by a borrower.
Current Market Analysis (CMA): a market analysis of the current housing market, how
much properties recently sold for in a neighborhood and how much the homeowner can
reasonably expect to receive for his home.
D
Debt-to-Income Ratio: a comparison or ratio of gross income to housing and non-housing
expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of
monthly gross income (before taxes) and the mortgage payment combined with non-
housing debts should not exceed 41% of income.
Deed: a document that legally transfers ownership of property from one person to another.
The deed is recorded on public record with the property description and the owner's
signature. Also known as the title.
Deed-in-Lieu of foreclosure: to avoid foreclosure ("in lieu" of foreclosure), a deed is given

to the lender to fulfill the obligation to repay the debt; this process does not allow the
borrower to remain in the house but helps avoid the costs, time, and effort associated with
foreclosure.
Default: the inability to make timely monthly mortgage payments or otherwise comply with
mortgage terms. A loan is considered in default when payment has not been paid after 60
to 90 days. Once in default the lender can exercise legal rights defined in the contract to
begin foreclosure proceedings.
Delinquency: failure of a borrower to make timely mortgage payments under a loan

agreement. Generally after fifteen days a late fee may be assessed.

Disclosures: the release of relevant information about a property that may influence the
final sale, especially if it represents defects or problems. "Full disclosure" usually refers to
the responsibility of the seller to voluntarily provide all known information about the
property. Some disclosures may be required by law, such as the federal requirement to
warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have
knowingly lied about a defect may face legal penalties.

E
Encumbrance: anything that affects title to a property, such as loans, leases, easements, or
restrictions.
Equity: an owner's financial interest in a property; calculated by subtracting the amount still
owed on the mortgage loon(s) from the fair market value of the property.
Escape Clause: a provision in a purchase contract that allows either party to cancel part or
the entire contract if the other does not respond to changes to the sale within a set period.
The most common use of the escape clause is if the buyer makes the purchase offer
contingent on the sale of another house.
Escrow: funds held in an account to be used by the lender to pay for home insurance and
property taxes. The funds may also be held by a third party until contractual conditions are
met and then paid out.
Escrow Account: a separate account into which the lender puts a portion of each monthly
mortgage payment; an escrow account provides the funds needed for such expenses as
property taxes, homeowners insurance, mortgage insurance, etc.
F
FSBO (For Sale by Owner): a home that is offered for sale by the owner without the benefit
of a real estate professional.
Fair Market Value: : the hypothetical price that a willing buyer and seller will agree upon
when they are acting freely, carefully, and with complete knowledge of the situation.
Fannie Mae Home Keeper: a reverse mortgage approved by Fannie Mae.
Fannie Mae Home Keeper for Purchase (FMHKHP): a reverse mortgage approved by Fannie
Mae that enables older home buyers to purchase new homes.
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLM): a federally chartered

corporation that purchases residential mortgages, securitizes them, and sells them to
investors; this provides lenders with funds for new homebuyers. Also known as a
Government Sponsored Enterprise (GSE).
Federal Housing Administration (FHA): FHA is part of the U.S. Department of Housing and
Urban Development. It insures a large number of the mortgages written in the U.S.

Federal National Mortgage Association (Fannie Mae-FNMA): a federally-chartered
enterprise owned by private stockholders that purchases residential mortgages and
converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae
supplies funds that lenders may loan to potential homebuyers. Also known as a
Government Sponsored Enterprise (GSE).
First Mortgage: the mortgage with first priority if the loan is not paid.
Fixed Expenses: payments that do not vary from month to month.
Fixed-Rate Mortgage: a mortgage with payments that remain the same throughout the life
of the loan because the interest rate and other terms are fixed and do not change.
Forbearance: a lender may decide not to take legal action when a borrower is late in
making a payment. Usually this occurs when a borrower sets up a plan that both sides agree
will bring overdue mortgage payments up to date.
Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the
defaulting borrower. Foreclosure laws are based on the statutes of each state.
Front End Ratio: a percentage comparing a borrower's total monthly cost to buy a house
(mortgage principal and interest, insurance, and real estate taxes) to monthly income
before deductions.
G
Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned
corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie
Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment;
as With Fannie Mae and Freddie Mac, the investment income provides funding that may
then be lent to eligible borrowers by lenders.
Good Faith Estimate: an estimate of all closing fees including pre-paid and escrow items as
well as lender charges; must be given to the borrower within three days after submission of
a loan application.
Graduated Payment Mortgages: mortgages that begin with lower monthly payments that
get slowly larger over a period of years, eventually reaching a fixed level and remaining
there for the life of the loan. Graduated payment loans may be good if you expect your

annual income to increase.
Guaranty Fee: payment to FannieMae from a lender for the assurance of timely principal
and interest payments to MBS (Mortgage Backed Security) security holders.
H
HECM (Reverse Mortgage): the Home Equity Conversion Mortgage reverse mortgage is
used by senior homeowners age 62 and older to convert the equity in their home into
monthly streams of income and/or a line of credit to be repaid when they no longer occupy
the home. A lending institution such as a mortgage lender, bank, credit union or savings and
loan association funds the FHA insured loan, commonly known as HECM.
Homebuyer Education Learning Program (HELP): an educational program from the FHA
that counsels people about the home buying process; HELP covers topics like budgeting,
finding a home, getting a loan, and home maintenance; in most cases, completion of the
program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-
from 2.25% to 1.75% of the home purchase price.
Housing Counseling Agency: provides counseling and assistance to individuals on a variety
of issues, including loan default, fair housing, and home buying.
HUD: the U.S. Department of Housing and Urban Development; established in 1965, HUD
works to create a decent home and suitable living environment for all Americans; it does
this by addressing housing needs, improving and developing American communities, and
enforcing fair housing laws.
HUD1 Statement: also known as the "settlement sheet," or "closing statement" it itemizes
all closing costs; must be given to the borrower at or before closing. Items that appear on
the statement include real estate commissions, loan fees, points, and escrow amounts.
I
Intermediate Term Mortgage: a mortgage loan with a contractual maturity from the time
of purchase equal to or less than 20 years.
Judgment: a legal decision; when requiring debt repayment, a judgment may include a
property lien that secures the creditor's claim by providing a collateral source.

Judicial State Procedures: in judicial states foreclosure efforts begin when the lender files a
complaint and records a notice of Lis Pendens to begin a judicial foreclosure.
Jumbo Loan: or non-conforming loan, is a loan that exceeds Fannie Mae's and Freddie
Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
L
Late Payment Charges: the penalty the homeowner must pay when a mortgage payment is
made after the due date grace period.
Lender: a term referring to an person or company that makes loans for real estate
purchases. Sometimes referred to as a loan officer or lender.
Lender Option Commitments: an agreement giving a lender the option to deliver loans or
securities by a certain date at agreed upon terms.
Liabilities: a person's financial obligations such as long-term / short-term debt, and other
financial obligations to be paid.
Lien: a legal claim against property that must be satisfied when the property is sold. A claim
of money against a property, wherein the value of the property is used as security in
repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid
cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title
and needs to be settled before transfer of ownership. A lien release is a written report of
the settlement of a lien and is recorded in the public record as evidence of payment.
Lien Waiver: A document that releases a consumer (homeowner) from any further
obligation for payment of a debt once it has been paid in full. Lien waivers typically are used
by homeowners who hire a contractor to provide work and materials to prevent any
subcontractors or suppliers of materials from filing a lien against the homeowner for
nonpayment.
Listing Agreement: a contract between a seller and a real estate professional to market and
sell a home. A listing agreement obligates the real estate professional (or his or her agent)
to seek qualified buyers, report all purchase offers and help negotiate the highest possible
price and most favorable terms for the property seller.
Loan Origination Fee: a charge by the lender to cover the administrative costs of making
the mortgage. This charge is paid at the closing and varies with the lender and type of loan.
A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Lock-In: since interest rates can change frequently, many lenders offer an interest rate lock-
in that guarantees a specific interest rate if the loan is closed within a specific time.
Lock-in Period: the length of time that the lender has guaranteed a specific interest rate to
a borrower.
M
Market forecast: a guess at what a property will be worth three months from now.
Market Value: the amount a willing buyer would pay a willing seller for a home. An
appraised value is an estimate of the current fair market value.
Maturity: the date when the principal balance of a loan becomes due and payable.
Median Price: the price of the house that falls in the middle of the total number of homes
for sale in that area.
Modification: when a lender agrees to modify the terms of a mortgage without refinancing
the loan.
Mortgage Insurance: a policy that protects lenders against some or most of the losses that
can occur when a borrower defaults on a mortgage loan; mortgage insurance is required
primarily for borrowers with a down payment of less than 20% of the home's purchase
price. Insurance purchased by the buyer to protect the lender in the event of default.
Typically purchased for loans with less than 20 percent down payment. The cost of
mortgage insurance is usually added to the monthly payment. Mortgage insurance is
maintained on conventional loans until the outstanding amount of the loan is less than 80
percent of the value of the house or for a set period of time (7 years is common). Mortgage
insurance also is available through a government agency, such as the Federal Housing
Administration (FHA) or through companies (Private Mortgage Insurance or PMI).
Mortgage Insurance Premium (MIP): reverse mortgage insurance payment, paid directly to
FHA.
Negative Amortization: amortization means that monthly payments are large enough to
pay the interest and reduce the principal on your mortgage. Negative amortization occurs
when the monthly payments do not cover all of the interest cost. The interest cost that isn't
covered is added to the unpaid principal balance. This means that even after making many
payments, you could owe more than you did at the beginning of the loan. Negative

amortization can occur when an ARM has a payment cap that results in monthly payments
not high enough to cover the interest due.
Non-judicial states: states that do not require the lender to file a civil lawsuit to repossess
property, to foreclose they have to prove to a state foreclosure trustee that the homeowner
has defaulted on mortgage payments.
Notice of Default: a formal written notice to a borrower that there is a default on a loan
and that legal action is possible.

P
Points: a point is equal to one percent of the principal amount of your mortgage. For
example, if you get a mortgage for $95,000, one point means you pay $950 to the lender.
Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order
to increase the yield on the mortgage and to cover loan closing costs. Points usually are
collected at closing and may be paid by the borrower or the home seller, or may be split
between them.
Predatory Lending: abusive lending practices that include a mortgage loan to someone who
does not have the ability to repay. It also pertains to repeated refinancing of a loan charging
high interest and fees each time.
Pre-foreclosure Sale: a procedure in which the borrower is allowed to sell a property for an
amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the
borrower's debt.
Prepayment Penalty Mortgage (PPM): a type of mortgage that requires the borrower to
pay a penalty for prepayment, partial payment of principal or for repaying the entire loan
within a certain time period. A partial payment is generally defined as an amount exceeding
20% of the original principal balance.
Private Mortgage Insurance (PMI): privately-owned companies that offer standard and
special affordable mortgage insurance programs for qualified borrowers with down
payments of less than 20% of a purchase price.
Purchase Offer: a detailed, written document that makes an offer to purchase a property,
and that may be amended several times in the process of negotiations. When signed by all
parties involved in the sale, the purchase offer becomes a legally binding contract,
sometimes called the Sales Contract.
Rate Lock: a commitment by a lender to a borrower guaranteeing a specific interest rate

over a period of time at a set cost.
Real Estate Settlement Procedures Act (RESPA): a law protecting consumers from abuses
during the residential real estate purchase and loan process by requiring lenders to disclose
all settlement costs, practices, and relationships.

Reinstatement Period: a phase of the foreclosure process where the homeowner has an
opportunity to stop the foreclosure by paying money that is owed to the lender.
Repayment plan: an agreement between a lender and a delinquent borrower where the
borrower agrees to make additional payments to pay down past due amounts while making
regularly scheduled payments.
Reverse Mortgage (HECM): the reverse mortgage is used by senior homeowners age 62 and
older to convert the equity in their home into monthly streams of income and/or a line of
credit to be repaid when they no longer occupy the home. A lending institution such as a
mortgage lender, bank, credit union or savings and loan association funds the FHA insured
loan, commonly known as HECM.
Second Mortgage: an additional mortgage on property. In case of a default the first

mortgage must be paid before the second mortgage. Second loans are more risky for the
lender and usually carry a higher interest rate.
Serious Delinquency: a mortgage that is 90 days or more past due.
Settlement Statement: a document required by the Real Estate Settlement Procedures Act
(RESPA). It is an itemized statement of services and charges relating to the closing of a
property transfer. The buyer has the right to examine the settlement statement 1 day
before the closing. This is called the HUD 1 Settlement Statement.
Short Sale - the process of selling a property with the lender accepting less than they are
owed, as payment in full for the loan.
Special Forbearance: a loss mitigation option where the lender arranges a revised
repayment plan for the borrower that may include a temporary reduction or suspension of
monthly loan payments.
U
Upside-Down Sellers: this term is used by the real estate industry for sellers that owe more
than their home is worth.
U.S. Department of Veterans Affairs (VA): a federal agency, which guarantees loans made
to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss
that may result from a borrower default.
VA Mortgage: a mortgage guaranteed by the Department of Veterans Affairs (VA).

W
Workout: when a lender acknowledges that a homeowner has suffered a financial hardship
and will have the capability to keep the loan current in the future.

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How to Short Sale Your House

and Walk Away!

Experienced Realtors® Speed Short Sales ……………………………...……………… 8

A Sad Scenario: ‘For Sale By Owner’ Goes Into Foreclosure ..…….....………. 9

Determine The Cause Of The Problem …………...………………………..………..... 11

Common Causes of Financial Problems .………………………………………….…….. 13

Analyze Income vs. Expenses …...…………………………………..……..………………. 13

Act Right Away ….………………………………………………………………………..……….. 14

Steps To Take If You Can Not Make A Mortgage Payment …………………….. 15

1. Don’t Ignore The Problem ……..…………………………………………….……… 15

An Alternative To Consider ………………………………………………………….……….. 19

8. Use Your Assets ………………………………..…………………………….…………... 20

9. Avoid Foreclosure Prevention Companies …………………..…………..…… 20

10. Avoid Foreclosure Recovery Scams! …………………………...……………… 21

Equity Buy-Out/Rental Scheme ……………………………………………………….. 21

Buy-Back Schemes …………………………………………………………………………… 21

Pay A Fee, Keep Your Credit Record Clean ……………………………….. 23

Curing A Default ………………………………………………………….…………... 23

Avoid How-To Courses …………………………………………….………………. 23

Is Bankruptcy An Answer? ………………………………………………………………...... 24

Safeguards For Homeowners In Natural Disasters ………………..…………….... 25

Answer Four Basic Questions …………………………………………………..…………... 25

How To Obtain FHA Disaster Relief ……………….……………………….…………...… 26

How Can FHA Disaster Relief Help? …………..……………..……………………….….. 27

How to Qualify for Foreclosure Relief …………..……………………..…..……….….. 27

Falling Behind On FHA Loan Payments ……………………................................ 29

FHA Loans Already In Foreclosure …………..…………………............................. 29

Department of Veterans Affairs ………………………………………………….………… 30

Federally-Insured Mortgages For Military Service Members ……….………... 30

Who Is Eligible? ……………………………………………………………………………………. 31

Am I Entitled To Debt Payment Relief? ………………………………………………….. 31

Is The Interest Rate Limitation Automatic? ………….………………………………… 32

Am I Eligible Even If I Can Afford To Pay My Mortgage At A

What If I Can’t Afford to Pay My Mortgage, Even At The Lower Rate?....... 32

What Information Do I need to Provide To My Lender? ……………….……….. 33

Will My Payments Change Later? Will I Need To Pay Back The

How Long Does The Benefit Last? ………………………………………………………... 34

Escrow Accounts ……………………………………………………………….……….………… 34

Predatory Lending …………………………………….…………………………………………. 35

Who Can I Call For Help? ……………………………………………………………………… 35

Talk To A Housing Counseling Agency …………………………….………….………... 36

Prioritize Your Debts ………………………………………………..………….………………. 36

Repayment Plan ………………………………………………………………………………….. 41

Mortgage Loan Modification …………………………………………………………….... 41

Loan Assumption ………………………………………………………………………………... 42

Mortgage Insurance And Loan Guarantees ……..………………………………….. 43

A Deed In Lieu Of Foreclosure …………………………………………………………..... 45

Pre-Foreclosure Sale …………………………………………..…………………………...... 46

Post-Foreclosure Sale ………………………………………………….………………………. 47

Upside Down Sellers …………………………………………………………………………... 50

Some Lenders At The Root Of The Problem ……………...………………………... 51

More Than One Mortgage …………………………………………………….……………. 54

How Foreclosures Vary ...……………………………………………………………..……… 55

Judicial State Procedures …………………………………………………………………..… 56

Non-Judicial State Procedures …………………………………………………………….. 56

Lists of States And Their Procedures ……………………………………….…………… 57

Foreclosure And How To Avoid It ………………………………………………………… 60

HUD, VA Have Special Alternatives ……………………………………………………… 60

Workout Solutions ………………………………………………………..……………………. 61

Private Mortgage Insurance …………………………………………….…………………. 63

Short Sale vs. Foreclosure? ………………………………………….……………………... 64

Steps To Do-It-Yourself Homeowner Short Sales ……………….………………... 65