Professional Documents
Culture Documents
FOR SELLERS
How to Use a Short Sale to Protect
your Finances and your Credit, and
Stop Foreclosure
Negotiate a sale to your lender to
accept less than you own on your
mortgage
Written by:
Russ Irizarry
Licensed Real Estate Broker
Short Sale Expert
305-390-0574 Direct
ishortsalefl@gmail.com
www.seflorida.bbb.org
The content in this presentation is based upon our research, knowledge and experience. In
no way is any information contained herein to be interpreted as legal or tax advice. To be
assured of sound legal advice with regards to foreclosure, real estate, bankruptcy or agency
laws, please employ the use of a competent legal or tax professional and/or your real estate
broker.
Please consult your broker, accountant and attorney, as appropriate, for advice specific to
your situation. Although every effort is made to keep this presentation current and relevant,
it is your responsibility to seek guidance from qualified professionals in order to keep up
with rapidly changing market conditions and periodic changes to the law.
IMPORTANT NOTICE: Before using this service, consider the following information: Our
company cannot charge you any upfront fees in conjunction with providing you any type of
mortgage assistance relief service. Our company is NOT associated with any government
agency or program and our company is NOT approved by the government or your lender(s).
You may stop doing business with us at any time with regard to the short sale, our short sale
negotiation services (if any), or real estate brokerage services (if any). If you stop paying
your mortgage, you could lose your home and damage your credit rating.
Table of Contents
1 INTRODUCTION ............................................................................................................................... 4
2 PRE-FORECLOSURE HOMEOWNER OPTIONS ................................................................................. 5
2.1 Loan Modification ............................................................................................................... 5
2.2 Repayment or Forbearance Plan ........................................................................................ 5
2.3 Refinance ............................................................................................................................ 5
2.4 Bankruptcy .......................................................................................................................... 5
2.5 Deed-in-Lieu of Foreclosure................................................................................................ 6
2.6 Foreclosure ......................................................................................................................... 6
2.7 Short Sale ............................................................................................................................ 6
3 SHORT SALES 101 ................................................................................................................... 7
3.1 What is a Short Sale? .......................................................................................................... 7
3.2 Why Lenders Allow Short Sales........................................................................................... 7
3.3 Standard Documents Required for a Short Sale ................................................................. 8
3.4 Benefits of a Short Sale ....................................................................................................... 8
4 PRE-FORECLOSURE TIMELINE ............................................................................................... 10
5 FORECLOSURE vs. SHORT SALE – A SIDE BY SIDE COMPARISION ............................................ 11
6 POSSIBLE SHORT SALE OUTCOMES ....................................................................................... 13
6.1 Promissory Note ............................................................................................................... 13
6.2 1099C vs. Deficiency Judgment ........................................................................................ 14
7 OUR SHORT SALE PROCESS DIAGRAM................................................................................... 15
8 FREQUENTLY ASKED QUESTIONS .......................................................................................... 16
8.1 What does your company South Florida Short Sales (SFSS) do exactly? .......................... 16
8.2 How much will this cost me? ............................................................................................ 16
8.3 How long does the short sale process take? .................................................................... 16
8.4 What are the seller’s responsibilities in a Short Sale? ...................................................... 16
8.5 Can I receive any proceeds from the sale? ....................................................................... 16
8.6 Why pursue a Short Sale? ................................................................................................. 17
8.7 I’ve already received a foreclosure notice, is it too late for a short sale? ........................ 17
8.8 Can the bank still come after me for the balance after the home is sold? ...................... 17
8.9 I’m ready to get started, what’s the next step? ............................................................... 17
9 ATTORNEY – BORROWER AUTHORIZATION LETTER ............................................................... 18
1 Introduction
Inside this report you will find valuable information on the Foreclosure process and timeline in
the state of Florida. It is a brief summary intended to help Homeowners understand their pre-
foreclosure options.
This information will provide Homeowners with basic knowledge of a Short Sale, as well as
introduce our company South Florida Short Sales (SFSS) and explain how SFSS works.
What’s important is that you understand your options so that you can make the very best,
most logical decision.
2.3 Refinance
The borrower pays off the existing mortgage loan with proceeds from a new loan with more
favorable terms. (must apply before missing payments) Refinance will not be an option if there
is no equity in the home, at least 20 – 30%. The chances of a homeowner getting refinanced
while behind in their payments are very slim.
2.4 Bankruptcy
Generally, there are two types of personal bankruptcy: Chapter 7 (liquidation of assets), or
Chapter 13 (repayment plan). In either type of bankruptcy, the court appointed trustee will not
have much interest in a property that has no equity. In a Chapter 7, once the bankruptcy is
discharged, the bank will continue with the foreclosure process. In a Chapter 13, the
homeowner cannot miss one payment of their re-structured payment plan or the lender can
continue to pursue the foreclosure process. The vast majority of Chapter 13’s do not make their
scheduled payments, thus resulting in a double penalty on the homeowner’s credit report of a
Bankruptcy AND a Foreclosure.
NOTE: The most important thing you need to know about Bankruptcy as it relates to
foreclosure is that bankruptcy does not permanently stop or prevent a foreclosure from
occurring. It can only temporarily freeze a foreclosure action. It is advisable that you speak to
an attorney and do your own research.
A FINAL NOTE: All the above options for staying in the house have one thing in common
– the homeowner MUST be in a position to make some sort of reasonable payment that
is agreeable to the Bank, and make it on time every month.
2.6 Foreclosure
When other options are not pursued, or a Short Sale is not accomplished, the property will go to
Foreclosure. At a public county auction the foreclosing lender takes possession of the property,
or the property is sold to a buyer, usually an investor. The original homeowner has no further
rights to the property, and will have to vacate. Worse, the homeowner can still have financial
obligations to mortgage lien holders even after the foreclosure. The foreclosing lender could
still pursue a deficiency judgment against the original mortgagor for the difference between the
final judgment amount, and the proceeds received from the auction or REO (bank owned) sale.
In order for banks to consider a Short Sale, they require the same paperwork as a loan
application (ie. tax returns, pay stubs, bank statements). The bank needs to substantiate that
the seller no longer has the ability to afford the mortgage payment. In addition to this, a case
must be built as to why the home is not worth what is currently owed.
NOTE: In 2010, Short Sales accounted for about 22%* of homes sales in Dade, Broward, and
Palm Beach counties.
Again, two conditions must exist for the lender to consider a Short Sale:
1. There must be little or no equity in the property.
2. Homeowner must prove a legitimate hardship.
Purchase and Sale Agreement – this is the contract to sell your house between you and the
buyer
Hardship Letter – a letter written by you explaining your hardship and why you can no long
make your mortgage payments.
Authorization to Release Information – Form signed by you authorizing your lender to release
information and negotiate the short sale with your agent, or other 3rd party such as attorney
or title company.
HUD1 – financial summary of the transaction that that tells the lender the sales price and the
proposed payoff.
Financial Statement – A summary of your monthly income and expenses, your assets and
liabilities.
2 most recent Bank Statements, 2 most recent Federal Tax returns, and 2 most recent
paystubs.
The compilation of the above documents is what makes up a completed “Short Sale Package.”
The main purpose of the Short Sale package is to substantiate your hardship to the lender, and
prove that you can no longer make your payments. Your bank wants to see that you simply
cannot afford your house anymore.
The Short Sale Package is similar to making an application to qualify for a mortgage, except
you’re doing it IN REVERSE!! You’re making an application to get out of a mortgage.
• Per Fannie Mae guidelines, you can be eligible for a new home mortgage only after 2 years,
versus 5 years with a Foreclosure
Sellers get the house sold and remove a major burden. The sale allows them to move on
with their lives.
4 Pre-Foreclosure Timeline
Non-Primary An investor who allows a property to go to An investor who successfully negotiates and
Residence Loans foreclosure is ineligible for a Fannie Mae closes a short sale will be eligible for a Fannie
backed investment mortgage for a period of 7 Mae backed investment mortgage after only
(Fannie Mae) years. 2 years.
Foreclosure will remain as a public record on a A short sale is not reported on a credit
person’s credit history for 10 years or ore. history. There is no specific reporting item for
Credit History “short sale.” The loan is typically reported as
‘account settled’ or ‘account paid.’
In 100% of foreclosures in Florida, the bank has In a successful short sale, it is possible to
the right to pursue a deficiency judgment. convince the lender to give up the right to
Deficiency pursue a deficiency judgment against the
Judgment homeowner.
In a foreclosure, the home will have to go In a property negotiated short sale, the home
through an REO process if it does not sell at is sold at a price that should be close to
Deficiency auction. In most cases, this will result in a lower market value, and in almost all cases, will be
Judgment $ sales price, and a longer time to sell in a better than a later REO sale, resulting in a
amount declining market. This will result in a higher lower deficiency amount with less liability to
possible deficiency judgment with greater the homeowner.
liability to the homeowner.
Before you can understand the possible outcomes, you must understand the difference
between a lien release, and a lien satisfaction.
Generally, the Lender has the right to approve the Short Sale in one of two ways:
1. Release the lien - allow the sale of the property to a new buyer, and still pursue further
action to collect the remaining debt or a portion of it, or…
2. Fully satisfy the lien – allow the sale of the property to a new buyer and forgive the
remaining debt.
NOTE: It’s important to realize that if a property goes to Foreclosure, a lender can STILL pursue
the homeowner for the shortage between what the bank subsequently sells the property for
and the original mortgage amount plus all collection costs (legal fees). The potential liability to
the homeowner will be greater if the property goes to Foreclosure due to greater collection and
holding costs incurred by the lender, and the lower value of the property (in a depreciating
market).
In negotiating Short Sales, SFSS will always ask the lender to fully satisfy the lien without the
homeowner having to bring any money to closing, with little or no consequences to the
homeowner.
The Seller should always seek legal and financial advice to help with all Short Sale outcomes.
The following are the three most common options that Lenders pursue from the homeowner
subsequent to the Sale.
However, if the Short Sale does not close it may result in Foreclosure with greater potential
financial liability to the Seller.
In most cases, the lender is more likely to issue a 1099C in the year after the sale, for the
amount of debt relief. The 1099C signifies that the lender has forgiven the debt, and has
written it off.
It is important to understand that the lender cannot issue a 1099C and pursue a deficiency. It
can only do either one, not both.
NOTE: A lender can still pursue a deficiency judgment even if the home goes to
foreclosure for the difference b/w the REO sale price and the total mortgage balance!!
HOWEVER, by doing the Short Sale, we can negotiate with your lender to waive the
right to pursue a deficiency.
In the state of Florida, certain assets are protected from a deficiency judgment.
These include your homestead (primary residence), life insurance policies and annuity
contracts, pension and profit sharing plans, IRAs, disability income and prepaid college
plans. (see your local attorney for details, do your own research)
One of the things we always ask for when negotiating a Short Sale is a full ‘Satisfaction of Lien’
or that the lender waive its right to pursue a deficiency. If the bank does satisfy the lien, the
bank will issue a 1099C for amount of debt forgiven.
In this example, the bank may send the seller a 1099C showing $150,000 as income. In the eyes
of the IRS, debt relief = income to seller. The good news is that in 2007, Congress passed the
Mortgage Forgiveness Debt Relief Act of 2007 which eliminates taxation on debt forgiveness on
owner-occupied homes. It applies to debt forgiven between 2007 and 2012. So in the above
example, if the bank sends you a 1099C for $150,000, you would not have to pay income tax on
it if the property was your primary residence. You can read the Mortgage Forgiveness Debt
Relief Act of 2007 at the IRS.gov website here:
http://www.irs.gov/individuals/article/0,,id=179414,00.html
SS package sent to
the mortgage co. Agent compiles list of
interested buyers, while
Seller has time to find a SS is being negotiated.
0 – 30 new place to live. Seller
Days has better options with
Lender reviews file for
no foreclosure on credit
completeness. Orders
report.
additional docs as
required.
Sales contract
30 – 60 signed with highest
Days and best buyer.
Lender orders Property is SOLD.
appraisal or Title company receives
BPO to compare Short Sale approval and
with SS offer. performs title work.
Seller and Buyer come
to closing. Closing Docs
60 -120
signed, property is SOLD
Attorney negotiates Days
and CLOSED.
SS with lender to get
lowest possible price
to get property sold.
8.7 I’ve already received a foreclosure notice, is it too late for a Short Sale?
It is not too late to do a short sale if you have received a foreclosure notice. Plus, there are ways
in which we can help you extend the foreclosure timeline. A Short Sale can be approved and
completed up to the date of the bank auction. However, time is always of the essence and
there are never any guarantees.
8.8 Can the bank come after me for the balance, after the home is sold?
We will always request that the lender “settle the debt in full” as part of the Short Sale. In most
cases the bank will “waive its right to pursue a deficiency” as part of the written short sale
approval. That means that typically they won’t come after you for the remaining balance.
Instead, they will issue a 1099C in the following year for the amount of debt forgiven (not
taxable if property is your primary residence). Unless the homeowner has significant assets
worth pursuing, most lenders will not pursue the deficiency. Realize that we can never make
any guarantees, as all lenders have different guidelines. However, lenders are very much aware
of homeowners’ inability to pay, so they often see further collections as fruitless. The lender
will disclose the terms of the Short Sale approval in writing, and give you the opportunity to
agree or disagree with any of the conditions prior to the sale of the property.
Date:_____________,2011
Lender: ______________________________
Dear Sir/Madam:
I/WE hereby authorize the law office of Jeanette Hernandez Suarez, P.A. and its legal assistants
(Jeannette M. Hernandez and Max Hernandez) to inquire about my mortgage and obtain information
in reference to same and negotiate any and all issues pertinent to our mortgage, including for
negotiation of a short sale.
I hereby agree to indemnify and hold harmless, The Law Office of Jeanette Hernandez-Suarez, P.A. and
or each of their respective assigns, associates, employees or agents from any liability for actions taken
by the lender or as a result of this contemplated short sale transaction.
Should you have any questions, please do not hesitate to contact me directly.
x_________________________________________
Borrower:__________________________________
SS#:__xxx-xx-_______________________________
x__________________________________________
Co- Borrower (if applicable):____________________
SS#:__xxx-xx-________________________________