Before we talk about short sales as a solution to your underwater mortgage, we want to give you a quick primer about the alternatives. That way you can compare short selling to the rest of the options you have when you’re faced with an underwater mortgage.

Now for the purposes of this article, we’re assuming that you can’t afford to pay the monthly payment on your underwater mortgage anymore. That’s the situation that most people who find our website find themselves in. With that said, here are some of the other options:

Applying for a loan modification can certainly delay or draw out a foreclosure, but fewer than 3% of homeowners actually qualify. And two of the available options will end up with you eventually paying more for your mortgage than you originally signed up for! But, if you can get the modification and when you do the math it makes sense to you, go for it.

You could give your mortgage lender a “deed in lieu.” This means you hand over the deed and the keys, and you walk away from the house. This is not a good option! Why? Because most mortgage lenders will hound you relentlessly about paying the difference between what they can sell the house for and the total amount of your mortgage. And because mortgage lenders aren’t set up to be real estate offices, they will sell your house for pennies on the dollar just to get rid of it.

The next option is foreclosure. With foreclosure, you can keep living in your house mortgage-payment free until you get an eviction notice. You’ll have to manage your way through a few years of less-than-stellar credit, but Kristin and I have been through this option, and it’s worked out well for us so far. You may also have to worry about your lender coming after you for the difference between the eventual foreclosure sale price and the amount you owe on your mortgage.

So how is a short sale different? With a short sale, the mortgage lender agrees to let you sell your house and agrees to take the price you get for it as a payoff on the mortgage!  And the right Realtor may be able to negotiate verbiage into the Agreement Notice (the approval on the short sale you receive from your lender) so your lender won’t come after you for the deficit.  We bet you can see the advantages here right away.

You’re out from under your underwater mortgage. You’ll be able to live in your house payment-free until it’s sold. And your credit rating won’t suffer as much!

There’s even a new federal program that might give you up to $3000 to relocate. It’s about time the government started helping homeowners, isn’t it?

Short sales do take some work on your part though. You’ll have to hire an experienced, certified, short sale Realtor to negotiate with your lender. You’ll have to provide lots of documentation to your Realtor, so they can pass it along to your lender.  You’ll also have to prove financial hardship.

This might all seem hard. But when you’re dealing with an underwater mortgage on top of everything else, a short sale can be the best solution to your problems. At best, you sell your house and walk away scot-free. At worst, you delay foreclosure, sometimes up to a year or more.

Just be patient and don’t fall under the illusion that short sales are, well, short. They can take up to a year, just like any other housing sale! But spending a year without paying on your underwater mortgage isn’t a bad payoff for that kind of patience, is it?

Please don’t stress over finding the right Realtor to short sell your home.  We can help.  Just contact us and we will find a professional, certified short sale Realtor in your area.

Special report: Flipping, flopping and booming mortgage fraud
The house on the 53rd block of South Wood Street in Chicago’s Back of the Yards doesn’t look like a $355,000 home. There is no front door and most of the windows are boarded up.

Read more on Reuters via Yahoo! News

The financing vehicles have been in place for several years now for a borrower using some creativity with a seller to make 100% financing possible. However, the real estate market had been so hot in many areas in the U.S. the sellers did not have to even entertain anything resembling creative financing. With a softening market, creative financing is back as a helpful tool to allow sellers to unload their properties as long as an over supply of inventory exists.

Harold and Laura had been renting a home in a suburban area for three years. They had been digging out from under a heavy debt load of medical collections. Laura was leaving work one day and a truck had crossed the line and pinned her in her small car for a half an hour until the jaws-of-life was used to extract her out from her crushed vehicle. With a broken hip, ankle, eye socket and fibula a long recovery ensured and Laura was not able to work for two years. The other driver was at fault, but any financial recovery was years down the road as the other insurance company was playing hardball. In the meantime, with constant harassment for the out standing medical bills and the weight of credit card and installment debt that existed prior to the accident was just overwhelming. Harold had been working two jobs just to meet the basic family needs. Family help was limited and really wasn’t expected. Laura’s therapy had been going on for a year now and real progress was being made. Her employer had kept her job open as a customer service representative ironically at a credit card service center. The benefits were limited and very little of the medical bills and rehab had been covered. Harold and Laura had been seeking some financial advice from a local bankruptcy attorney. It was decided that with their level of income and huge medical bills that filing a Chapter 7 Bankruptcy action might be the best thing to do for mental sanity and cash flow. A Chapter 13-payback plan would be crippling for many years to come. As the bankruptcy attorney explained to Harold and Laura that in his practice example after example comes before him where just bad things happen to good people and that there was no shame in taking care of their financial affairs in this manner. The rationalization process followed.

Two months before filing the bankruptcy, the insurance company was offering a small settlement based on an allegation that Laura may have temporarily been distracted by talking on her cell phone and thus reduced her reaction time. Rather than put up a long protracted fight Harold and Laura, for better or worse settled for an amount that just covered her payoff on her totaled car. They were relieved of that installment. Their attorney for the accident urged them not to settle, but with Laura’s eminent recovery and the stress of the whole ordeal, they grabbed what they could at the time.

Harold and Laura received their notice of the Final Discharge of their Chapter 7 Bankruptcy. All the collections for medical bills, non-secured credit cards and one major medical bill that had resulted in a judgement being awarded for the first responding hospital had all been wiped out. They excluded their family car from the Bankruptcy matrix (which names all the debtors), which still had a $6,850 balance with a $295/month payment remaining. They also excluded a credit card that they had for years and had a low balance and a low monthly payment. This allowed Harold and Laura to maintain two trade lines and their on time rental payment of some $1,250/month outside the Bankruptcy action. Laura had now been back to work at her old job for two weeks. She was fortunate to take advantage of a car pool with a fellow worker who lived a half mile away.

It was like the world had been lifted off their shoulders. Now Harold and Laura had their rent, one car payment and a small credit card and their home utilities. The cell phone service had gone by the way side many months before.

Even through the most brutal times and the lowest of the low, Harold and Laura, as their custom, visited Open Houses after church every Sunday. It was always in the neighborhood and never more than two home visitations. It was Harold and Laura’s way to cope with the dark cloud that had beset them. During this process, they became familiar with a local Realtor who took a very personal interest in their situation. The Realtor, named Betty, knew they were not ready to do anything until some things had been handled. At the most recent Open House visit, Harold and Laura shared that they had put their financial challenges behind them. Laura was feeling great and off all her pain medication. Betty raised the prospect and questioned them if she could figure out a way to get them into a home at a little more than they were paying in rent with little or no money out of pocket, would they have an interest at least in hearing more about it. Harold raised his hands with palms up and a shrug of the shoulders, and shared that it wouldn’t hurt to listen to some possibilities. The accident had caused a detour in the quest to own a home, but it had not killed their dream.

Betty set up a meeting with the Realtor’s in-house mortgage broker to discuss their options. A joint credit report was pulled and as Harold at the time made the most money his middle score was utilized to qualify for a mortgage. His middle credit score was right at 500. The mortgage broker went on to explain that they would qualify for an 85% Loan To Value mortgage. Due to their lack of a cash down payment, it was added, that the only way that they could use this loan option would be with a seller held second of 15% loan to value with the seller also paying up to 6% of the contract selling price. This would then give them a 100% Combined Loan To Value (CLTV). The loan would need to be a Fully Documented loan with verification for employment and income. The mortgage broker felt like he could present Laura’s employment gap due to the accident and use her current income for qualifying purposes. Totaling up the income versus the debts, it was determined that Harold and Laura could buy a home in the $175,000 range IF the seller would offer reasonable terms on the 2nd mortgage. Betty piped in that she had been sitting on a listing for six months and the owner now may have an interest in holding some paper versus renting the property again and deal with the tenant challenges on repairs and upkeep. The home was close to their current residence.

Betty was able to work out the deal with reasonable terms on the second mortgage that would keep the overall monthly payment down at least for the first three years. As the mortgage broker explained, that should be plenty of time to establish a better credit history and qualify for a lower interest rate loan in two years. As an added bonus, the seller agreed to pay all the closing costs and prepaid expenses such as annual hazard insurance and tax escrows plus replacing a leaky roof. Harold and Laura moved into their newly purchased home putting all the travails of the past in the rear view mirror.

Sometimes bad things happen to good people. In this current real estate market, there are creative possibilities. It won’t last forever; the time is at hand for seller help and creative financing.

Dale Rogers

www.sellerhelpsbuyer.com

www.brokencredit.com

Overdue mortgage leads to sledge hammer beating
When Ralph “Pete” Peterson of Spanish Springs saw a stranger taking photos of his house and suspected the man might have sinister motives, he confronted the person, who he said refused to identify himself.

Read more on Reno Gazette-Journal

What is a short sale?
Will lenders approve the buyer?
I have a buyer, what should I do!

I’m not yet late on my payments, and im not in a forclosed situation YET. But, I can’t pay this month, i’m hoping to “short sale” before the 30days.

I need to do this asap…. I don’t want it to affect my credit. as i need to rent elswhere, and have a baby.

Thanks!

Money Talk: Will student debt hurt mortgage application?
New, stricter lending standards could limit the size of the home loan that a former graduate student can get. Dear Liz: I recently completed a master’s degree in counseling and am now paying student loans. I am punctual and consistent in my payments. How does having a $30,000 outstanding student loan look to home lenders? We recently sold our home and are planning to purchase another.

Read more on Los Angeles Times

Primary residence, first time buyer, purchased condo at $298K in August 2006. Had 80/20 option ARM, both lenders finally agreed to short sale. Property will be sold by end of this month for $145K. How do I make sure that I don’t end up paying taxes for the difference? Am I covered under the Debt Relief Act?

Short sale approval occurs when banks allow borrowers to sell their property for less than the balance due on the mortgage note. The primary goal of short sales is to minimize lenders’ financial losses and prevent the property from falling into foreclosure.

Short sale approval is based on many factors and varies by lender. Unified criteria include: properties cannot be in foreclosure; borrowers owe more than the home is worth; and borrowers cannot own assets which can be used to satisfy the mortgage note.

The biggest mistake borrowers make is procrastinating about contacting their lender when they become delinquent with payment. This usually stems from embarrassment or fear. Believe it or not, lenders do not want your property. They are in business to make money, not manage properties. Most are willing to work with borrowers and devise a plan that is beneficial to both you and the lender.

The short sale process typically takes between four to nine months. Much depends on the bank’s caseload, number of lenders involved, and ability to locate a buyer. The process becomes more burdensome when borrowers hold a second or third mortgage against the real estate.

Borrowers will work with a loss mitigator assigned through their lender. Mitigators do not make final decisions on short sale approval, but can be instrumental in helping obtain a successful outcome.

Loss mitigators are overwhelmed with work. They are oftentimes verbally abused by frustrated, stressed-out borrowers. If you want an edge on obtaining short sale approval, be nice to your mitigator. Organize financial records and provide requested information in a timely fashion. Take time to thank the person for assisting you through this difficult process. As they say, you catch more flies with honey.

Banks generally require borrowers to submit a short sale packet consisting of a variety of financial documents. Expect to provide bank, credit card and investment statements, previous years’ tax returns, tax or creditor liens, list of income and expenses, spousal or child support orders, and property tax and homeowners’ insurance receipts.

Lenders oftentimes request borrowers to submit a short sale hardship letter outlining events which caused them to become delinquent. The hardship letter is a crucial element toward obtaining short sale approval. It should be crafted with care and include dates of events which took place. Events might include loss of employment, death of a spouse or child, divorce, or chronic illness.

Many banks require borrowers to have a sales contract in hand before authorizing short sale approval. Others grant time to list the property through a realtor to locate a buyer. Borrowers can save time and money by selling to real estate investors.

Today, investors are particularly interested in foreclosure and short sale real estate because these properties are sold below market value. Use the Internet to locate investors in your area or ask friends, family, realtors and banks for referrals. Some investors purchase real estate across the nation, so if you are unable to locate a local investor look for nationwide investors.

Investors oftentimes purchase distressed properties with cash in order to obtain a lower purchase price. Everyone knows cash is king and lenders are generally more receptive to working with buyers who have cash in hand.

Mortgage short sale is an option offered by lenders when borrowers are unable to maintain their mortgage payments. Instead of allowing the property to fall into foreclosure, banks allow borrowers to sell their home for less than less than they owe on their mortgage loan.

Entering into a mortgage short sale can benefit all parties involved. Borrowers are relieved of the financial burden of homeownership. Banks recoup most of their investment, and buyers are able to purchase real estate below market value.

Borrowers must obtain short sale approval from their lender. Not all banks engage in mortgage short sales, nor do all properties or borrowers qualify for this type of transaction. Borrowers must be a minimum of 31 days delinquent on their loan and owe more than their property’s appraised value.

Every lender handles short sales based on their own protocol. When extended, borrowers must undergo a financial audit. Lenders require homeowners to submit a short sale packet which includes financial records such as bank statements, pay stubs, income, expenses, property tax statements and previous years’ tax returns.

Most lenders require borrowers to submit a short sale hardship letter outlining events which caused them to become delinquent on their note. This letter is oftentimes used as a tool to help loss mitigators determine borrowers’ eligibility for short sale qualification.

The letter of hardship should be concise, yet include sufficient details of financial circumstances. It should also include any actions the borrower has taken to overcome monetary challenges. This could include setting up utilities on a budget plan, using coupons for grocery shopping, eliminating frivolous spending habits, selling an extra car or taking public transportation.

Mortgage short sales are handled by the lender’s loss mitigation department. When borrowers become delinquent on their loan, a loss mitigator is assigned to work with them to establish a repayment plan or determine if they qualify for a short sale.

Loss mitigators handled multiple caseloads, so it is important to be organized and prepared when contacting them. Be prompt with providing requested documents and be respectful when engaging in conversation. Unfortunately, loss mitigators receive a considerable amount of verbal abuse from stressed out homeowners. Being nice can go a long way in obtaining a successful outcome.

A mortgage short sale is the last opportunity to prevent foreclosure. However, it is imperative to determine the type of short sale offered by the lender. Two types of short sale arrangements exist: Payment in Full and Deficiency Judgment.

Payment in Full means the lender agrees to accept the sale price as full payment to satisfy the mortgage loan. Once the sale occurs, the lender transfers the real estate to the buyer and the borrower is released from the loan.

When lenders issue a Deficiency Judgment, they hold the borrower responsible for the difference between the sale price and loan balance. Most short sale deficiencies range between $10,000 and $30,000, or more.

Once a deficiency judgment is issued it remains on borrowers’ credit history until paid in full. For many people, this can take a lifetime to repay and will tarnish their credit for years to come.

Many elements are involved with mortgage short sales. If you are facing foreclosure it is crucial to contact your lender and discuss available options. Facing the problem head-on is the best strategy. Take time to become educated about mortgage short sales and weigh the pros and cons before making a final decision. If necessary, consult with a real estate lawyer or short sale specialist to obtain advice and guidance.