Fairfax VA – There are many misconceptions about foreclosure, deed-in-lieu and short sales. I hope this entry will help clear up some of those misconceptions.
Common Foreclosure Myth #1: No matter what I do, I’m going to owe money to someone. Most of the time, the seller is able to walk away from a short sale not owing the bank anything. I would say that eight times out of ten, that is the case. A bank loses way less money on a short sale than a normal foreclosure. So often they’re help you out in return for them helping out. Here is why there is this big difference between a short sale and a foreclosure.
On a short sale, the utilities are turned on and someone is living in the house. It’s a lot harder to sell a vacant house. The buyer knows the home is bank owned and will adjust their offer down because of that.
On a bank owned house, the house sits there for 6-9 months empty before it sells. The bank has to pay to keep it up and insure it. They can’t loan that money out and collect interest. Plus, there is always the liability that some kid will go into the house and get hurt. Thus, the banks want to do short sales and are very willing to work with you.
Myth #2: A Foreclosure will go off my record in 3-5 years. While it’s true you might be able to get a loan after 5 years, you’re not completely free. That’s because when you walk away, the bank will come back and get a judgment for the money they lose as well as any money they have to spend. They’ll tack on attorney’s fees, late payments, interest, maintenance, lawn mowing costs, Realtor fees, locksmith costs, title insurance, and all sorts of other fees.
You’ll have this judgement until you pay it off. For instance, if you owe $200,000 on your home and it’s now worth $170,000, the bank will lose 19% if you do a shortsale. But, if the bank takes the home back and waits for it to resell, they will lose 41%. In this case, the judgment amount will be $82,000 on average.
This deficiency converts to a judgment and judgments last up to 20 years here in Virginia. The bank itself will usually not come after you. But, the bank will sell the right to collect the money to a third party collection company, which will then attempt to collect from you.
Have you ever experienced the calls you get when you get behind on a credit card? Those people are vicious! They just keep calling. Not only that, but they will drag you to court and ask for all your financial information. They can force you to bring in your bank statements and information on any retirement accounts such as an IRA or 401K.
And if you don’t bring in this information, they can have a warrant issued for your arrest! They might even even send a police officer to your house to take anything valuable, such as your nice tv or even your car. No one will give you a loan with that judgment on your credit.
The worst thing is that this debt purchasing company will be going after you for decades. They will do whatever they can to collect what they think is “their money.” Your current and future employment might even be affected because of this judgment sinc many employers now require credit checks.
Myth #3: A Short Sale will take 8-12 months and can drag out even longer. Not true! Our short sales average 45 to 90 days. We do short sales every day with banks ranging from Chase to Countrywide to Wachovia. That’s the difference between dealing with someone who knows what they’re doing is this.
We will handle everything and do all the work. All you have to do is provide us with basic documents and that’s it. We will call the bank, handle the negotiations, and keep you updated.
Myth #4: Banks and lenders rarely accept short sales. The truth is that we are able to get short sales accepted most of the time. The banks often tell you they won’t take a short sale because they want you to pay them the full amount. Or, they want to get you to agree to pay them monthly for the rest of your life.
But if you go to them and say that you can only afford X and not a single penny more, they’ll probably take what they can get.
Myth #5: A Short Sale is no less damaging to my credit than a foreclosure. One thing’s for sure: Fannie Mae and Freddie Mac (who hold the loans on about half of the loans in the country) don’t think so.
Fannie Mae and Freddie Mac recently changed their requirements. Fannie Mae only requires two years on a short sale before you can get a new loan. But if you foreclose on your home, you have to wait for five years. Several new requirements now apply that can drag this out to 7 years.
These companies are the backers of more than half of the loans issued today. This makes foreclosure more damaging than even a bankruptcy, which requires a 4 year wait.
Is a Short Sale right for me?
That depends. Many people decide to do a short sale when that can’t afford their mortgage payment, have already moved out of the house, or experienced a loss in income. Your lender would rather get this resolved now rather than take the property through foreclosure.
Your lender wants to limit any loss on your loan. Upon completion of a successful short sale, your lender will end up with more money in their pocket than a foreclosure, which is what he or she wants.
I have two loans. Can I still do a short sale?
Yes. We will work to process a settlement with both lenders. Typically, the same lender is handling both loans. In this case it’s almost like negotiating with only one lender. If the first mortgage forecloses on the house, the second lender loses everything. That causes them to be much more willing to cooperate. You can still do a short sale even if the sales price is less than what is owed to the first mortgage.
How does a Short Sale affect my credit?
A short sale will negatively affect your credit score, but not nearly as much as a foreclosure or deed-in-lieu. For instance, with a short sale, you can buy a house in 2 years versus the 5-7 years you will have to wait if you foreclose on your home.
Plus, having a foreclosure on your credit will make it tougher to get a job since many employers check credit reports now.
What do you charge to help me with a short sale?
We do not charge anything to help you with a short sale. Your lender pays all the costs including title company fees, closing costs, property taxes, and any back taxes or Homeowner’s Association Fees.
Do I need to be behind on my mortgage payments to qualify for a short sale?
No. You can do a short sale and never get behind on your payments. Many lenders request a genuine hardship such as a job loss or job transfer.
How long does a short sale take?
That varies. Some short sales are done in 60 days while others take 6 months to finalize.
Will I owe my lender any money for the loss?
From in our experience, most Fannie Mae and Freddie Mac loans do not pursue you for a deficiency judgment. In addition, we have found that FHA and VA insured loans do not pursue you for a deficiency judgment. Because laws and loan contracts vary, we will never know for sure until we get your lender’s short sale approval letter.
The short sale approval letter will detail whether or not the lender can pursue you for a deficiency judgment. In addition, if your lender issues you an 1099, they will no longer have the option to pursue you for a deficiency. The law does not allow them to write off the debt, issue you a 1099, and then pursue you for a deficiency. We recommend that you discuss this issue with counsel.
Will I be responsible for income taxes to be paid on the loss?
Most of the time the answer is no. The Mortgage Forgiveness Debt Relief Act of 2007 made most short sales tax free. We’ve done a lot of research on the subject. Contact me to receive a free copy of our research. However, I still recommend that you contact a competent accountant or other tax professional.
How do I get started on a short sale?
Please contact me to get started. I will discuss your situation with you and answer any questions you have. You can call me at (703) 322-0600. Or, discover how other sellers successfully did a short sale and request a free consultation.
Thanks for reading this,
Thierry is a Real Estate Agent at RE/MAX Premier, and Host of Talk Radio’s, ‘Inside Real Estate’
Phone: (703) 322-0600.
Thierry is an advocate for Homeowners in Distress. Thierry has made it his personal mission to help as many people as possible avoid foreclosure and keep their home.
Thierry Roche specializes in loan modifications and short sales in Fairfax Virginia. Fairfax Loan Modification Help. Fairfax Short Sales. Fairfax Short Sale Realtor. Fairfax County Short Sale Realtor. Fairfax VA Short Sales. Fairfax Realtor.
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