Frequently Asked Questions

We are licensed Florida Realtors and have also been certified as Distressed Property Experts. Our services are absolutely FREE to you! This is why we are Orlando, Florida's Short Sale Experts!

Did you know? Everyday people lose their homes to foreclosure without exploring all the options available to them. It's not their fault they just haven't worked with a professional that can help them navigate through the process. Banks offer several options to distress homeowners, here are a couple:

Reinstatement – this is a one time payment of past due amounts to bring the loan current.

Forbearance or Repayment Plan - this is when the bank allows you to make up the past due amounts by increasing your regularly scheduled monthly payment over a certain period of time until the loan is caught current. Or, the bank may allow you to skip several payments by adding the skipped payments to the balance of the loan. Be aware that the repayment option can prolong the hit on your credit so before you agree to the plan make sure you understand how the option will impact everything, including your credit score

Sell the Property – If you have equity this maybe the best option. However, most of us have no equity so this is not an option.

Rent the Property – If you can find renters and have the patience and wherewithal to be a landlord this maybe an option for you. However, most homeowners cannot find a renter to cover the mortgage payment. Before you choose this option check the local rent rates in your area to see if this make sense for you.

Modification – Most banks have departments dedicated to helping homeowners say in their homes by making payments affordable. If your income has been reduced this maybe an option for your. Keep in mind that most modifications are made by making the new mortgage payment at 31% of your gross income – if you are already below 31% this will most likely not be an option for you.

Short Sale – If you owe more than your home is worth and you are experiencing a financial hardship, your bank may allow you to sell your home for less than what you owe. Be aware, if you are not working with a trained professional you may not understand the full impact of taxes, deficiency, and credit. Make sure you hire a trained 'Certified Distressed Property Expert (CDPE).

Deed-in-Lieu – If you’ve had an extreme hardship case your bank may allow you to transfer ownership of the property to them. Before you agree to anything make sure you understand the tax, deficiency, and credit implications.

Bankruptcy – This option may allow you to stop foreclosure for a short period of time (90 days depending on the state) and reorganize your debt. It is very difficult to sell the property once you enter bankruptcy and you may lose your negotiating power with the bank so make sure you understand fully all your options.

If you're working with a Realtor make sure they have the 'Certified Distressed Property Expert' (CDPE) designation so you aren't left with a hefty deficiency judgment.

J.D.A.

If you are facing foreclosure, or you are pursuing another foreclosure alternative like short-sale or deed-in-lieu, fully understand the consequences of your decision. You may be left with a hefty tax bill and/or a large deficiency judgment. When the bank foreclosures, agrees to a short-sale, or accepts a deed-in-lieu of foreclosure they are losing money on the transaction. The money that is lost is called the deficiency balance (what’s left over after the bank sells the property including selling expenses). There are 2 main things you need to know about the deficiency balance:

1) If the bank forgives the balances (meaning you do not have to repay the balance) then the Internal Revenue Service (IRS) considers that amount taxable income in the year the debt was forgiven. As known as phantom tax.

2) If the bank does not release you from the liability then you may be hit with a lawsuit in the future for the amount of loss incurred by the bank.

Congress passed the Mortgage Debt Relief Act in 2007 that eliminates the phantom tax on debt cancellation in mortgages discharged (forgiven balances), but ONLY under certain circumstances. At It's Your Short Sale we review the full impact of foreclosure alternatives with every client to make sure they fully understand the potential effects it may have. It is always recommended that you see the counsel of a tax attorney on taxable debt.

Deficiency judgments can also be pursued by the bank for up to 5 years (in Florida) on the loss recognized after the sale of a distressed property either through foreclosure, short sale, or deed-in-lieu. This deficiency balance can and should be negotiated to benefit you and your family.

Realtors with the ‘Certified Distressed Property Experts’ (CDPE) designation have been trained and know how to negotiate this on your behalf. At It's Your Short Sale we know how to handle bank negotiators on your behalf. In fact, we also have CDPE’s who have managed loss mitigation departments in banks and know the ins and outs of the system.

J.D.A.

People ask me all the time "How will a short sale affect my credit?" and my response is always, "Negatively". I know that's not a very good sales response, but it's the truth. Almost always the subsequent question is, "How low will my score go?". Anyone that gives you a range without asking more questions has never studied credit before and their answer should be discounted.

If you are searching for an answer to this question on the web you will get so many conflicting responses that you'll have a hard time deciphering which is true. I have been in the banking business for years studying and analyzing credit, and I have given multiple seminars on how to improve and manage your credit. The one thing I know for certain is that any lender that takes a loss on a property is going to report the derogatory remark to the credit bureau. It is typically reported as a 'narrative' today and does not have it's own category like bankruptcy or judgments. A short sale WILL affect your credit score - don't let anyone tell you it won't.

Most websites that I visit are misleading because they give you a direct answer to this question and it's simply not that easy to answer. A short sale is another form of foreclosure, and depending on several factors it can have dramatically different impacts on your score.

Your score is made up of five factors with varying weights:

Payment History - 35%
Amounts Owed - 30%
Length of History - 15%
New Credit - 10%
Mix of Credit - 10%

So when someone asks me how it will affect their score I have to know the following in order to give a better estimate (its only an estimate - no one knows the exact impact):

- Do you have any other derogatory credit on your credit report, or have you missed payments on your other obligations?

- How many revolving lines of credit do you have (credit cards)? What are their balances? What are their limits?

- How long have you been managing credit? Have you recently closed any of your credit cards?

- Have you been shopping for additional credit within the last 12 months (i.e. car, credit card, etc)

I ask these questions because they give me a better understanding of how well credit has been managed to date. According to FICO, the architect of the credit score, a foreclosure will have varying impacts depending on the management of the rest of the credit. http://www.myfico.com/CreditEducation/questions/foreclosure-fico-score-a...

I tell people who are considering a short sale that it is better than a foreclosure as far a your credit is concerned. Here's why, with a foreclosure (especially in Florida) it is taking 14-19 months to foreclose depending on how backed up the county is. During the course of foreclosure your mortgage continues to report as severely delinquent on your credit report, thus damaging your score throughout. However, if you decide to short sell there may be similar impacts on your score at the time of sale, BUT you are starting fresh from that point and not going through 19 months of derogatory credit and then starting fresh. This is a BIG difference.

If you are considering selling your house and need assistance please fill out our quick form and we'll get back to you shortly.

J.D.A.

If you are searching for a Realtor to represent you in a short sale transaction either with purchasing or selling they should, at the very minimum, have the following knowledge/background:

- Minimum 3 years working directly with real estate sales transactions and/or financial counseling

- Extensive knowledge of bank underwriting guidelines for distress properties

- Minimum 5+ short sales within the last 12 months

- Superior knowledge of tax and deficiency judgment implications

- Most importantly, they must carry the designation of 'Certified Distressed Property Expert' (CDPE)

It's Your Short Sale has all of these qualifications plus what no other Realtor can offer you today - team members who have worked for large financial institutions directly managing and negotiating short sales on the bank side. The bank is paying for it so wouldn't you want to work with the best?

J.D.A

The hardship letter is a very important piece of the short sale package submitted to the lender. While it will not make sole decision for the lender, because only numbers really matter in the end, it will help convince the lender that there is no question as to whether this should qualify as a short sale. Here are a couple hints to use when preparing the letter:

Be Honest:
Chances are that you really are having a financial hardship and it is more than likely very emotional for you and your family. The letter should convey that emotion and tell the story about how you got in the situation which prompted the short sale.

Stick to the Facts:
Try not to include details that are not pertinent to the decision. Working on the bank-side for so many years in the loss mitigation department I can tell you the one line on a hardship letter that we all could not stand went something like this..."Due to the unforeseen economic situation and loss of value in my home...". The bank knows about the economy and the bank knows that half of its portfolio has lost equity value so just leave it out. Stick to the situation that caused you to not be able to afford your monthly obligations. If there are medical issues mention those as well (you do not need to be too specific but enough to convey the message).

Closing Statement:
Finally, close the letter by restating the situation that caused the financial hardship and emphasize the stress it is causing on the family. In addition, ask for help with and consideration of the short sale. It never hurts to ask for what you want in the end.

If you are having a financial hardship and would like to work with a Certified Distressed Property Expert please contact us immediately. If the bank is paying for it why wouldn't you choose the best?

J.D.A.

A successful short sale Realtor may be able to negotiate the remaining outstanding balance after the short sale occurs. However, the bank is under no obligation to forgive the debt. Depending on your financial situation they may require you to set up a payment plan for all, or a portion, of the remaining amount owed after the sale. If you are insolvent, unemployed, or you have a great Realtor negotiating on your behalf then the probability of the bank forgiving the deficiency is in your favor.

Anyone who agrees to have the debt forgiven by the bank needs to understand that their may be tax consequences associated with the transaction. The Mortgage Forgiveness Debt Relief Act of 2007 passed by Congress and in effect through 2012 generally allows taxpayers to exclude income from the discharge of debt on their principal residences. Here's an example of what the IRS considers taxable income:

You owe $200,000 on your home and sell the home for $150,000 leaving a deficiency of $50,000. If successfully negotiated and the bank forgives the $50,000 to be repaid, the IRS considers this taxable income in the year it was forgiven.

Taken directly from the IRS website, here are the most common situations where the debt is NOT consider taxable:

-Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.

-Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

-Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

-Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.

-Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

For more information on the Act visit the following page on the IRS:

http://www.irs.gov/individuals/article/0,,id=179414,00.html

I always tell my clients to seek the advice of tax attorney to make certain they are fully aware of the implications.

J.D.A.

This is a great question, and based on what I know about how short sales are reported today the answer is most likely NO it will not. A foreclosure, on the other hand, will definitely set off red flags to a current and prospective employer.

Current Employer
Many employers have begun working with the credit bureau to monitor their employees' financial health via their credit report. Why? Well, think of it this way, if you were a business owner and you had an employee that handled 'cash' wouldn't you want to know that they were in foreclosure? Financial institutions especially monitor their employee credit reports because they have access to very sensitive information. However, since a short sale does NOT have its own category on the credit report and it's only reported as a narrative today, it’s unlikely that it will be found derogatory with employer credit reviews.

Future Employment
A majority of companies pre-screen their prospective new hires by reviewing their financial health via their credit report before they make the final decision. Why? Same as above, if you were a business owner and you had two equally qualified candidates but one had $100,000 in credit card debt and the other had none, wouldn't you want to know which was debt free? Especially if they were handling 'cash' or sensitive information for your business. However, since a short sale does NOT have its own category on the credit report and it's only reported as a narrative today, it’s unlikely that it will be found derogatory via an employer credit review. This is how it stands today.

The status of how short sales are reported to the credit bureau may change in the future and the way employers look at short sales on credit reports may change as well, but today that is not the case and it works in the favor of those who sell short versus file foreclosure.

J.D.A

The simple answer to this question is 'Yes'. However, depending on what caused the foreclosure there may be different waiting periods. Most homeowners believe that any type of foreclosure action will not allow them to purchase a home in the future. Fannie Mae, the 800-pound gorilla in the conventional mortgage financing market, has published the following waiting guidelines effective August 2008 (the majority of lenders comply with Fannie Mae guidelines for all conventional loans):

Foreclosure
5 year time period from completion date (potentially 7 years)

Exception for Hardship - Foreclosure
3 year time period from completion date (potentially 7 years)

Deed-in-Lieu of Foreclosure
4 year time period from completion date (potentially 7 years)

Exception for Hardship – Deed-in-Lieu of Foreclosure
2 year time period from completion date (potentially 7 years)

Preforeclosure Sale (Short Sale)
2 year time period from completion date

Bankruptcy (all except chapter 13)
4 year time period from date of dismissal/discharge

Chapter 13 Bankruptcy
2 years from the discharge date, or 4 years from the dismissal date

Exceptions for Hardship – All Bankruptcy Actions
2 year time period from date of discharge/dismissal

Multiple Bankruptcy Filings - 5 year time period from date of recent discharge/dismissal

Exception for Hardship – Multiple Bankruptcy Filings
3 year time period from date of recent discharge/dismissal

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf

Note above that a hardship is considered an 'extenuating circumstance' by Fannie Mae. These are circumstances that are out of your control that severely affect your ability to pay.

Specifically regarding short sales, if you are current on your mortgage and you, or a qualified Realtor, successfully negotiate a short sale you 'may' be able to purchase another home with NO waiting period. This is often difficult to do and a majority of lenders may not agree to these terms, but it is worth mentioning.

Before you agree to any foreclosure action make sure you are well aware of the future impact it may have on your ability to purchase another home. Talk to a 'Certified Distress Property Expert' (CDPE) who can help guide you along the way. A properly negotiated short sale may save you time, money, and heartache.

J.D.A.

Negotiating the deficiency (amount left over after the sale) is the most important task you or the Realtor will take on because it is the difference between potential future litigation and starting fresh. Here are some things to know about negotiation:

Document, Document, Document:
One of the first things a bank is going to look at is your ability to repay all, or a portion of, the outstanding debt after the sale. You must be able to prove (legitimately) that there is no financial way your household can contribute to any portion of the deficiency. You can prove this via paystubs, tax returns, letter of unemployment benefits, or a company letter showing elimination of your position.

Keep the Pressure On:
You cannot assume that the bank is working on your case. In fact, the only time they are most likely working on your case is when you call or it comes up next in their stack. If the bank has countered with a deficiency note (payment plan for some or all of the amount owed after sale), then you must re-counter and prove your case again by referencing documents that you have sent that prove you cannot afford the payment plan. Be aware that if you have private mortgage insurance on your loan the insurance companies are increasingly asking for at least $5,000 or $10,000 on a deficiency note. Continue to call and plead your case, but make sure your conversations are professional. If you are still not getting the answer you want to hear ask for a manager and plead your case to them. Often times they may have the authority to override the negotiator.

Get it in Writing:
If a bank does agree to waive the deficiency balance you MUST get it in writing and it should say something like..."ABC Bank agrees to waive its rights to pursue the deficiency balance". Just because the bank doesn't ask you for payment on the deficiency doesn't mean they won't come after you in the future. In reality, some banks will look at your probability for re-employment and would rather not negotiate the deficiency balance with you today and wait for you to find employment in the future. There is a much higher probability that you will negotiate the deficiency then if the bank sues you and obtains a deficiency judgment. In addition to putting the waiver of deficiency in writing, it would also significantly benefit you if you could get the bank to put in writing that the balance will be reported as 'settled in full' to the credit bureaus. Although I have never seen this happen in all my years of banking I have been told that some have been successful at accomplishing this task. Every short sale I've seen or been involved in has been reported as 'settled for less than the full balance', which is a much harder hit on your credit.

Remember, a bank doesn't have to do any of the above so you should treat every call with absolute professionalism, and every call should always focus on the facts.

If you already have a Realtor selling your house for less than what's owed ask them what the most important things are for you to be concerned about with a short sale. If the answer doesn't include all of these 'Deficiency Balance, 1099 Tax Implications, and Credit Impacts' then it's time to shop for a new Realtor because they aren't informed. There are other items but none as important as those.

If you are having a financial hardship and would like to work with a Certified Distressed Property Expert please contact us immediately. If the bank is paying for it why wouldn't you choose the best?

J.D.A.