Frequently Asked Questions
Q: What can Wheaton & Associates Inc. do to help me?
A: We can:
- Work out a reduced payoff with your lender.
- Handle all communication with your lender.
- Market your home through MLS.
- Negotiate with buyers and agents on your behalf.
- Negotiate extensions/delays on trust deed sales.
- Negotiate restructuring of payments.
- Show you how to use ALL your legal rights.
- Help you limit damage to your credit.
- Help you prepare a short sale package which contains all your lender required
documentation.
- Work with your Bankruptcy and Divorce Attorneys, CPA´s and IRS to limit your
exposure and liability.
- Bob and Peggy Wheaton have specialized in short sales and foreclosure intervention
since 1991. We have the required documentation, premade
forms, lines of communications and the experience to make it work for you.
Q: What is a short sale?
A: A short sale occurs when your existing lender agrees to accept less than the total
amount owed rather than completing a foreclosure. This is an
option when the borrower has exhausted all other alternatives and provides the lender
with all the required documentation.
Q: What can a short sale do for me, the seller?
A: A short sale can:
- Help you avoid foreclosure
- Reduce damage to your credit
- Limit your liability and tax consequences
- Limit obligations to repay the lender´s loss
- Allow sales commissions to be paid by your lender
Q:What is the difference between a foreclosure and a short sale?
A: The negative impact for a foreclosure on a credit report is greater than the impact of
a short sale. If the homeowner lets the property be foreclosed
on, they can be subject to a deficiency judgment. Generally, if the short sale is approved,
the Lender will not pursue a deficiency.
Q: What are some of my alternative if I don´t want to do a short sale?
A: This in no way represents all of your options, as each case is as unique as the
circumstances that created the situation.
Always consider your options carefully:
- Try to keep the property until the equity increases.
- Selling the property and paying he deficit out of personal funds
- Substituting other property as collateral for the over encumbered trust deed
- Renting the property to help make payments until the equity builds
- Deeding the property back to the lender in lieu of foreclosure
- Negotiating a restructuring of the loan to fit your current situation
- Letting the property go into foreclosure
Q: What are the tax implications on a short sale or foreclosure?
A: Both can be taxable events. Often the deficiency amount will be considered income
for tax purposes. This topic is currently subject to a new
legislation and therefore, the homeowner should consult their tax professional for the
most current and accurate information.
Q: How is the seller´s credit affected?
A: Completion of a short sale may appear on the seller´s credit report as:
- Settled
- Paid
- Short Sale
- Offer and Compromise
Q: How long does it take to get a short sale closed?
A: The lenders usually take 3-4 months after submitting the offer with a complete
short sale package to give approval. Once the package is
submitted, the lender will contact the listing agent for access to the property to do an
appraisal, or to start the negotiation process. Each lender has its
own process. The industry standard, at this time, is roughly 60-90 days.
Q: Why do short sales take so long?
A: A short sale requires the lender to review the Homeowners financials in order to
determine if the homeowner has the ability to pay any or all of the
debt, similar to a buyer qualifying for a loan in reverse. The lender must also determine
the value of the property and weigh that against the amount
owed. They then compare what they think they would net from a foreclosure sale to the
net proceeds of a short sale. The amount to the lender is not
always the determining factor. Sometimes an uncooperative 2nd lien holder will cause
the 1st (senior) lien holder to foreclose just to clear the title.
Q: Why do lenders foreclose?
A: Lenders, servicers and banks are corporations. These corporations are driven to
make money, not to lose it. They must answer to their
shareholders just like any other corporation. These corporations do not want to own
property. The only reason they foreclose is to gain control of the
property or asset and recover as much of the principal loan balance, accrued interest, late
fees, and penalties, taxes they paid on behalf of the
homeowner, court costs and attorney fees. In most states the laws are written so that the
lender can only recover these widely accepted losses.
Short Sale Expectations
The Short sale process is not for the faint of heart. There are many elements necessary
for a short sale to close. There needs to be fair market price
agreed upon between the Seller and the Buyer. There needs to be enough time, and
willingness from the lender, to complete the process. There needs
to be a Buyer who is prequalified and willing to hang in there. And there needs to be
someone experienced in short sales handling the entire process.
Expectations of Sellers:
All Sellers considering a short sale should have a tax person they can talk to regarding tax
consequences of doing a short sale as well as the
consequences of signing a promissory note. Sellers should also have an attorney they can
talk to about what the best course of action is for them.
Should they do a short sale or foreclosure? What will be the impact on their credit? Is
bankruptcy an option? Ideally the Seller would talk with an
accountant up front to figure out the "what if’s" and decide if they can live with the
possible outcomes of a short sale (tax consequences, promissory
note, etc) prior to spending a lot of time going through a process they’re not willing to see
through. The greatest benefit to a short sale is being relieved
from any deficit portion of the loan and keeping a foreclosure off your record.
While we try to collect as much information up front (the things most lenders typically
ask for) there is a possibility that the lender will want information on
their own form or even a phone conversation regarding some aspect of your submission
for the short sale. There is a lot of paperwork in the short sale
process. The more information you give us in a timely manner, the better. Such as full
tax returns-not just W-2’s and a copy of each mortgage
statement. And don’t get an attitude about what the lenders are asking for-they need what
they need and will not proceed without it. They really don’t
care if you do a short sale or not. They will just close your file and move to the next one
if they don’t get what they want.
If you truly have a hardship, and honestly can’t afford your monthly payments because
they’ve adjusted, or because of a real hardship, most banks are
cooperative. But if you just don’t want to make those payment anymore and have money
in the bank, expect them to ask for a contribution to the loss or
deny the file.
If we are working with you on a short sale and you are still getting calls from your lender,
it doesn’t mean we aren’t working on it. The lenders are very
large organization with different departments that don’t necessarily talk to each other.
The collection department doesn’t always have access to Loss
Mitigation files. Politely tell them "I have hired an agent to represent me. His/her name
is------and here is their contact info---- then politely say goodbye.
Also, if you get a letter that is important from your lender about the status of your loan,
make sure you share that information with us. This would include
a notice of intent (NOI), notice of default (NOD), a notice of trustee sale (NOS), a letter
that your lender has sold your loan, etc. When speaking to the
lender keep in mind every word is recorded for quality assurance. If a Seller says
the "wrong" thing the negotiator will close the file. We recommend as
little personal contact as possible. Let us know who has contacted you from the bank.
We will return their call on your behalf.
Expectation of Buyers:
We often see buyers entering into a short sale who need to close by a certain date.
Maybe they have locked a loan that will expire; maybe their current
lease will be up by a certain date. Whatever the reason, it is risky for Buyers like these to
enter into a short sale as there is not guarantee they will be
able to close by their deadline. The Buyer needs to go into the short sale EXPECTING it
to take 2-3 months. Buyers need to be committed to the
property. It has become a practice for some Buyer’s to tie up a property while continuing
to make offers on several other properties. The purchase
contract is a bilateral contract with contingencies. It is a "performance" contract. Unless
a Buyer can "perform" on all purchase contracts s/he has
executed, s/he is not acting in "good faith", and may be liable for performance. All
lender approvals are specific to a particular buyer. Making multiple
offers is both useless and unethical. The purchase contract is a binding contract. The
buyer is tying up the property while the foreclosure process
continues. The Seller has gone off the market for this buyer and is moving toward
foreclosure everyday. This is not a game as some buyers have
perceived it.
I’ve had many people tell me to tell the lender to "hurry up or the Buyer will walk".
Threatening the lender doesn’t work. Again, they are handling so many
short sales they really don’t care about YOUR short sale. We have to work within their
process.
Expectations of Agents:
Agents need to prepare their Sellers and Buyers to the realities of the short sale. It can be
a long and labor-intensive process.
Short sales can take as little as two months but as long as five months. Be prepared to
wait and please do not call us a week after the package is
submitted asking if we have an answer. The length of time the short sale takes is entirely
up to the lender(s). They have their processes you have to
work within. Some lenders take 5-7 business days before they can tell you they got your
fax, just to find out they didn’t and you have to go through the
process all over again. If you submit an incomplete package they will kick your short
sale out of the system. And the lenders lose paperwork ALL the
time!
The Listing Agent should be prepared to meet the lenders appraiser at the property when
the BPO is being conducted. Bring the BPO or comparables
you have prepared. The can greatly influence the BPO that is sent back to the lender.
Paperwork should be submitted in a timely manner. It is best to get all of the paperwork
from the Seller before there is a Buyer. The Seller should
expect to update their bank statements and paycheck stubs throughout the process.
The Listing Agent should market the property as the best deal in the neighborhood, but
must be supported with at least three comparables. The lender
will be doing their own appraisal and low ball offers will not meet the valuation the
lender is looking for, and are a waste of time.
Most lenders WILL NOT give an approval BEFORE there is a buyer on the property.
There is no "contract" price so there is not anything to accept. The
lender wants to know two things: how much will they get and when will they get it?
Most lenders will make you start at square one if a buyer walks and we don’t get a new
one offer time. They will simply close the file and it will need to
be assigned to a negotiator all over again.
No straw buyers. This is illegal and is one of the reason they short sale process is so
bogged down.
If a property has a NOS you may want to think twice about taking that short sale. You
still need time to market the property, get a buyer and work with the
foreclosure attorney for the lender to get them to postpone. Many times they will only
postpone the sale date if the package was submitted prior to the
NOS.
Lenders do not allow the sale of property between family members in a short sale. Do
not try this. It clearly states in most acceptance letters that this is
not allowed. It must be an arms length transaction.
Possible Outcomes:
There will probably be credit consequences whether your client does a short sale or
foreclosure. If they need more information, have them consult an
attorney or tax professional. Call us if you need referrals. There will be a 1099 issued.
Whether or not your client will owe this tax will depend on several
factors and, again, they need to consult an attorney or tax professional.
The 1st could give its approval, just to have the 2nd refuse to budge.
The 1s could give its approval and the 2nd asks for a percentage of their balance.
Sometimes the 2nd will ask for a promissory note to be signed for
this balance.
If there is a PMI company or investor involved, they could kill the deal. They could also
ask for a promissory note.
On a successful short sale, the lender will forgive the deficit portion of your loan and
report as "paid settled" or "paid satisfied" on your credit report.
Wheaton & Associates Inc. has been successfully closing short sales since 1991. We have
literally hundreds of success stories. Our success rate is
over 80% on all that we represent.
For a personal consultation with on of our short sale specialists, contact us at
925.674.1928 for a free consultation!