Short Sales / Foreclosures

What is a Short Sale

A Short Sale is an arrangement made with the Lender to settle the borrower’s financial obligations for less than what the borrower owes.

· Do you have multiple mortgages on the Property?
· Are you worried about bankruptcy or foreclosure?
· Did you ever refinance the property?

A short sale may be the alternative to all of your financial hardships.

Short Sale Benefits:
Lien Forgiveness – All liens are negotiated in a short sale.
CREDIT – Less impacted then foreclosure, and can buy under Fannie Mae guidelines in 2 years
Debt Forgiveness SB 401 – It allows qualifying taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from IRS gross income. Expires 12/12.
CASH – there is a cash incentive with the HAFA program (you must qualify)
Liability Protection SB 458 – Governor Brown signed into law prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lien holder.

SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans. ~ CALIFORNIA ASSOCIATION OF REALTORS® ~

Foreclosure Pitfalls:
Lien Exposure – If you have a multiple mortgages, the lenders can collect the lien amount from you.
CREDIT Damage – Foreclosure can lower and affect your FICO score for up to 10 years, buying a home through Fannie Mae after foreclosure can be 5-7 years.
Future Purchasing – Many agencies are making foreclosure victims wait 5 – 10 years to purchase again and may place additional restrictions on future loans.
HOA Exposure – If you don’t pay & you foreclose, you could get sued!
Liability Exposure – Delinquent payments may cause your impound account to be negative – and cause you to have NO INSURANCE on the home.

Short Sale v. Judicial Foreclosure

Is Homeowner (1-to-4 units) Generally Protected Against Deficiency?

 

Type of Mortgage Loan

After Short Sale *

After Judicial Foreclosure*

First Trust Deed

Yes

Yes, if purchase-money and owner-occupied

Second or Other Junior Trust Deed

Yes

Yes, if purchase-money and owner-occupied

Purchase Money Loan

Yes

Yes, if owner-occupied

Rate-and-Term Refinance

Yes

No

Cash-Out Refinance

Yes

No

Owner Occupied Home

Yes

Yes, if purchase money

Non-Owner Occupied Home

Yes

No

 

Source: CALIFORNIA ASSOCIATION OF REALTORS®

*Note: Certain exceptions may apply. Also, no deficiency judgment shall be rendered if a lender forecloses by non-judicial foreclosure (or a trustee’s sale) (CCP § 580d) or if a loan is seller financed (CCP § 580b). Although most lenders in California foreclose by non-judicial foreclosure, the decision to pursue judicial or non-judicial foreclosure is made by the lender, not borrower