What is a SHORT SALE of a home?
Breaking News! You may be able to refinace to avoid a short sale!!!
HARP Refinance Program Expanded
Borrowers who are current on their home loans may be able to refinance for lower interest rates, even if they are seriously upside down. The Federal Housing Finance Agency (FHFA) announced today that it will broaden the scope of the Home Affordable Refinance Program (HARP) by removing the current 125 percent loan-to-value cap for fixed-rate mortgages backed by Fannie Mae and Freddie Mac. Other program enhancements include, among other things, reducing certain fees, eliminating the need for a new property appraisal if the FHFA has a reliable automated valuation model (AVM) estimate, and extending HARP until the end of 2013. New federal guidelines for the HARP changes should be released to mortgage lenders and servicers by November 15.
The basic eligibility requirements for an enhanced HARP loan are as follows:
Existing mortgage loan must be owned or guaranteed by Fannie Mae or Freddie Mac. To check whether a borrower has a Fannie Mae or Freddie Mac loan, go to http://www.makinghomeaffordable.gov/get-assistance/loan-look-up/Pages/default.aspx.
Existing mortgage loan must have been sold to Fannie Mae or Freddie Mac before June 1, 2009.
Existing mortgage loan cannot have been refinanced under HARP previously (except for Fannie Mae loans refinanced between March and May 2009).
Current loan-to-value (LTV) ratio must be more than 80%.
Existing mortgage loan must be current, with no late payments in the past six months, and no more than one late payment in the past 12 months.
More information is available from FHFA at http://www.fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf.
For a homeowner who needs to sell but has a mortgage balance higher than the property value, one option is something called a "short sale."
So what exactly is a short sale? Here are some questions and answers.
Question: What is a short sale?
Answer: A short sale happens when a lender allows a borrower to sell his home for less than what's owed on the mortgage. The lender usually forgives the difference and considers the debt repaid.
Q: How often do short sales occur?
A: Short sales now make up about one in every 10 home sales, according to the National Association of Realtors. That's a lot more than you usually see when the housing market isn't distressed ---- in fact, the NAR doesn't have historical records on short sales before the current downturn because they were such an insignificant segment of the sales market.
Falling home prices have eroded home equity at a rapid pace, making short sales more common. About 16 million homeowners owe more than their homes are worth and would have to seek a short sale if they were forced to sell their homes now.
Q: What's in it for the lenders?
A: Lenders minimize their losses. If the borrower defaults and the bank has to foreclose, there are extra costs to auction the property and maintain it while it's vacant. Foreclosed homes also typically sell for much less than short sales.
Q: What are the drawbacks for the borrower?
A: While not as bad as a foreclosure, a short sale will still blemish a borrower's credit report. A short sale would knock an "A" borrower down to a "B" borrower, while the same borrower would fall to "D+" after a foreclosure, said Ritch Workman, co-owner of Workman Mortgage in Melbourne, Fla.
The extent of the damage also depends on the borrower's credit history before the short sale. A borrower with good credit won't get hit as hard, while a borrower with tarnished credit will feel more pain.
Normally, a borrower would have to pay taxes on the forgiven part of the balance, though the Bush Administration granted homeowners a reprieve that applies to debt forgiven through 2012.
Q: Why is the process so complicated and why does it take so long?
A: Short sales are plagued with snags on both sides. Desperate sellers or inexperienced real estate agents often send in the wrong paperwork, only to get it kicked back. It's an easy mistake to make because each lender requires different documents.
For their part, lenders don't have enough staff to handle the flood of short sale applications. It can take months before a lender will get back to a seller about an offer from a potential buyer. Some deals take more than a year to finish.
And approvals from third parties ---- such as private mortgage insurers, Fannie Mae or Freddie Mac, and lenders who hold a second mortgage on the house ---- also can slow a short sale.
Q: What should I do if I'm interested in a short sale?
Give us a call so we can discuss all your options. 
619-846-3114 for Alan
The laws are constantly changing! Another good resource is http://www.hud.gov/foreclosure/.
Information taken from the North County Times, October 11, 2009.
The following information is provided by California Association of Realtors.
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Short Sale Deficiencies Fact Sheet
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| General Rule |
A mortgage lender is generally prohibited from pursuing a deficiency or deficiency judgment for a short sale involving a one-to-four residential unit property. |
| Prohibited Acts |
Where applicable, a mortgage lender involved in a short sale is prohibited from engaging in any of the following acts:
- Collecting a deficiency;
- Having a borrower owe a deficiency;
- Requesting a deficiency judgment;
- Having a court render a deficiency judgment; or
- Requiring the borrower to pay any additional compensation, aside from the proceeds of the sale, in exchange for written consent to a short sale. |
| Applicability |
A borrower is protected under this law if all of the following requirements are met, and no exception applies:
- Mortgage loan is solely secured by a deed of trust;
- Mortgage loan is for a one-to-four residential unit property;
- Borrower sells for less than the outstanding loan balance owed;
- Lender provides a written short sale approval;
- Title voluntarily transfers to a buyer by grant deed or other conveyance document recorded in the county where the property is located; and
- Proceeds of the sale have been tendered to the lender or lender’s agent in accordance with the parties’ agreement. |
| Exceptions |
Exceptions include any of the following:
- Lender seeking damages for fraud or waste;
- Borrower is a corporation, LLC, or limited partnership;
- Cross-collateralized loan (special rules apply);
- Borrower is a political subdivision of the state;
- Bond lien; or
- Public utility lien. |
| Effective Date |
July 15, 2011. The new law protects a borrower who closes escrow after the law came into effect on July 15, 2011. For short sales that closed escrow before July 15, 2011, the borrower may be protected for a first trust deed under the previous law or by asserting other legal arguments. |
| Practice Tip |
Regardless of the law, it would be prudent for a borrower to obtain the lender’s written and signed agreement to release the borrower from any and all liability for the mortgage loan, and to report “no deficiency balance” to the credit bureaus. |
| Legal Authority |
The full text of Senate Bill 458 (codified as section 580e of the California Code of Civil Procedure) is available at www.leginfo.ca.gov. |
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Short Sale v. Judicial Foreclosure
Is Homeowner (1-to-4 units) Generally Protected Against Deficiency?
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Type of Mortgage Loan
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After Short Sale *
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After Judicial Foreclosure*
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| First Trust Deed |
Yes
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Yes, if purchase-money and owner-occupied
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| Second or Other Junior Trust Deed |
Yes
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Yes, if purchase-money and owner-occupied
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Purchase Money Loan
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Yes
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Yes, if owner-occupied
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Rate-and-Term Refinance
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Yes
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No
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Cash-Out Refinance
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Yes
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No
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Owner Occupied Home
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Yes
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Yes, if purchase money
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Non-Owner Occupied Home
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Yes
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No
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We are happy to discuss all your options if you are having trouble making your payments or just feel your property will not recover from the down turn in the market. Schedule your confidential appointment with us by completing the form below.
*Note: Certain exceptions may apply, including fraud, bad faith waste, and for foreclosures, a wiped-out junior when a senior forecloses. 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.
This legal article is just one of the many legal publications and services offered by C.A.R. to its members.
Readers who require specific advice should consult an attorney. We are happy to provide reliable attorneys who can give reasonably priced council on short sale/foreclosures.Contact us: GBPagnotta@gmail.com
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