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Short-pay or short-sale are simply terms used to describe a situation when the bank accepts a lesser amount than what is owed for the repayment of their loan.  Hence, the term short-pay, meaning payment is short of the full payment. 

For example, let’s say a homeowner bought a house for $100,000, put 10% down, and obtained a loan for $90,000. Now he wants to sell it and the house could only sell for $80,000. The sales price is not enough to pay off the $90,000 owed to the lender.

There are two options for the sale to go through when this happens. One, the homeowner can put in $10,000 to sell the house, effectively paying the lender off the entire $90,000. He will also have to pay for closing cost, commissions, etc. The second way is for the lender to be willing to take $80,000 instead of $90,000 that is due to him. The lender has to be willing to take a lost of $10,000, in other words, accept a “short-pay.”

You can obviously see why the first option doesn’t happen very often. Who will have the money to put in to sell their house?

The second option of a home selling as ”short-pay” is not always successful. Banks may be willing to accept a short-pay only when the borrower can show financial hardship, making it impossible for them to continue making payments on the loan. A bank is not obligated to accept a short-pay. If the homeowner decides to stop making payment and just walk away from the house, the home will go into foreclosure. The bank becomes the new owner and the home is eventually sold by bank to repay the loan.

Making an offer on a short-pay is the same as making an offer on any home for sale with the exception of certain disclosures regarding short-pay. The major difference is that the owner does not have the final say on the sale. Since the owner owes more than the house is worth, the owner needs the bank’s approval in which the bank is willing to accept less money than is owed. An accepted offer by the owner on a short-pay is worthless until the bank is willing to accept the offer. This also means the bank has to accepts less in order to pay commissions, closing costs, overdue property taxes and other expenses necessary for the sale of the home to the buyer.

Most banks were not prepared to handle the flood of bad loans requiring foreclosure and short-sale. They are hiring and training people to respond to this back-log. When you make an offer on a home for sale as short-pay, be prepared to wait.  This can stretch out into months. Many agents are told by the bank to expect 90-days for a response. Not an approval, but simply for the bank to look at the file. If you’re lucky, your sale may get the attention needed to be successful, if not you’ll likely see the home back on the market as a foreclosed, bank-owned property.

We come across many clients facing a loan default.  A short-sale is only one option among many.  Call to find out what this means for you.

We also provide consultation to real estate agents who can use help them negotiate a sucessful short-sale for their clients.

For our buyers and investors, under the right circumstances, purchase of a short-sale can result in a desirable property with good value.  And it’s not only in the low-price end, we have recently negotiated several short-sales in the million dollar plus range. And our clients are ecstatic to buy properties they never thought possible.

One of the worst things you can do when facing a financial crisis is to “Walk-Away” from your home. A number of Web sites make claims that it is easy to bail out on your mortgage and one site even sells a Walk-Away kit. You may think your problems are over when you walk-away, but the nightmare may just be beginning. Here are just a 3 problems to consider.

1. Deficiency Judgment: When a loan is a recourse loan, the lender or PMI company can choose to pursue you personally for a deficiency judgment and come after you for payment. All original purchase loans in California are non-recourse loans. But any refinance loan or home equity loan is a recourse loan.

A senior official at Freddie Mac, said the company is now aggressively pursuing some walkaway borrowers “to preserve our deficiency rights” where permitted under state law.

2. Restricted Loan Options: On March 31, 2008, Fannie Mae set new guidelines intended for walkaways and other foreclosure situations. Fannie Mae will now prohibit foreclosed borrowers from getting another mortgage through them for five years. When there are “documented extenuating circumstances”, the mortgage prohibition is for three years. For a Fannie Mae loan, even after five years, borrowers with foreclosures will need a minimum of 10 percent down payment, and a FICO credit scores of at least 680.

3. Federal Income Tax Liabilities: In the past, homeowners who lost their home had to worry about lender-forgiven mortgage debt reported as taxable ordinary income. This possibility could led to paying income taxes on “phantom” income. The Federal Mortgage Forgiveness Debt Relief Act of 2007, allowed homeowners to exclude this amount and escape the tax liability. When you walk-away, the loan has not been forgiven by the bank, leaving the borrower with potential tax liability.

Robin Stout Migala, consumer outreach manager for Freddie Mac, said in an interview that “there are so many bad reasons for walking away” from a home loan. Not only are borrowers’ credit standings wrecked - forcing them into excessively high interest rates on any credit they can manage to obtain. But they also face other potential problems, including federal income tax liabilities.

Federal legislation enacted last year allows homeowners who negotiate loan modifications with lenders and have portions of their principal debt eliminated to escape income tax liability for the amount forgiven. Walkaway borrowers, by contrast, have nothing forgiven, and the IRS may demand income taxes on the balance they never paid, according to Migala. -San Francisco Chronicle.

 When your mortgage is too high and you fall behind, we can help!  Rachel shares her story …

Rachel, Brea, CA

     I met John and Steve on January 27^th 2008, I was 6 months behind. My loan was with GMAC sitting at a very high 10.19% my payments were $2,829.48. After John and Steve finished their work on April 1^st 2008, I now have a 5.19% and my payments are now $1,473.28, saving me over $1,300.00 a month and my payments don’t start until July 1^st, 2008.

I can’t tell you how much John and Steve came to my rescue, Thank you both so very much for saving my home and saving me so much money….

The Hope Now alliance - the coalition lenders, investors and community groups spearheaded by the Treasury Department has worked with over 1.1 million borrowers facing the threat of foreclosure. Despite the efforts put forth, only a quarter of the borrowers they helped, have actually had their loans modified to be more affordable.

http://money.cnn.com/2008/04/07/real_estate/new_counseling_funds/index.htm

The main title of the above article is : “The futile $100M foreclosure fix“.  Millions have been allocated for foreclosure counseling and there has been a 10-fold increase in training of HUD-certified credit counselors since 2004.  Yet, out of over 1.1 million borrower, in 3/4 of the cases, the counselors have not been able to address the fundamental problems of the borrower’s at-risk mortgage.  When government certified counselors are unable to help, not all hope is lost. Read what Rick says and give us a call.

Rick, Sun City

I had been working with the Government agency Hope and after they worked with me I was denied for a loan modification. I called John and Steve at the Loan Resolution Department of Nationwide Bankers Mortgage on March 11, 2008 and we met on March 15^th 2008. My loan with ASC services was at a 7.875% and my payment was $1959.07 a month and on March 31^st 2008 after working with John and Steve my ASC service loan is at a fantastic 5.844% and my payment is $1743.37 a month saving me over $200.00 a month and I don’t have to make my first payment until June 1^st 2008. Thank you, John and Steve for your help …

New conforming loan limits are heading your way! This long-anticipated change should lower the cost of loans to homeowners, especially in high-cost areas. In Los Angeles County, the old conforming loan limit of $417,000 has been bumped up to $729,750 for One-Family homes. Underwriting standards are in the process of being updated and trickle down to the homeowners later this year.

Not only is this good for new home purchases, but many homeowners currently holding “Jumbo Loans”, based on the old $417,000 limit may be able to refinance at the lower cost conforming loan rate. It’s time to pull out the old loan papers and see where you stand. Call us to determine if you can benefit from the new loan limits.

To look up the new loan limits in your area, check the HUD Web site.

Call us for a free initial consultation. Know your options before you give up so easily. Until your property is sold, there is still hope. We have stopped foreclosures on the day before sale. Let us help you know what the bank wants and how to work within the system to save your home.

A foreclosure will stay on your credit report for 10 years, causing misery whenever you try to borrow money. The effect on your finances will make loans more expensive for you. Foreclosure is not the easy way out and should be avoided if at all possible. Let us show you how to resolve this problem. Don’t wait till its too late. You need to take action immediately for best results.