In another article about short sales, we pointed out the differences between a Short Sale and a Foreclosure auction using a simple PDF print-out. However, for those of you who want a video explanation, here it is: The Video was funded by the National Certified Distressed Property Expert (CDPE) Association–the lead certification level granted Real […]
In another article about short sales, we pointed out the differences between a Short Sale and a Foreclosure auction using a simple PDF print-out. However, for those of you who want a video explanation, here it is:
The Video was funded by the National Certified Distressed Property Expert (CDPE) Association–the lead certification level granted Real Estate Agents who assist America’s “Distressed Homeowners”. It applies to Louisville Short Sales as well as short sales nationwide.
No matter who your lender is, what your timeframe may look like, the property condition, or the amount you owe, before you give up hope and let it go to auction, consider a short sale first. We can help!
WHAT is a Short Sale? WHY would anyone want to do a Short Sale, and even if they did want to, HOW does it work?
What is all this fuss about Short Sales anyway? It’s on the news, your friend did one, and now you’re being told you should do one too.
But WHAT is a Short Sale? WHY would anyone want to do a Short Sale, and even if they did want to, HOW does it work?
The information we will cover is universal to every State in the U.S. and should apply to EVERY Mortgage Company in the Nation. Almost all mortgage companies have a short sale program but the companies that are most popular (or UNpopular some might say) for their Short Sale Programs are: Bank of America, Wells Fargo, Chase, PNC, GMAC, National City, Fifth Third, Citimortgage/Citibank, HSBC, and Wachovia Bank.
We’re going to cover the WHAT, WHY, and HOW of Short Sales so get your notebook out try not to doodle.
- Part 1: WHAT is a Short Sale?
- Part 2: Why Would Anyone Do a Short Sale?
- Part 3: How To Do a Short Sale
Click here to read Part 1: “What is a Short Sale?”
Short Sales Part 1: WHAT is a Short Sale?
Short Sales Part 1: What is a Short Sale?
(This is Part 1 of a 3-part series of posts about Short Sales.)
A short sale is one of the greatest inventions the mortgage industry has ever offered the people of the United States. It enables homeowners who cannot afford to sell their home for what they owe, the opportunity to sell and walk away from the mortgage balance. However, before we can get into the details of what a short sale is, we must first look at what a TRADITIONAL SALE looks like. (When you list the house with a Real Estate Agent and sell it on the open market).
Does the following sound like you?
“You bought your dream home 3-10 years ago and paid full market value for it. You were happy and life was good.
But then the Louisville housing market crashed and your home is now worth less than you owe on your mortgage. For one reason or another, you need to sell your house–maybe you lost your job or got a new one, got divorced, or developed health problems.
Now you’re asking yourself the question: How do I sell my house?”
Selling a House the Traditional Way:
- What You Paid (=100k): The amount you paid for the house, simple.
- Current Value (=90k): The value of your home right now. It’s likely that your house has decreased in value about 10% since you bought the home. If you paid $100,000, then that means it’s worth $90,000 now. You can either get an appraisal or ask a Realtor for their estimate of what the value is. (Yes, their opinion which could be incorrect if they’re trying to earn your business)
- Final Sales Price (=85k): Even If you house is in pristine condition and you put it on the market for $100,000, do you really expect everyone to offer you $100,000? (don’t say yes) The answer is “No!”. There’s a cushion there of 2-15% (normally 5%) that people will offer BELOW the amount you have it listed for sale, regardless of the value. For our purposes we’ll estimate $5,000 below the current value/asking price.
- Realtor Cost (=7% of Sales Price): Yes that’s right, Real Estate Agents charge 6-7% of the sales price in commissions. Back in the day when Real Estate values increased quickly this was usually covered by the increased equity in the home after a few years. Those days are over and the commission will have to come out of your pocket. Thinking FSBO? your house will sell for 10% LESS than it would with a Realtor so it’s like you’re paying 10% commission and you do all the work, not a wise choice.
- Closing Costs (=3% of Sales Price): You’ll need to pay 3% of the sales price towards the Buyer’s (and your) closing costs. This covers the closing company, taxes, a home warranty, etc.
- Repairs (=5-10k+): Good luck selling your house for full market value without doing ALL of the repairs first. A typical 1,500 sqft home will cost $5,000 in carpet and interior paint alone. Any home you sell on the open market MUST have new carpet and paint at a minimum. If you haven’t replaced the roof in 10 years, count on another $7,000 to replace it. Handyman work like repairing holes in walls, leaking faucets, old flooring, and water stains add up fast too. Landscaping is also a must and can cost $500-$1,000+. If your home has not been updated you can estimate $3,000 for a cheap bathroom and $7,000 for a cheap kitchen (1,500 sqft house). Those numbers all increase for larger homes and will at least be double that in upper-class neighborhoods. For illustration purposes, we’re only going to estimate $5,000.
- Other Liens (=5k): If you have any long overdue and unpaid bills, there’s a chance one of those has turned into a judgment against you and your home. Some states don’t let liens attach to property but in most they do. That means you have to pay that lien off in order to sell your house! Some examples are: Unpaid credit cards, a loan you received in order to buy your washer/dryer/oven/fridge, that unpaid landscaping bill, or unpaid Taxes (Federal, State, or City). If you’re in a good financial situation there probably aren’t any liens but if you’re struggling to make mortgage payments, you probably do have something out there that you haven’t been able to pay.
- Mortgage Balance (=100k): The first several years of paying on a mortgage are used to pay off the INTEREST. As time goes on your payments start going more towards the PRINCIPLE and less towards interest. When you pay down the principle that’s when you pay down the mortgage and create equity. For a home that was purchased 4 years ago, the amount of equity built-up is almost nothing.
Doing The Math–Traditional Sale:
What is a Short Sale?
Take that same $34,000 and use the mortgage company’s “Mattress Money” to pay for it, that’s the difference! The mortgage company agrees to waive the balance including everything they paid for you at closing. You pay nothing from that point forward, ever.
Selling a House the Short Sale Way:
- What You Paid = $110k: No Change.
- Current Value = $90k: No Change.
- Final Sales Price = 80k: The price drops by the amount of the Repairs.
- Realtor Cost = $0: Paid for by Seller’s Mortgage Company.
- Closing Costs = $0: Paid for by Seller’s Mortgage Company.
- Other Liens = $0: Paid for by Seller’s Mortgage Company. Typically these liens are “Settled” for less than owed and paid-off for good. What a BONUS of doing a short sale! Each lien will typically get up-to $1,000-$2,500 each even if they’re owed more.
- Repairs = $0: Sell the house AS-IS and have the Buyer do all the repairs! You don’t have to do or pay for any of them. As a result, your selling price is going to drop the amount of the cost of the repairs. With a Short Sale, that doesn’t matter!
- Mortgage Balance = $0: Paid for using the proceeds of the sale from Buyer. The amount is “settled” for less than is owed.
Doing The Math–Short Sale:
So What’s the Catch to a Short Sale?!
There are several POSSIBLE catches to a short sale. They can all be avoided if you have the right company handling your short sale. At Kentucky Solutions there we help homeowners walk away from the house 100%.
a) Not Everyone Qualifies for a Short Sale – If you have $34k stuffed in a mattress somewhere, a short sale is not for you. A short sale is for someone without the means to come out of pocket, and can prove it on paper. Their bank account will be almost empty they will have experienced a hardship that put them in a financially strenuous situation,
b) Deficiency Waiver in Writing – Sometimes lenders won’t agree, in writing, to waive the deficiency balance. However, it’s rare that even after such an instance that they will actually pursue someone for the deficiency after the sale is completed. Why? Because there’s no money to be had and they know it because they know your financial situation already and know you can’t afford to pay it.
c) Promissory Notes – Sometimes you must sign a promissory note in order to complete a short sale. However, this can usually be avoided with a counter-offer or by getting the buyer to pay a little bit more.
d) Credit – A short sale can negatively affect your credit score. However, most people believe that the consequences are still far better than having a lingering foreclosure auction and possible deficiency judgment against your credit.
e) Taxes – Sometimes there are tax consequences to a Short Sale. Homeowners will almost always get a 1099 from the mortgage company after completing a short sale. However, ask your CPA how to use debt cancellation to avoid paying those taxes.
f) You Need a Buyer – Without a buyer the short sale process cannot even begin let alone be approved. At Kentucky Solutions, we provide you with a Buyer (we will buy it!), a Realtor (to handle the sale), and handle everything with the mortgage company for you.
g) Time – It can take 3+ months to complete a short sale. However, if you’re still living in the house that means FREE RENT for as long as it takes to complete the short sale.
At Kentucky Solutions, Our Short Sale Clients Have NEVER:
- Been pursued for a deficiency judgment
- Had to pay for a promissory note
- Turned down a short sale approval terms that we negotiated.
- Complained about the effects of the short sale on their credit scores.
- Had issues having to pay taxes on a short sale we completed.
However, our clients have always been very happy after completing a short sale with us.
SHORT SALE BONUS! Make Money Doing A Short Sale?
Did you know that there is a way to get the mortgage company to pay you money for doing a short sale? You could earn $1,000 or more if done properly. Contact us directly for more information.
Parts 2 & 3 of this Short Sale foreclosure series will be available shortly. Until then: To Learn More About Short Sales, Visit Our Short Sale FAQ
Are you asking yourself, “What affect will the foreclosure have on me long-term?” This is one of the most common questions asked about foreclosure. The same thing goes for Short Sales. Questions like “If I do a Short Sale, is it better than a Foreclosure?” and “Why don’t I just walk away from my house?” […]
Are you asking yourself, “What affect will the foreclosure have on me long-term?” This is one of the most common questions asked about foreclosure. The same thing goes for Short Sales. Questions like “If I do a Short Sale, is it better than a Foreclosure?” and “Why don’t I just walk away from my house?” are both frequently asked. However, it’s hard to find all the answers.
We’ve compiled a list of these types of foreclosure and short sale questions and answered them for you in an easy to understand format. This is not a list of consequences we’ve set for Kentucky Homeowners, it just “is” the list of consequences for either path you choose. The choice between a Foreclosure or a Short Sale will impact you greatly for years to come.
You’ll find that the benefits of selling your house on a Short Sale far outweigh the reasons to “Just let it go to auction.” So if you’re on the fence about either allowing your house get sold at foreclosure auction, or trying to do something about it before then with a short sale, then take a close look.
(CLICK ON THE IMAGE TO ENLARGE)
As you can see on this chart: With a short sale, you might be able to buy another house in as little as 2 years! If you do nothing and let the house go to auction, that number changes to 5. With foreclosure, your credit is at serious risk, a Deficiency Judgment could come up, and even your current or future employment could be at stake. The list goes on and on.
If you’re already doing a Short Sale, or considering one, pat yourself on the back! Share this list with others and they’ll thank you for it.
You can also download a free copy of this Foreclosure vs. Short Sale chart in PDF Format HERE.
If you want to sell your house before the auction takes place, we can often postpone the foreclosure for 3 or more months and avoid the long list of problems in the “Foreclosure” column. Just call us at 502-212-2482 or fill out the form below:
Here is an excellent Timeline showing what the typical Foreclosure Timeline/Process looks like in Louisville, Kentucky. In Jefferson County, there are so many foreclosures that the timeline is usually much longer. however, this gives you a really good idea of what will take place. Take special note of the time-frame in which you can resolve […]
Here is an excellent Timeline showing what the typical Foreclosure Timeline/Process looks like in Louisville, Kentucky. In Jefferson County, there are so many foreclosures that the timeline is usually much longer. however, this gives you a really good idea of what will take place.
Take special note of the time-frame in which you can resolve the situation before the foreclosure auction takes place at the end. Short Sales and Loan modifications are possible all along the way.
CLICK ON THE IMAGE BELOW TO ENLARGE
The Bottom Line is: Foreclosure will hurt your credit. However, there are different severity levels and ways to reduce its effects: The best way, as shown by the chart below, is to do a short sale. Extensive research has been done concerning credit implications when a homeowner is in a default situation. Those findings are […]
The Bottom Line is: Foreclosure will hurt your credit. However, there are different severity levels and ways to reduce its effects:
The best way, as shown by the chart below, is to do a short sale. Extensive research has been done concerning credit implications when a homeowner is in a default situation. Those findings are listed below:
THE AFFECTS OF FORECLOSURE-RELATED ACTIVITY ON A CREDIT REPORT
|One month behind:||12-15 point reduction|
|Two months behind:||Repeat reduction of above|
|Three months behind:||Repeat reduction of above|
|…add these figures to below|
|Foreclosure with Bankruptcy||Extensive point reduction||7-9 year reporting|
|Foreclosure Auction||290-320 point reduction||5-7 year reporting|
|Deed-in-lieu||150-200 point reduction|
|Short Sale||70-90 point reduction|
* These numbers are only a general guideline and sample picture of the realistic outcomes. These numbers will vary depending on your credit score before default as well as other credit factors that apply to you individually. We do not testify the accuracy of these numbers and reporting for each individual set of circumstances.
The Obama Administration has created a website to help homeowners in foreclosure called “Making Home Affordable.” It’s a wonderful website with many free resources to help homeowners in foreclosure. They recently added a video about selling their house on a short sale rather than letting it go to foreclosure auction. Click below to watch the […]
The Obama Administration has created a website to help homeowners in foreclosure called “Making Home Affordable.” It’s a wonderful website with many free resources to help homeowners in foreclosure. They recently added a video about selling their house on a short sale rather than letting it go to foreclosure auction.
Click below to watch the video.
NOTE: This is a government video, not produced by our company, yet they say the same things we teach homeowners about the benefits of a Short Sale.
If you’re ready to sell your property for less than what you owe, we’ll help you! just fill-out the form below:
You’ve tried everything you can possibly think of to save your house, and nothing worked. You’re still stressed-out, you’re exhausted, your relationships are hurt, and you are tired of being bombarded with people’s “opinions” of what you should be doing. Then you get one of these letters stuck on your door or mailed to you: […]
You’ve tried everything you can possibly think of to save your house, and nothing worked. You’re still stressed-out, you’re exhausted, your relationships are hurt, and you are tired of being bombarded with people’s “opinions” of what you should be doing. Then you get one of these letters stuck on your door or mailed to you: Example Foreclosure Auction Notice. WE UNDERSTAND! 95% of everyone that calls us feels the same way.
You Ask: “HOW DO I STOP THE COMMISSIONER’S SALE?!” Thankfully, there is a simple answer to your question about what you need to do next:
Answer: Call us at 502-212-2482 immediately, before it’s too late! We’ll explain in detail free of charge, with no obligation, what to do to stop the foreclosure auction. We can usually help postpone the foreclosure auction for 3-6 months, at no cost to you, and maybe even stop it for good if you will call us.
We wish we could give you a one line answer but because everyone’s situation is different, we would have to overwhelm you with information in order to cover all the possibilities. A simple phone call is free, fast, and enables you to get started right away.
If you would rather speak to an attorney, contact the LBAR Association and they can give you solid legal advice on what you should do.
We can be reached at 502-212-2482 or fill out the form below:
“If I Don’t Call You and Just Wait, What Will Happen?”
1) The house will be sold at auction on the date shown on the notice. If you wish to attend the auction, be at the Kentucky International Convention Center in Downtown Louisville at 10:00am (221 Fourth St., Louisville, KY 40202). They do each home sale in order (your auction notice should list a sale number on it). If you don’t have this notice and live in Louisville, you can look up your home’s auction status here or on the Jefferson County Commissioner’s Website.
The Mortgage Company representative and several Real Estate Investors will be in the room. Many people that are there are homeowners watching to see who will buy their home. The mortgage company will usually start the bid at about 2/3 of the appraised value (the appraisal can be found on the website). Whoever bids the most wins the house and goes to the front of the room to pay the deposit.
2) As soon as they’ve bought the house, the “New Owner of YOUR Home” will knock on your door and/or send you a letter telling you to get out. If the Mortgage Company buys your home, it will usually take at little longer before you get a knock on the door or a letter.
When the new owner arrives at the house, if you’ve already moved they’ll change the locks and take possession of the house. That means you’re NOT getting back into the house again without THEIR permission.
3) If you haven’t moved yet and refuse to get out when they ask you to, they will have to pay to evict you. It doesn’t take long but you will get an eviction notice with some time to move before it happens so don’t expect it to be on the street the same day. However, it is VERY URGENT that you move-out quickly or you and your belongings will be out on the curb with no place to go. In an eviction, the new owner will show up with a locksmith and the Sherriff to change the locks and forcefully empty the house onto the street!
4) In Kentucky, if you owed the Mortgage Company more than the house sold for at auction, you are still responsible for the difference. To collect the money, the mortgage company will have to sue you for the “Deficiency” amount, or there could be tax consequences instead. Read more about Deficiency Judgments here: http://www.kentuckysolutions.com/kentucky-foreclosure-law/what-is-a-deficiency-judgment/
5) By this point, you probably aren’t worried about your credit too much because it’s already in the dumps, but now with the foreclosure auction on there it is even worse. You can read more about how a foreclosure sale will affect your credit here: http://www.kentuckysolutions.com/affects-of-foreclosure-on-credit/foreclosure-credit-chart/
IF YOU CALL US, YOU COULD AVOID ALL THESE STEPS!
“Oops, I Didn’t Call Kentucky Solutions so My House Was Sold at the Foreclosure Auction. Now What?”
The foreclosure is over, you lost your home, your credit is ruined, and you’re worn-out. LIFE ISN’T OVER! Keep moving forward. IT WILL GET BETTER! Thousands of people’s homes go to auction EVERY DAY. You are not alone. There are many non-profit agencies out there that can help you and your family recover. Or, you’re always welcome to contact us at 502-212-2482 and we’ll help you find your way.
You’ve learned from experience what it’s like to go through foreclosure, and you can help your friends and family understand and avoid it in the future. Your misfortune could be a blessing to many people if you will open your mouth and share with them what you have experienced. Of Course, we recommend that when you do, you give them our phone number 502-212-2482 also.
If your Mortgage Company forecloses, your troubles don’t end. Your credit may suffer for years to come, but most people aren’t worried about the distant future. A more pressing problem can be a deficiency judgment. The bank might bring legal action against you to try and collect what they couldn’t collect in foreclosure. Deficiency judgment […]
If your Mortgage Company forecloses, your troubles don’t end.
Your credit may suffer for years to come, but most people aren’t worried about the distant future. A more pressing problem can be a deficiency judgment. The bank might bring legal action against you to try and collect what they couldn’t collect in foreclosure.
Deficiency judgment are court orders that make you personally liable for unpaid debt such as when a home’s selling price at foreclosure auction is not enough to cover the loan balance.
Let’s take a closer look at what deficiency judgments are and whether or not you should expect one:
Deficiency Judgment Overview
When you default on a loan and the the house gets sold at auction, the value of the property will almost never be enough to pay off the loan. For example, you might owe $100,000 on your home, but it only sells for $60,000. You’re $40,000 short.
Because the lender wants all of the money back, they may take further legal action against you. Legal action to collect the remaining amount is called a deficiency judgment.
How Much is the Deficiency Judgment?
It will be no surprise that the unpaid debt ($40,000 in the example above) is part of the deficiency judgment. However, lenders can also sue for the costs associated with the foreclosure and pursuit of the deficiency judgment.
If The Deficiency Judgment is Successful
If your lender successfully wins a deficiency judgment against you in court, you will be personally liable for the amount of the judgment. You then will be legally required to satisfy the deficiency judgment, and the lender can go after you if you don’t. This means they could garnish your wages or bank account, or even take personal items (not necessarily your home, car, or other essential items).
Will My Lender Pursue Me for a Deficiency Judgment?
There is no way to know whether or not they will. In many cases, your lender will not go through the trouble but the best way to find out, is to ASK YOUR LENDER. Legal action is expensive and time consuming, and people who just suffered a foreclosure often don’t have the assets or income needed to satisfy a deficiency judgment. If you had the resources, you wouldn’t have missed your payments in the first place. However, there is no guarantee either way. It’s possible they will send you a 1099 for the amount instead. If this takes place, consult with your CPA for assistance.
How do I Avoid a Deficiency Judgment?
Don’t let your house go to foreclosure auction. Try to do a Short Sale first. If you sell it to us, we’ll pressure the lender to put on the Short Sale approval letter that they will waive the deficiency judgment or that they will send you a 1099 for the difference. If they do this, they cannot pursue you for a deficiency judgment.
If a Short Sale fails, pray that the lender if forgiving and smart enough not to pursue someone without money (you).
Last resort is Chapter 7 Bankruptcy, which can wipe out the debt. However, if a Deficiency Judgement is the only reason you’d file for Bankruptcy, your attorney will probably recommend that you wait until you know your Lender is pursuing a deficiency.
To stop the threat of a Deficency Judgement, start a short sale now by calling us at 502-212-2482 or fill out this form:
Kentucky’s Best Real Estate Agents can be found right here.
Are you looking for a Realtor to list your Kentucky home with?
We have Real Estate Agents ready to serve you. They are Short Sale and Listing Professionals and will do an excellent job helping you sell your house. List your house for sale via short sale or to sell it traditionally. Either way our Realtors can help!
We offer a unique program to those who hire a Realtor to list their house for sale with a Real Estate Agent using our referral program. If you wish to do a Short Sale mortgage companies require that you list your home with a Realtor. If you use one of our Real Estate Agents to do a Short Sale then you will pay NOTHING for their services. That’s right, a FREE Realtor in addition to our free foreclosure service. How is is possible that our Realtors charge nothing? Well, they do charge, but they charge the mortgage company and NOT you. We have a 100% success rate getting the Mortgage company pay for the Realtor costs, and always with no out of pocket cost to you. Better yet, if you list your house with one of our Realtors, Kentucky Solutions will make an offer to buy your house within 3 days of you signing a contract!
If you have decided to list your Kentucky home with a Realtor then fill out this form below. One of our professional Real Estate Agents will contact you quickly to get started. There is no obligation to sign up but it’s free, and as always it’s confidential.
Ready to sign up? Great, you’ll be glad you did!