Do you need to miss payments in order to qualify for a short sale? What if you have good credit and have not had any late payments?
If a homeowner has already missed payments of any kind, then lenders can look at credit reports for a clear pattern of financial distress. If payments have not been missed, however, lenders need some evidence that a financial hardship is on the horizon. What has changed, or what will change, that would cause you to miss payments or face a future foreclosure? The fact that a Tampa Bay area home has declined in value is not enough.
What if you are current on payments but you foresee a train wreck in the future? Maybe you can make payments now, but you expect a loss of income, change of job, divorce, medical bills, forced company relocation, dwindling cash reserves or other event that will cause financial stress in the months ahead. The mortgage industry refers to this situation as “Imminent Default”.
Burden of Proof
Since these borrowers do not have a public record of missing payments, they must document the reason for the imminent default or expected financial challenges. The lender will ask for a hardship letter, financial worksheet, asset disclosures, tax returns and account statements to verify the situation.
As a Tampa real estate agent with over 100 short sales accepted by lenders, I have had many short sales approved where the homeowners have not missed payments. We have examples of hardship letters and other documents to provide evidence of imminent default. We suggest creating both before and after financial worksheets that clearly show the bottom line numbers that validate the hardship.
Short sales are evaluated on a case-by-case basis. Unless you have a portfolio loan, each approval must pass through several steps and multiple companies. For example, while you may think of Wells Fargo as your lender, behind the scene Wells Fargo has likely sold your loan to an investor. Some loans have multiple investors. If you had put less than 20% down, a then you likely carry mortgage insurance (MI). The MI investor is responsible for the first 20% of the loss on your loan, hence they must also approve the terms of a short sale. In this scenario, we must have approvals from the servicer (Wells Fargo), the investor(s), and the mortgage insurer.
If you have a second mortgage or a home equity line (HELOC), the number of players may double. A homeowners must also negotiate the release other liens on the property such as: home owner associations, back taxes, medical, child support, etc.
Predicting The Outcome
Will your short sale be approved? Can you walk-away from closing without future obligation? Will the bank reserve the right to file for a deficiency judgment after closing? Will they ask you to sign a promissory note or a make a cash contribution at closing?
Nobody can accurately predict what all the parties will eventually decide, but we can share our experiences and allow you to see examples of past approval letters. Each Servicer, each Investor, each Mortgage Insurer, and each government agency have different sets of policies. For example, Bank of America works with over 500 investors who set their own terms. Short sale approval guidelines keep changing as the mortgage crisis, business requirements and governmental regulations evolve.
Rest assured, however, that you will have the opportunity to accept, reject or counter the terms offered for the short sale approval. You can decide if language in the short sale approval letter makes sense for your future. You have the option to cancel the short sale.
As Certified Distressed Property Experts (CDPEs), Annette, Doug and Dale Bohannon have been trained to assist homeowners in these difficult situations. We have helped over 100 families confirm eligibility for HR 3648 The Mortgage Forgiveness Debt Relief Act and Debt Cancellation that allows qualified homeowners to exclude income from the discharge of debt on their principal residence. See ShortSaleMoves.com for more information.
Deciding on which route will be best for you and your family’s future is the most important decision you can make. Get started today. Enjoy the feeling of having made a decision and taking positive steps toward a better tomorrow. If anyone you know might benefit from more information, contact the Bohannons for a confidential review.
Team Bohannon is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.