Strategic Default

More and more often, lenders are asking homeowners requesting short sales to come up with cash or sign a promissory note in order to get their short sale approved. 

This is likely due to the changing profile of the average short seller. As the first years of short sales in the late 2000's were comprised mostly of folks with nothing, desperate to avoid foreclosure, times have changed. Due to the massive losses in home values, more folks have become imprisoned in their upside down homes despite being able to afford their payments. Equity may disintegrate but life still happens - jobs move, families grow, folks divorce, get married, retire...etc., leaving otherwise stable homeowners to have to sell their homes, but lacking the cash to make up the loss.…

The truth is no one will be able to tell you exactly what impact a short sale will have on your credit report, but there will surely be at least some impact. There are simply too many variables in every situation to be able to forecast the ramifications exactly. FICO does offer some guidance per the FICO Banking Analytics Blog:

A short sale is damage control  - not the elimination of all damage. As a CT short sale professional I  would not consider salvaging credit to be the main advantage of completing a short sale.  There are other more relevant advantages of a short sale versus a foreclosure including:

• AVOIDING A DEFICIENCY JUDGEMENT: Connecticut is a recourse state - meaning the lender can sue you for their losses in a…

There are many reasons for having to short sell. Once in a while I get a call where a prospect client says "I dont have any hardship at all, I just want out"...Well just wanting out is not a reason that is likely to get you an approved short sale. However, when I dig for more information - 99% of the time there is some legitimate reason the homeowners do need to sell, which I would actually consider a hardship. There are many hardships that result in approved short sales, even those that dont sound much like "hardships" at all.

Let start with the most common hardships that are easily approved and widely accepted by lenders:

• Unemployment/underemployment
• Employment transfer
• Divorce or separation
• Death of a co-borrower/household wage…

Even after losing or short selling a home, most folks will eventually want to own another home. While re-establishing credit and meeting other lending guidelines will be necessary, there are minimum waiting periods for getting new loans after significant negative credit events. Below are the timelines for new loans for  (Fannie Mae and Freddie Mac) Conventional Conforming Mortgage Loans meeting FNMA and FHMLC  guidelines, (FHA) Federal Housing Administration Insured Loans, (VA) Veterans Administration Guaranteed Loan and  (USDA) United States Department of Agriculture Rural Development Loans. Please note that extenuating circumstances may have an impact on some of these timelines, and these basic guidelines do not serve as a substitute for a…

Over the last few years I have seen short sales here in Connecticut change quite a bit. In the earlier years the average short seller was facing a financial hardship and was usually in foreclosure and desperately seeking a better solution.  Nowadays I rarely have a client actually in foreclosure or in danger of it. Most my clients simply have a need to sell and lack the funds to make up the negative equity to get out of the home. Many are divorcing, moving out of the area, retiring, upsizing, downsizing or know a life change is inevitable and are planning ahead. Some just want to cut their losses as they have realized there will be no quick recovery and waiting it out is no longer a realistic option. They understand the ramifications of foreclosure…

The rising costs of living and long daily commute left these CT homeowners tired and scraping change to make ends meet until they decided they had enough. Realizing they would likely never pay their way out of the upside down home they decided to cut their losses and short sell their home to move closer to work.

Originally a Bank of America first and second mortgage, the week we listed the home the first loan got sold to Nationstar, making the process a little more complex than originally anticipated.

It took two months to find a buyer for this home in the dead of winter. A short sale package headed to the lender. Nationstar is hit or miss. They have been known to be on the ball and approve in a few short weeks, and I have also seen the…

Q: Will I still owe the difference after my CT short sale?

A: It all depends on what your short sale approval letter says.

Connecticut is a deficiency state. What that means to any CT homeowner is that your lender can pursue you for a monetary loss resulting from a foreclosure or short sale of your property - unless your short sale approval letter says otherwise. Many people mistakenly believe that letting the home foreclose, walking away or simply sending in the keys absolves them of their responsibility for their mortgage - however this is absolutely not the case.

When you signed up for the loan you agreed:

• To pledge the property as collateral for the loan
• To sign a promissory note to pay back the loan

IN A FORECLOSURE the…

The answer to that can be yes, no or maybe so.

While most lenders have not laid out specific rules saying you must be in default to qualify for a short sale, it has been traditionally more difficult to get a short sale approved for a paying client.

However I have noticed more flexibility in this, especially in the last several months. While some investors will still require a default in order to be approved into a short sale, many will not. Keep in mind your lender - Bank of America, Chase, GMAC, Wells Fargo, Nationstar , etc - usually just services your loan. An investor actually owns it and calls the shots. I have seen Fannie Mae and Freddie Mac owned loans be approved lately for current clients. If your loan is insured by the FHA, they…

Almost 16 months after investigation into robo-signing began, a deal has been reached between feds and 5 of the nation’s major loan servicers: 

• Bank of America
• GMAC/Ally
• Wells Fargo
• Citi
• JP Morgan Chase 

The settlement goes down as the largest consumer financial protection settlement in US history and settles state and federal findings that servicers violated state foreclosure laws. Borrowers in 49 states (Oklahoma did not join the settlement) will be eligible for relief including: 

Principal reduction for eligible borrowers:  Homeowners behind on their payments will be eligible for loan modifications, including first and second lien principal reduction. Due to the number of borrowers affected the reduction is expected to…

Do I have to be destitute to qualify for a short sale?

The short answer is…NO. You do not have to be destitute in order to short sell your CT home. In fact, as a CT short sale agent, many of my clients are actually well to do, have good credit, good income and can in fact pay their mortgage. They simply need or want out and a short sale is the only realistic option. I consider these sellers “strategic” short sellers. Not all short sellers are scraping by.

What you can expect as a strategic, as opposed to a “necessary” short seller:

• Extreme scrutiny of your financial documentation
• High likelyhood of being asked to kick in to make the short sale happen
• More difficult, delayed short sale

What you need as a strategic short…