Short sale – selling the home for less than you owe

Unfortunately, in the past, lenders were making loans in amounts that ultimately became too difficult for borrowers to repay. Some of these borrowers in the Greater Palm Springs area may not be able to fulfill their mortgage obligations. When a borrower is no longer in a position to make the mortgage payments, is facing foreclosure and the current market value of the property–including escrow costs–is less than the loan on the property, the borrower may consider a short sale. This could save the lender the expense of foreclosure proceedings and from having another REO property on its books. From the borrower’s perspective, the short sale prevents having the foreclosure on the borrower’s credit history, and releases the borrower from an obligation that he or she can no longer afford.

How Does a Short Sale Work in Coachella Valley?

In general, the process goes as follows:

• First, the borrower must find a buyer for the property.
• Second, the borrower must prepare all the necessary documents (See Question 25).
• Third, the borrower must submit all documents to the lender.
• Fourth, the lender will send out their own appraiser to make sure that the buyer’s offer is at fair market value.
• Fifth, the lender will make a determination on whether or not to agree to the short sale.

What is the process for applying for a short sale?

In general, the process goes as follows:

• First, the borrower must find a buyer for the property.
• Second, the borrower must prepare all the necessary documents (See Question 25).
• Third, the borrower must submit all documents to the lender.
• Fourth, the lender will send out their own appraiser to make sure that the buyer’s offer is at fair market value.
• Fifth, the lender will make a determination on whether or not to agree to the short sale.

What documentation will a lender typically require?

Lenders will typically require a distressed borrower to furnish a variety of documents, which could include the following:

• Written explanation (and proof) of the hardship the borrower is experiencing;
• Copy of the purchase contract signed by both the buyer and seller (borrower);
• Copy of the TDS;
• Proof of the buyer’s ability to purchase the property, i.e., a completed loan application, pre-approval by another lender, or evidence of cash on hand (bank statement);
• Copy of the certified escrow instructions;
• Preliminary title report;
• Estimated net/closing statement certified by an escrow officer acceptable to the lender;
• Completed and signed IRS Form 4506, “Request for Copy of Tax Form;”
• Completed and signed personal financial worksheet;
• Previous two years’ tax returns;
• Employment paycheck stubs for the past two months;
• Profit and loss statement (if the borrower is self-employed);
• Past three months’ bank statements.

What is the HAFA?

The Home Affordable Foreclosure Alternatives (HAFA) program is for borrowers who, although eligible for the government Home Affordable Modification Program (HAMP), are not able to secure a permanent loan modification or cannot avoid foreclosure. HAFA provides protection and money to eligible borrowers who decide to do a Short Sale or a Deed-in-Lieu of Foreclosure.

HAFA Benefits

• Borrowers receive $3,000 for relocation assistance.
• Lenders must allow the opportunity for the borrower to attempt a Short Sale or accept a Deed-in-Lieu of foreclosure before following through with a foreclosure.
• Borrowers are fully released from future liability for the first mortgage debt – lenders cannot ask for a cash contribution, promissory note, or deficiency judgment to complete a short sale or DIL.  Additionally, junior lien holders (i.e. 2nd mortgages) who participate in the HAFA incentives must also release borrowers from future liability.

Qualifications and Eligibility

You may be eligible for HAFA if you meet all of the following criteria:

• You have a documented financial hardship.
• You have not purchased a new house within the last 12 months.
• Your first mortgage is less than $729,750.
• You obtained your mortgage on or before January 1, 2009.
• You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction.
• Your mortgage is owned or guaranteed by Fannie Mae and Freddie Mac.

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