Do you live in a place where you no longer can afford the mortgage payments? Or even worse, Have you received a pre-foreclosure letter from your lender?

Or do you simply want to sell your house and are currently "underwater" and think you can not sell your house?

If at least one of these statements applies to you you might consider a short-sale as an alternative to foreclosure.

What is a short sale?

A sale of a property is considered a short sale when the total amount of outstanding loans, liens and taxes is greater than the market value. This happens mostly as a result of the sharply declining Real Estate market in South Florida. Many homeowners are currently in a similar situation.

Short sales are the fastest-growing foreclosure alternative. Lenders generally prefer a short sale over a foreclosure because they lose less money. It gives all parties involved incentives to solve the problem amicably. The biggest benefit for you as the borrower is the fact that with a short sale you will avoid foreclosure and the devastating effect it will have on your credit.

Not too long ago short sales had quite a bad reputation. It took some banks 6-12 months to respond, rules were constantly changing and standards virtually non-existing. The process could be completely different depending on the lender. With the recent government involvement a lot has changed to the positive.

If you're considering a short sale on your property, make sure you work with a trained Real Estate agent who knows to successfully complete a short sale due to the complexities that are involved dealing with the lender. Not all Real Estate agents are qualified to do this job.

Do you or someone you know owe more on your home than what it is worth and don't know what to do?

We know the stress of dealing with the banks and paperwork. Let us take care of your situation.

HAFA (Home Affordable Foreclosure Alternatives) Short Sale

In April 2010 the US Treasury set up a new program with strict federal guidelines in order to streamline the short sale process. It was specifically designed for borrowers who are unable to pay their mortgage and have exhausted all other modification options. To qualify for a HAFA short sale the following requirements must be met:

• Your bank/investor must participate in the program. Not all lenders do.
• The property has to be your primary residence
• Your mortgage must have originated before Jan 1st, 2009
• You have to be delinquent at least 60 days or a default is reasonably likely
• The unpaid principal balance has to be less than $729,750 for 1-unit properties (higher balances are allowed for 2-4 unit properties)
• The sum of monthly principal, interest, taxes, and insurance (PITI) has to exceed 31% of your gross monthly income
• Your mortgage can not be a VA or FHA loan

In comparison to a conventional short sale, a HAFA short sale has the following advantages for you as the borrower:

• You get $3,000 in relocation assistance
• The lender must agree to waive the deficiency (meaning you will be fully forgiven of your debt)
• In most cases you will not be taxed on the forgiven debt

The HAFA short sale process works differently than the conventional process. If you qualify, your lender will actually pre-approve the amount your property will be listed for. We can walk you through the short sale maze easily, giving you peace of mind.

How does a short sale compare to a foreclosure?

Foreclosures can seriously affect your credit score by 300 points or more and will stay on your records for 10 years. It will also make it more difficult to buy another house in the future. While a short sale will impact your credit score somewhat, it will not nearly drop as much and once you have sold your property, your lender will report the sale as 'Settled in full', 'Paid as negotiated' or 'Paid'. You should also be able to get a new loan in as little as 2 years after the short sale and in most cases you won't even have to mention your short sale when applying, while you would have to wait typically at least 5-7 years if you chose to foreclose on your property.

A foreclosure might also have an impact on your current and future employment prospect. If you work in a sensitive position, you could be terminated or reassigned. The choice is pretty clear. You should avoid foreclosure because of the above mentioned reasons. The good news is that many lenders would rather not foreclose since it is much more costly for them. To sell the property worry-free it makes perfect sense to work with an experienced Real Estate agent who represents your interests and will guide you through this.

To summarize, Foreclosure should be your last resort because it will:

• Damage your credit score severely
• Stay on your record for 10 years
• Limit obtaining credit to purchase a future home
• Cause potential problems with current and future employment opportunities
• Subject you to a deficiency judgment and payments (Florida is a deficiency judgment state)

Other Options

Because of the ongoing housing crisis a lot more options to deal with a distressed property are available than ever before. The following briefly describes each option.

Loan Modification

If you would like to stay at your current place, but can not afford your mortgage payment anymore you might qualify for a loan modification which will do the least damage to your credit. The lender might agree to modify your existing loan by lowering the interest rate or reducing the principal amount owed. The United States government actually encourages banks to use loan modifications by providing incentives to banks.

Repayment Plan

Agreeing to a Repayment plan will allow you to make up your delinquent payments in small amounts each month along with your regular mortgage payments until you are current on your loan. This agreement is typically used when a borrower has a short-term reduction of income that severely impacts his or her ability to pay for a short period of time.

Reinstatement

The Reinstatement option is similar to the Repayment plan except that you will be given the ability to make a satisfactory lump sum payment on your loan.

Pre-Foreclosure Sale

The Pre-foreclosure Sale (PFS) Program allows the Mortgagor in default to sell his/her home and use the net sale proceeds to satisfy the mortgage debt even though these proceeds are less than the amount owed

Forbearance

By choosing Forbearance you would still owe the bank the full amount of the mortgage but agree to a plan to pay it back later. You could have a balloon payment at the end of your mortgage and you monthly payments might change over time.

Deed-in-Lieu of Foreclosure

With the Deed-in-Lieu of Foreclosure, the homeowner voluntarily transfers ownership of the property to the servicer in full satisfaction of the total amount due. The servicer may require that the homeowner list and market the property before they agree to a deed-in-lieu arrangement. In order for the Deed-in-Lieu of Foreclosure to work, the homeowner must provide a marketable title, free and clear of other mortgages, liens, or other encumbrances.

Additional Resources

Making Homes Affordable (Official Government Web site addressing the housing crisis)

HAMP participants (Mortgage companies that participate in the Home Affordable Modification Program)

Brief video provided by the U.S. Department of the Treasury explaining your options