Expert: Jim Root - 7/13/2009

Question
Hi. My husband and are currently living in Northern Florida where he is stationed in the military. He is due to be transferred next summer and we are trying to figure out what to do with our house. We thought with being here a full 4 years that our house would have increased in value but it has decreased about 20,000. So, now we really cant afford to sell it at the decreased price and my husband doesnt want to deal with renting it out either. So, we are looking into short selling. I was hoping that maybe you could tell me more about it. The main thing we are wondering is just how much it will affect our credit. From what Ive read it sounds like it will affect your credit some but not as much as doing a foreclosure. If it does not affect our credit too much this is probably something we would like to do.. Can you give us some more info about it if you have any? I really appreciate your help!

Answer

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NEW INFO--The DOD is starting a program called "HAP," (that stands for Homeowner's Assistance Program) and will help both DOD Civilians and Military folks who MUST move. Go on-line, search for "Homeowner's Assistance Program (HAP)" and you can find out all about it! This just mught work for you! GOOD LUCK--JIM
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ORIGINAL RESPONSE-

Hi JENNIFER--

First, Thank you & your Husband for your service to our Country! As a USAF 20-year Careerman myself, I appreciate that the "Wife & Kids" serve, too!

Now let's talk about SHORT SALES! They're also known as "Short Payoffs" and/or "Pre-Foreclosure Workouts." Basically a "Short Sale" depends upon the Lenders' willingness to accept less than the amount owed by a Borrower via a sale of the property to a "Third Party!" With the Lender's agreement to this, the Lender releases the Borrower from the existing Mortgage.

Not all Lenders are willing to approve "Short Sales," especially on those Mortgages that are NOT insured (by FHA's Mortgage Insurance Program (MIP)OR a program by one of the Private Mortgage Insurers (PMI), NOR guaranteed (by the VA).

Without MIP, PMI or VA insurance/guarantees, the Lender stands to "take the hit" on a "Short Sale," while if these "insurer/guarantors" are involved, with their approval, too, the Lender is paid for the "lose" by FHA, VA or the PMI provider!

Before you list your property at a lower price than one that will fully payoff your existing loan,plus commissions and other selling costs, contact your Lender's LOSS MITIGATION (LM) DEPARTMENT and ask to speak to the SUPERVISOR! Explain your situation, perhaps emphasizing that although you aren't behind in payments now, not in default, but default and foreclosure won't be far behind your move if you can't sell the property.

If the Loss Mitigation Supervisor verbally agrees to your "Short Sale," it will be with certain "conditions" attached. He/she will likely ask you to submit a HARDSHIP LETTER --that documents your request for "Short Sale" approval and emphasizes the Military PCS that makes selling necessary--an AUTHORIZATION LETTER--that provides a written, signed authorization for the Lender and your Realtor to discuss your private financial matters as they relate to the "Short Sale" and your existing loan--  a COMPARATIVE MARKET ANALYSIS(CMA)--your Realtor's "mini-appraisal" that establishes "the most likely sale price" your property can command in today's market--and a PRELIMINARY NET SHEET--your Realtor's got a form that he/she can complete by filling in the sale price you expect to receive, based on the CMA, and all the costs of the sale, unpaid loan balances, judgements, liens, commissions, etc.If the "BOTTOM LINE" shows any cash to you, you won't get "Short Sale" approval!

After you've talked to the LM Supervisor and provided the "Authorization Letter" to the Lender, have your Realtor make contact and go from there! I recommend that you find a Realtor who's EXPERIENCED in working as a LISTING AGENT on several previous "Short Sales!"

You need to understand that it takes 3 "parties" to fully approve a "Short Sale." Party #1:You and your Husband can accept an Offer, but your acceptance is "Subject to Party #2: Lender Approval" The Lender needs Party #3: FHA, VA or MI's commitment to pay the Lender for losses under their Mortgage Insurance or Loan Guarantee Programs!

As for how a "Short Sale" affects your Credit standings/scores, that depends on whether or not and/or how your Lender reports the "Short Sale" to the three (3) Credit Reporting Agencies.You should find out how your Lender handles this! You can ask that the Lender NOT report adverse credit to these agencies--they're not REQUIRED to report , but their under no obligation to withhold reporting a "Deficiency. IF reported,your Credit Scores could drop from 100 to 200 points, again depending on HOW it's reported!

Give keeping it as a Rental some more thought. A good Property Manager can keep it rented for you & ensure that it's properly maintained. The Real Estate Market will come "back to life" over the next 3-5 years and the "lost" $20,000 will come back two-fold! Just a thought!

GOOD LUCK!

--JIM