I also talk about this in my email reports, so sign up NOW by adding your name & email in the form located on the right side of this website.

Now one thing that I am not going to do is give you legal advice on this blog.  If you want to hire legal advice for more personalized consultation, first of all, do not hire an attorney for $300 an hour.  Use Pre Paid Legal, which gives you unlimited consultation with a top tier attorney in your area for a measly $16 a month.  I use this service myself.  With short sales, rarely will you need physical attorney representation.  Rather, you need consultation, and that comes a lot cheaper.

Plus, Pre Paid Legal attorneys WILL write letters & make phone calls for you, if it is necessary to do so. 

Follow this link to learn more about Pre Paid Legal

Before you even consider a short sale, first ask yourself, do you want to keep the property?  We’re not in the business of forcing people to do short sales if they’re desire is to keep their property.  Have you considered a loan modification? 

If you really want to keep your home, there are plenty of other options to consider.  Did you know that it is possible to file for BK, discharge a large 2nd and modify your first mortgage which would instantly “recreate” equity in your property while leaving you with a significantly lower payments AND a lower mortgage balance then you originally had on the property?  Ask a loan mod expert about this option

Now, in order to negotiate & waive a short sale deficiency, you must have the basic following:

1.  A professional negotiator

2.  A complete short sale package with an offer

3.  Updated financials

If you do not have these basic things, you’re going to run into small, administrative issues that’s going to keep you from talking about what’s most important in a short sale (ie. the deficiency).

Now let’s talk about a couple things you need to understand before attempting to negotiate & waive a short sale deficiency balance.

First, how many mortgages do you have?  If you have only one and you live in a non-judicial foreclosure state, you have the most leverage for negotiating your deficiency balance.  This is because if you allow the property to go into foreclosure, the property will sell for 60 cents on the dollar and the lender will lose all deficiency rights.  Thus, it is in the lender’s interest to simply accept the short sale as payment in full.  Alternatively, if you have a 2nd mortgage, you have less leverage,  since the 2nd lienholder can usually pursue you for the deficiency no matter what.

Now, let’s talk about a couple techniques that I’ve used to personally negotiate 100% waiver of deficiencies or a settlement for less than what is owed:

1.  Financial hardship.  If you are in true financial hardship, you must make this absolutely clear to the lender.  You must convince the lender that it is not worth pursuing you, since you have no assets, and that foreclosure means “little” to you if they are not willing to budge (this will surely scare the 1st, while it might not have so much effect on the 2nd)

2.  Threaten bankruptcy.  If you threaten bankruptcy, (esp. if you send a letter or a BK schedule), lenders will work with you.  In the event of bankruptcy, lenders are at the mercy of the bankruptcy trustee and how they decide to approve the terms of the BK.  If you are in financial hardship with much debt, you will probably be qualified to discharge that debt.  Threaten bankruptcy.  You can get Pre Paid Legal attorneys to write letters and make phones calls to your lender if you want to add serious firepower to your negotiations. 

3.  Have the buyer raise the purchase price.  This is why it is absolutely important that you do not try and haggle buyers for the highest priced offer when you intial do the short sale.  This will only harm you.  Most homeowners are under the impression that the higher the offer, the lesser likelihood that lenders will release the deficiency.  This is not true.  On the contrary, lenders will be more likely to release the deficiency if the purchase price is raised AFTER the lenders are intially given a much lower offer.   

My lender isn’t budging and is not waiving the “deficiency” language and/or is requiring me to sign a promissory note!

In the event that you are running into this issue, it is likely that your missing one of the above steps.  However, I understand that sometimes the lenders will simply not budge.

My opinion (not legal recommendation), is that you release the lien anyways and follow through with the short sale to pay off the 1st (in most cases, a short sale will allow you to at least get the 1st off of your back).  Any remaining debt with the 1st or 2nd, any promissory note or the “right” to pursue a deficiency is nothing more than unsecured debt (like a credit card) for the lender (which they hate), and if you default on that, then the lender is left with the choice of either suing you for the debt, to settle for less than owed or to simply write the debt  off and issue a 1099-c.  Releasing the debt as a tax write-off, by the way, is quite rewarding to the lender and in many cases, the lender will simply write off the debt. 

Once you corner your lender into this situation, it is in your best interest to repeat the above steps (show evidence of hardship, threaten bankruptcy).  Lenders, their creditors or their attorney firms will most likely be open to look at different options, especially if you threaten bankruptcy. 

If you have some cash or can borrow some cash, you can also do “debt settlement” with your lender (as well as with all of your other unsecured debt) and try to settle for 20%-40% of your debt. 

Can’t I just allow my property to go into foreclosure?  Don’t they lose their deficiency rights if I do this?

No.  If you live in a judicial foreclosure state, the lender can still pursue you for the deficiency.  If you live in a non-judicial foreclosure state, the non-foreclosing lender (usually the 2nd) can still pursue you for the deficiency.

OK, so what if I get the deficiency waived or the lender decides to release the debt as a “tax write off”?  Won’t I still owe taxes on the deficiency?

Yes, unless you are qualified for the Mortgage Forgivess Debt Relief Act of 2007.

Now with everything that I’ve mentioned, keep in mind that a professional short sale negotiator is an absolute necessity when dealing with a short sale.  There a billion other things that can go wrong in a short sale, so make sure you hire representation. 

One last concern I want to address:  “My credit is important to me!  How do I improve my credit after a short sale?”

I’m sure you know by now that a short sale will damage your credit, including the 30/60/90 day late payments that show up on your payment history, although a short sale is not as damaging as a foreclosure. 

Well there’s no need to worry.  We’ve recently partned with Lexington Law, an attorney firm that specializes in removing negative items from credit report, NOT based on accuracy (since most negative items are accurate), but on OTHER factors that are just as important. 

Follow this link and ask a Lexington Paralegal about removing short sales, late payments and even foreclosures from your credit report.

I hope that by now, I’ve provided you with enough resources & information necessary to close your short sale, walk away from your property and minimize the damage as much as humanly possible.  You may want to bookmark this blog post and keep it as reference for the future.

I truly wish you the best,

Kevin

“Does a short sale hurt your credit?”

“Short sales take more than 90 days, how will that affect my credit score?” 

“How long does a foreclosure stay on your credit?”

“How does a foreclosure affect a persons credit score?”

“How long does a bankruptcy stay on your credit report”

“Can credit repair actually remove foreclosures from credit reports?

 ..so on and so forth. 

Well, let me start off by saying that both a foreclosure and a short sale will impact your credit score.  The difference is that a foreclosure will be more damaging to your overall credit and will remain longer on your credit report than a short sale. 

Short Sale: 

• 200-300 reduction to your FICO score depending on the borrower. 
• Inability to obtain a standard mortgage for at least 24 months

Foreclosure

• 200-300 point reduction on your FICO score, depending on the borrower.  Yes, this is almost the same as a short sale.
• Remain on credit report for 7 years.  Inability to obtain a mortgage for at least 24 months.  Difficult to obtain a standard interest loan afterwards

Bankruptcy:

• Remains on credit report 7-10 years
• A very large ding on credit score, usually a few hundred points

The solution:

One of the major concerns that homeowners have when going through a short sale, foreclosure or even a bankruptcy are the consequences on their credit. 

However, what most homeowners do not know is that the FCRA (Fair Credit Reporting Act) requires certain steps to be made by creditors before reporting an item on a credit report, and if a creditor misses one or more of these steps (which they often do), the FCRA will not allow the item to appear on the credit report.  This includes unverifiable information, clerical errors, mistaken identities, etc. 

What this basically means is that you, as a homeowner, might be qualified to have your short sale, foreclosure, late payments (30/60/90 day lates) and sometimes even your BK removed from your credit report even if they are accurate.  This is not illegal!  In fact, it is actually the law that allows you to accomplish this, since the FCRA requires conditions beyond “accuracy” to be met by creditors when reporting a negative item on your credit report. 

If you are looking to purchase another home post-short sale or foreclosure, don’t fall for one of those high interest “foreclosure loans for bad credit” provided by hard money lenders who are looking to take advantage of your situation.  Rather, remove negative items using our lawyers, raise your FICO score and obtain a standard, low interest mortgage when purchasing your next house.   

Credit Repair & Deletion:

My job is to help people walk away from this season in life with as clean of a slate as possible.  With the help of one of our partner law firms, you can remove foreclosures from credit reports, as well as short sales and other negative items.  Deleting negative items on your credit is a sure fire way to help rebuild your credit after a short sale, foreclosure or even BK faster than you’ve ever thought possible.

—> Use this link to access the Credit Deletion section of this website and repair your credit today

When it comes to short sales and foreclosures, listen to the experts.  Don’t do what everybody else is doing, rather, take advantage of what’s out there and milk every opportunity you can find.  The reason why most homeowners are stuck having to short sale is because they ended up purchasing homes based on feelings or the opinions of a single realtor.  This time, choose differently.  Take advantage of our knowledge on the subject and you’ll be back running in no time.

My answer to them is, “get the facts and trust your instincts.”

Here are the facts:

Effects of Short Sale on your Credit Report:

• 200-300 point reduction on your FICO score, depending on the borrower.  I have heard of a 100 point reduction, but this should be very uncommon.
• Inability to obtain a mortgage for at least 24 months.

Effects of late payments on Credit Report:

• 30-60 day late payments, if considered an “isolated occurence” (you do not have 30-60 day late payments on multiple accounts), does not cause long term damage to your credit. 
• 90-120+ day late payments, however, do drop your credit score for the long haul (around 7 years).

Effects of Collections (post Short Sale Deficiencies) & Debt Settlement

• Your score from suffer with both, except with debt settlement, you’ll eventually repay your debt and thus helping to rebuild your credit score
• Do not simply leave your debt hanging with collections in hopes that they will charge off the loan.  They will continue to report that you are in default of “installment payments,” etc.  They can do this for years.  It is better to settle your debt and move on.  You especially do not want additional 90 day late payments reported as your credit score at that point will drop significantly. 

Here is my opinion:

Many homeowners end up spending all of their savings and living expenses on their mortgage payments, in the name of “protecting their credit.”  Some are even borrowing money (using lines of credit) to pay back their mortgage.  Little do they know that they are probably not accomplishing what they think they are accomplishing by paying their payments.  Moreover, mortgages are not designed to replace your groceries or gas in your vehicle, and if that is the case, the homeowner either needs to get their loan modified or simply let go of the property (given their situation isn’t a consequence of some unnecessarily large personal expenses, ie. gambling).  The mortgage is not right for them. 

Homeowners must ask themselves, then, is it really worth paying their mortgage if you are already 90+ days late to preserve their credit?  How about if you are current, based on the facts, do you have some wiggle room to reserve money to pay down other expenses? Aren’t you simply paying your banks rent money until you close your short sale?  Are you supposed to be neglecting your daily necessities just to pay your mortgage?  As far as loan modifications, did you know that late payments can be wrapped around the mortgage balance once you start your new payment plan?

Ask yourself, what could you do with a couple months worth of mortgage payments?

I’ve got some answers. 

1.  Pay off your loan mod fees (although our short sale negotiators are paid by the lender, unfortunately loan modifications do not work that way)

2.  Reserve money to pay your debt negotiation specialist who can help negotiate your post short sale deficiencies (becoming much more common), consolidate all of your other unsecured debts (credit cards, medical bill, small loans etc) and repair your credit

3.  Spend it on daily necessities.  Do not sacrifice meals to pay your mortgage because that mortgage (as is) is not right for you. 

Is it smart to spend money on money that has clearly no return on investment?

Is it smart to save money in order to save more money in the long run?

Should you keep paying your mortgage payments?

The answer:  Get the facts and trust your instincts.