Terry (not her real name) called our office in tears.  Her home was going on the county steps, the following day, to be sold to the highest bidder in a trustee sale.

She did have a little cash in the house in the form of equity.  Not Fair!

Not a fun call by any measure.    After living there for 25 years and raising her family, the lender was foreclosing.   Not a rare story…I know.

This put the whole office in a buzz to solve Terry’s problem.  I called my cash investors, others called attorneys.    My ‘ace in the hole’ investor was in Europe the other was unable to put it all together in such a short time.

It was looking dire by the end of the day.

The only solution turned out to be bankruptcy…according to legal council!  That’s not what this story is about though.  This was the only way to halt the foreclosure and allow Terry some time to get a grip.  After all, she raised her kids in this home, had no job prospects and was on the verge of a serious breakdown.

She needed to hit pause.

Terry was not devoid of responsibility and I won’t defend her position.   She just needed help.

So, the only alternative was bankruptcy.  The search began for an attorney to embrace Terry and get the ball rolling.   This was done in an attempt stop the snowballing effect!  One found,  we began to focus on solutions.

Move ahead a few days….

Terry hired us to meet the required ‘sale of the home‘ that the Trustee ordered.   This is where it went haywire AGAIN!  The Trustee said he had the legal authority to choose and hire a Realtor.  Well, his Realtor was preparing to sell the home for a ridiculously low price (about $100K low).   Leaving Terry with nothing!  The Trustee’s agent claimed his price was based on his ‘expert opinion‘, the current market and the home’s condition.

Not so fast mister!  We appealed to the Judge that this agent was out of his gourd.  Providing some strong fact based data, we were granted the job to sell Terry’s home.  Sorry Mr. Trustee‘s agent (and Mr. Trustee)!

The home was in bad shape, for sure.  The kitchen cabinet doors were falling off, the Master Bath was in need of a Hazardous Materials Team and the yard more resembled a Jungle than a forest meadow with curb appeal.

We jumped in with both feet.  Providing labor, guidance, advice and, in some cases, a late night shoulder for Terry to cry on.

The home sold in 10 days.  The offer was great and provided Terry with $90,000.00 dollars after expenses.

We make money doing this, right?  In this case there was little money left over after all the hours and effort.   It wasn’t what I earned that was rewarding, it’s what I learned…..

I work with the best group of ‘people’ in the world!  They’re not your typical, robotic, scripted salespeople who only look out for themselves…they’re real people – that care!

I almost  forgot the best part.    Once Terry began to see the light at the end of the tunnel she gained enough confidence and piece of mind to secure a great job!

Terry has a bright future on the horizon!

note:  this solution is not for everyone there are short sale and other options to consider

There are no ‘Magic Wand’ solutions if you find yourself against the wall with your mortgage.  Using common sense and a applying pragmatic approach is still the best and most effective way to determine whether you should sell your Los Gatos home or buy a smaller more affordable house in San Jose.

A good rule of thumb is to obtain 3 professional opinions and weigh them one against the other.   The first solution may not be the only solution and… Watch This Video!

Some lucky folks are going to be new homeowners in Los Gatos!

Great prices and locations are just the beginning.   17250 Pine St.Los Gatos is a short sale,  I know,  Yuk.  Not really!  Look what the fundamentals look like…

Schools: Great!  Location: Great!  Price: Amazing!

Use ‘the proper strategy and be prepared for a few bumps’ is the bargain hunters code. One may be a foreclosure one a short sale, however what would expect a bargain to look like?

Los Gatos is a tough area to find affordable homes and these 3 are a step in the right direction. Preparing for an opportunity equates to good luck, right?

The 2nd homes for sale in Los Gatos is 15175 El Gato and the 3rd house for sale in Los Gatos that I see as a great first time buyer pick is 228 Calle Marquerita.

Actually, rollercoasters scare the dickens out of me.  I like the idea of knowing what the outcome of something is going to be.  This is where buying a shortsale and riding a rollercoaster  share a similarity.  You never know what’s next!

They are both exciting and both can be frightening.

Changing the course of a rollercoaster, to reduce the scare factor, is impossible, however  you can make that rollercoaster short sale purchase like a ride on the Teacups at Disneyland.

The Teacup ride strategy to short sales should go like this….

• Screen properties for their potential to gain a short sale approval.
• Commit to the process.
• Prepare for a flexibility.
• Hire a Realtor proficient in Distressed Properties and Short Sales.

I think I like tea.

• Screening the properties, for their ability to gain a short sale approval, is a bit like having to do the maintenance inspection to be certain the rollercoaster is safe before you squeeze yourself into the seat.

Just last week I showed a very nice short sale house and the listing agent said they had a 3rd party negotiator. I thought.. great!  Only to learn the agent would not disclose the 3rd party.   Big red flag!   Obviously a ruse that would come back and make the buyer spill their tea.

You need to learn how many banks are holding the mortgage lien(s), which bank(s) and how far upside down are the current owners.   What is the mindset of the seller… Angry, Relieved?   Using these factors  an equation can be arrived at to grade short sales.

Committing to the process is as simple as buckling into the seat.  Once you have screened out the bad properties be prepared for surprises and commit to finding resolutions and making compromises .   Be certain this is what you want to do before you move forward and commit yourself  to the entire process.

Preparing for flexibility simply means you should not set a date certain to move from your current residence.  This is especially important if you are employing a moving company.

You wouldn’t plan to eat lunch at 12 noon and then ride a rollercoaster.  You would leave your lunch plans flexible to prevent a big mess.  Be flexible.

Select a range of dates for your move and make allowances with your landlord or your current home sale.  This will save a ton of stress and related problems.

If you have hired a competent lender you will have additional flexibility in your loan terms, loan lock and room to increase your approved loan amount should it become necessary to pay unforeseen expenses.  A huge problem with short sales in San Jose.

Hiring a multiple listing Realtor, who has extensive short sale experience, is what most buyers fail to do and learn of their error far too late to overcome their mistake.  Kind of  like getting on a broken rollercoaster.

If your short sale of choice is listed with an inexperienced agent,  it will make little difference how good your Realtor is.  This is a huge factor in any short sale equation.

Your Realtor should also have experience in working with a number of different banks,  have proven skill overcoming pitfalls and implementing solutions for those that are unexpected.    Successful short sale listing and selling experience is an absolute must!   If one  says to you  ” I can do it,  it’s easy.”…

….Find another amusement park.

Knowing what documentation to ask of the listing agent, to give you confidence you have committed to the right home purchase, and providing you with a  clear understanding of the progress of the sale, is an important part of your Realtor’s job.

Without this level of  experience and clear communication you will feel like you are on a non-stop rollercoaster.

So what will it be, an exciting ride on the Teacups or a risky rollercoaster ride?

Here is a long list of short sale FAQs and tips to hire a multiple listing realtor.

You’ll find the following Los Gatos property a great value.   An affordable short sale house in Los Gatos….

17250 Pine St, Los Gatos

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Staging – 5 Easy Ways to Sell  Your  Home For More Money

Thinking about putting your home on the market this spring?  Are you going to be a home seller or just another host of a Los Gatos ‘home for sale’?  It’s never too early to start planning for your upcoming  home for sale.  And there’s a lot to think about.  Perhaps one of the most crucial pieces to finding that perfect buyer is staging your home for sale properly.  And that means…..de-cluttering.

Having a lot of clutter lying around the house tends to tell prospective buyers that “this house is your place, not theirs”…..never a good message to send.  Removing clutter will not only make your home appear clean, well maintained, and move-in ready, but will also give you the added benefit of helping you relax after a stressful day of work.  Here are seven tips on how to de-clutter your home.

1. Prepare for a de-cluttering marathon.  This is a big, sometimes emotionally draining task and is best tackled in small bites.  You’ll want to gather some de-cluttering tools before you begin.   Garbage bags, boxes, and dusting cloths can be most helpful.  If you find yourself having trouble staying organized throughout the process you may want to start three piles labeled “throw out”, “put away”, and “charity.”  This approach will keep you from throwing out things you want to save, and saving things you want to throw out.

2. Throw out old, unused stuff that tends to find itself on countertops and shelving such as junk mail, bills, receipts, etc….  Outdated paperwork can also find its way into drawers and closets.  Potential buyers want to see San Jose homes for sale that have lots of counter space, not your mail or last Sunday’s paper.  So don’t let the junk mail keep you from receiving an offer.

3. Sort through closets to find extra storage space.  If your closets are overflowing with “stuff”, it may be time to do some closet purging.  Potential buyers love to see storage space when they open closets.  If the buyer’s eye goes directly to the boxes, cloths and clutter, they won’t notice all the great storage space you have.  Overflowing closets also have the habit of telling buyers that your home doesn’t have enough storage.  But not to worry, there is an easy fix to the full closet…..  If you haven’t used something in a year, throw it out.

4. Clean off book shelves to give your room an open, lighter feeling.  Again, buyers are looking for a Los Gatos home that has lots of storage space and if your shelving is packed with stuff, buyers will assume your home doesn’t have enough storage.  Maintaining well organized, half-full book shelves also gives the appearance of space and can make a room feel larger than it actually is.  And don’t forget to pack up the majority of your personal pictures when staging a home for sale.  You want potential buyers to see themselves in your home.
5. Maintaining clear kitchen countertops has the potential to visually double the size of your kitchen.  Always a good thing.  The golden rule for countertops is to have no more than two appliances sitting on the counter.  Los Gatos homes for sale that feature vast expanses of countertop space will have a competitive advantage in today’s buyer’s market.  And it would be a shame to miss out on an offer because kitchen clutter overshadowed your fabulous countertop space.

Then you are on your way to the 26  seller tips.

And last, but not least, celebrate!  If you’ve managed to de-clutter your entire home, then you deserve a pat on the back.  You’ve just completed the most inexpensive remodel of your home possible.  Potential buyers will see the value in your work and you will, quite possibly, be rewarded with a higher offer!

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Well, not much, obviously or , at least,  hoping is not going to change the new rule.   The upfront costs are going to be a bit higher.

To get that Low Down Payment and Great interest Rate you are going to be required to….

• Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500. Borrowers will still be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.

So, they may get more expensive.   This will  reduce the number of buyers who can qualify.   There’s more…the credit score benchmarks are changin too, further decreasing the number of buyers a home seller will be able to market their home to.

• Need a credit score of at least 580 to qualify. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.

Maybe this is what we should expect all things considered.  I want to remind you a HUD approved lender is not like any other and the more experienced they are, the better your chances of a quick approval and subsequent closing.

Yes, you can buy a short sale in Los Gatos or a house in San Jose that is listed for sale as a short sale.  Interesting concept.

Do you own a HUD-FHA financed home, and need to do a Short Sale? Here is a summary of the requirements to perform an FHA-insured HUD shortsale or “Pre-Foreclosure” Sale:

1. You must be delinquent 31 days or more delinquent at the time of sale.
2. You must list the property with an un-related Licensed Real Estate Broker
3. You must actively market the property for four months (up to six).For the first 30 days of marketing, the short sale lender (mortgagee) may only approve offers that will result in a minimum net sale proceeds of 88% of the “as-is” appraised Fair Market Value (FMV). During the next 30 days of marketing, the lender may only approve offers that will result in minimum net sale proceeds of 86% of the “as-is” appraised FMV. For the rest of the marketing time (60 days), the lender may only approve offers that will result in minimum net sale proceeds of 84% of the “as-is” appraised FMV.
4. The property must be an owner-occupied, except for cases of job transfer, death, divorce, job loss
5. There should be written proof of your decrease in income showing inability to pay the mortgage, job loss, etc.
6. HUD will pay up to 1% of buyer’s mortgage as part of closing costs if the new mortgage is also FHA, plus reasonable “seller” costs
7. HUD allows 6% Realtor commission
8. HUD will not pay for Home Warranties, points or lender’s title insurance
9. You must get approval to participate in the HUD Pre-Foreclosure Sale Program in advance
10. Upon acceptance into the program, you will be given Approval To Participate Form which will outline program restrictions

There are a number of basic short sale faqs not addressed here.   This HUD guideline sets some of the story straight though.    For more FAQs read this.

Q:  Short Sale definition.  What is a Short Sale?

Answer: In ”short”, a shortsale is when the lender agrees to settle the debt owed on the property for less than the full amount of the debt. In most cases “Settled” means the lender writes off the debt. You usually will receive a 1099 after a short sale for the amount of debt forgiven. The bank is agreeing not to go after you for the money they lost by filing a deficiency judgment in the future. The exception is the HELOC loan where they reserve the right to file a default judgment.

Answer: If you have a heavy asset portfolio that would cover the amount above the home’s value then the answer is likely to be no.  Each case is different and would be better answered after a professional review to help learn how to short sale.

Answer:  There is a lot of misinformation on the internet about this. A short sale is recorded on your credit report as “debt settled for less than the amount owed”.  In plain English, this will result in a relatively minor hit to your credit compared to a foreclosure or late payments on your mortgage. A short sale will affect everyone’s credit differently. The more established your credit, the less of an impact it will have on your score.

If you stop making your mortgage payments for 4 months, regardless of whether you do a short sale or not, 4 months of missed mortgage payments will have a significant negative impact on your credit.  A short sale will drop your credit 100 points or more.

If you are already behind on your payments, you have already incurred the majority of the hit that a short sale will have on your credit.  Moving forward with a successful short sale will insure that your debt is settled with your lender.

However, if you are current on your payments and can stay current throughout the short sale process, you will save your credit to a large extent.

When you do a short sale, your lender is agreeing to settle the debt on the property for less than the amount they are owed. As a result the IRS allows them to write off this loss, which is why your lender will send you a 1099-C after the short sale.

The IRS considers “debt relief” to be income for tax purposes. If your lender writes off $20,000 on your short sale, they will send you a 1099-C for that amount, and you would include that when you file your income taxes. The “C” stands for “Cancellation of Debt” and the law says canceled debt is taxable as income.

However there are EXCEPTIONS that most people who do a short sale qualify for, excluding them from having to pay taxes on their short sale.

Thanks to the Mortgage Tax Debt Relief Act that George W. Bush signed into law in January of 2008, homeowners who do a short sale on their primary residence, and have a purchase money loan (in other words, they have not pulled cash out of their home with a cash-out refinance HELOC) pay no taxes on the loss that their lender incurs in a short sale.

What is… pull cash out/Equity?
Answer: Homeowners who have pulled out cash from their home but have put that money back into their home to “substantially improve” their home, also are excluded from taxes on the short sale.

All other short sale scenarios – if you pulled cash out on your primary residence and spent it on something other than upgrading your home or if you are doing a short sale on a second home or investment property – result in a taxable event unless you qualify for the “Insolvency” exclusion.

The IRS does not require you to pay taxes on the loss the lender takes in a short sale if, at the time of the short sale, you are insolvent. “Insolvency” means your debts (including your mortgage) exceed the value of all your assets. In other words, if, at the time of the short sale, you have more debt than you do money or assets, you are considered insolvent.

Many people who short sale are insolvent and excluded from paying taxes on a short sale. I recommend you check with your accountant or  IRS form 982, which is the IRS form for debt relief and short sales. The IRS gives an explanation of “Insolvency” on this form.

Answer: California has passed its own version of the federal Mortgage Tax Debt Relief Act. It is Senate Bill 1055, which conforms to the federal law described in detail above, but applies to California state income taxes on a short sale.

There are differences between the state and federal law.

The term of the California law was only until the end of 2008. As of Jan 2009, this law is no longer in effect.

However,  CA, Tax Code Section 17131 provides that, unless there is some specific California statute to the contrary, California law tracks federal law on what income is excluded from taxation. Since there is currently no specific California law on this issue, short sales do not produce taxable income under California law as long as the Federal Mortgage Tax Debt Forgiveness Act is in effect (until the end of 2012).

I recommend you speak with your accountant and have them answer any tax questions that you have. I am not a tax accountant and do not give tax advice.

Answer:   The whole point of a mortgage short sale is to get out from under the debt of the mortgage. Your lender cannot write off their loss on their corporate taxes, send you a 1099-C, so you have to pay taxes on the loss, report the short sale as a “settled debt” on your credit and then turn around and go after you for the money.

This is why your lender will send you a 1099-C after the short sale. The “C” in “1099-C” stands for “Cancellation of Debt.”

Hiring an inexperienced short sale consultant or negotiator who does not negotiate a FULL release from your lender, could result in the liability becoming yours for the money the lender loses in a short sale or you could find yourself being forced to sign a promissory note to close escrow.

Answer: In most cases where people have a first and a second loan, they often are with 2 different lenders. For the short sale process to close escrow, both lenders have to agree to the short sale and agree to settle the debt. Thankfully, both lenders have a vested interest in doing this. The lender with the first loan does not want to foreclose, and therefore is willing to give a little money to the second in order to get them to agree to the short sale.

The second lender will get nothing if the first mortgage forecloses.  The attitude that something is better than nothing is becoming more prevalent.

The difference between these two loans is that in a “recourse loan” the lender has recourse to go after the borrower for the money they lose in a foreclosure, technically.  For this to take place, the lender has to file a judicial foreclosure, which is rarely done in CA.

The majority of foreclosures in CA are “non-judicial” foreclosures, where the property is sold at a trustee sale.

Answer: You will know that you have been released from the debt right on the front in plain English. “releasing the lien”, “accepting a short payoff to satisfy the lien”, “reporting the sale as a settled debt to the reporting agencies”, “issuing a full satisfaction of the mortgage”, “not pursuing a deficiency judgment”, or some other variation that states they are settling the debt for less than what they were owed.

More importantly, your bank will issue a 1099-C to you, the borrower, after the short sale, confirming that the debt has been written off and is settled. Your lender cannot write off the debt, issue a 1099-C and subsequently go after you for the deficiency.

Answer: Many people ask this question: The primary advantage is that in a short sale, the debt is settled and you no longer owe the bank any money. If you foreclosure, you may still be liable for the deficiency in the event that the bank files a judicial foreclosure.

Secondly, in a short sale, your credit takes much less of a hit compared to a foreclosure.

Finally, Fannie Mae & Freddie Mac revised their guidelines in August of 2008 with regard to how they view borrowers who have filed bankruptcy, gone through foreclosure or done a short sale. Through these new guidelines, they are in effect severely penalizing those who go the route of foreclosure or bankruptcy, and rewarding or encouraging those who do short sales, which they view as the borrower doing the responsible thing in light of the circumstances.

Recent Fannie Mae / Freddie Mac guidelines stated borrowers, filing bankruptcy or foreclosure, may have to wait up to 7 years to buy another home.

In contrast, the new guidelines stipulate only a 24 month period after a short sale.

Answer: I have yet to hear a good premise for letting your home go to foreclosure vs. short sale. Depending on whether you have recourse or non-recourse loan, when you let your home go to foreclosure you either run the risk of being liable for the deficiency amount or liable for the income taxes on that loss.

Secondly, your credit will drop up to 400-500 points and you will not be able to buy a home or obtain respectable credit for up to 7 years.

Comparison: With a short sale, the lender agrees to SETTLE the debt for less than the amount owed. If you have a recourse loan, you may be liable for income taxes on the lender’s loss (just as in a foreclosure) but you will not be liable for the deficiency (and if you qualify for the “Insolvency” exclusion, you will avoid the income taxes as well).

Furthermore, the loss that the lender takes in a short sale will be MUCH LESS than the loss the lender will incur following a foreclosure. The foreclosure process takes months & months, at the end of which the lender has to process the property through its overwhelmed system (another 3 -5 months) and then put the property back on the market, all while the market forces move against them.

Most importantly, the impact on your credit from a short sale will be significantly less than with a foreclosure and you will be able to buy again within 2 years, in most cases, compared to a 7 year waiting period to buy a home following the path of foreclosure.

Answer: Nothing –lender pays all closing costs, escrow fees, commissions etc. The lender may also pay any outstanding property taxes if negotiated properly.

Answer: The short sale process typically takes from 2-4 months, start to finish. It can take longer depending on the subject lender, the abilities of your chosen professional and your personal level of determination. You can choose to live in the property for the entire duration of the short sale or you can simply move out whenever you wish.

Answer: No, however lenders are known to be more motivated if you are not making payments or behind.   If you have a forbearance agreement it should not affect the commencement of a short sale.

Answer: You will be better represented in a short sale by an experienced Realtor who practices real estate sales on a daily basis.  A Realtor is an integral part of the short sale and possesses the experience to market your property aggressively in order to attract, screen and deliver buyers to successfully execute the sale.

With that said a word of caution.  Many attorneys seem to be preying on the fear and desperation of people facing foreclosure. Their websites use scare tactics to make people think that they would be crazy to do a short sale without first hiring an attorney.  They wrongly attorneys as the only people qualified to interpret a short sale approval, and that hiring an attorney is normal and an accepted part of doing a short sale, like hiring an attorney for divorce proceedings.

The overwhelming majority of short sales are conducted by real estate brokers who are experienced at negotiating with the lenders and charge NO UPFRONT FEES for their services.   You can hire a realtor who employs a team of professionals that include an advising attorney to help.

The California Foreclosure Consultant Act (July 1 2009) applies to foreclosure consultants – those who collect an advance fee for modifying loans or helping borrowers avoid foreclosure in situations where a Notice of Default has been filed on the property. This Act has an exclusion in it Realtors
Per CA Civic Code and the CA Assoc of Realtors, The California Foreclosure Consultant Act does not apply to real estate agents facilitating a short sale except in the extremely unusual event that an agent is 1) Making a direct loan for a residence in foreclosure, 2) Acquiring an interest in a residence in foreclosure, 3) Receiving an advance fee before performing services for a residence in foreclosure, or 4) Assisting an owner in obtaining the remaining proceeds if any from a foreclosure sale of an owner’s residence.

Chapter 13 encompasses setting up a 3-5 year repayment plan to repay debts. It requires you have a steady income, as you will be repaying all of your debt. Both have a very negative impact on your credit and remain on your credit report for 10 years.

Due to the new 2005 bankruptcy law, which raised the bar for people to qualify for Chapter 7 “fresh start” bankruptcy proceedings, fewer and fewer people pass the “means” test to qualify for Chapter 7 and for this reason can only qualify for Chapter 13 bankruptcy (a 3-5 year repayment plan).

Chapter 7 Bankruptcy, in a foreclosure stay process, allows the bank trustee to choose the Realtor and the price for the impending bankruptcy sale of your home.   While a Chapter 13 allows you to have some control of the sale of your home and who you employ.

Unfortunately, both Chapter 7 and Chapter 13 temporarily delay foreclosure proceedings, neither allows you to keep your home unless you can bring your mortgage current.

Answer: NO. Many agents have no interest in doing short sales because they require a tremendous amount of time and expertise. If you don’t know what you are doing, they often go to foreclosure.   93% percent of short sales do not sell due to poor representation.

You get one shot at doing a short sale – if your Realtor has not learned the many strategies, necessary, through experience, you will likely find yourself in a foreclosure proceeding.

Tip:  Taking  action quickly will serve you well in preventing foreclosure through the short sale process.

Our Short Sale team is qualified to provide professional advice and the ability to secure short sale approvals  in all 151 counties in California and refer other tested professionals throughout the Nation upon request.

this faqs document created in collaboration with Justin DeCesare SdHomeGuy.com