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You Can Keep a Short Sale Off Your Credit Report
There are short sale sellers in Sacramento who do not know that if they fit the guidelines, it is possible to do a short sale, be current on your mortgage payments, and NOT have a short sale show up on your credit report after closing. In fact, there can be no ding to credit whatsoever and a seller can go out the next day and buy a new home, if she so desires. They don’t know this because a) their Sacramento short sale agent doesn’t know it, or b) their short sale agent doesn’t want to bother with it because the agent just wants to close the deal the fastest and easiest way possible.
Everybody knows that if a seller is in default, that short sale has a greater chance of being approved, even if there is no hardship. That’s the easy road for lots of agents with short vision. They tell their sellers to stop making mortgage payments so they can do the short sale, but that is not always necessary.
Granted, I don’t have a lot of sellers who fit the parameters to be current, but when it’s a possibility, it’s often worth it to give it a shot. I have to do what is best for my sellers — as hokey as that might sound to some of you, it’s the truth.
Sometimes, it doesn’t work out. When it doesn’t, then the alternative is to go into default. Of course, the bank won’t tell you that. The bank will almost always never directly say that a seller needs to stop making her mortgage payment. Think about being a shareholder of that bank. Do you want that bank telling customers to go into default? No, you don’t. A bank will instead say there is no hardship.
You will look at the hardship letter you wrote and say yes, there is a hardship. What is wrong? The key is the seller is not in default. Stop paying at that point and, when the seller is 30 to 60 days in arrears, that short sale will most likely get approved. But if you want to try to do a short sale while you are current, hire a smart Sacramento short sale agent who knows how to do it.
Should You Notify the Bank Your Home is For Sale?
Should you notify the bank your home is for sale when you’re selling as a short sale? Clients sometimes confuse my role as a Sacramento real estate agent with that of a lawyer. I have fiduciary with my clients and am their advocate 100%, no doubt about it, but I can’t give them legal advice — even if I know the answer. Because even if I know what seems like a reasonable answer, if it’s a legal answer, it might not be the best answer, and it certainly doesn’t take into consideration all of the finer nuances of law much less the client’s particular individual situation. On top of that, believe it or not, I don’t have a license to practice law.
So, I freely tell clients that if I so much as address what seems like a solution to their dilemma, they should get legal advice and not rely on any of those words that may or may not fall by accident from my lips.
The question I get asked a lot is whether a client should notify the bank that his or her home is for sale. First, think about all the things that can go wrong in the world of business and commerce. How often do you make a request that is carried out in the manner in which it was requested? Probably not very often. Second, consider the fact that if you’re behind in your payments, for example, the department that has mostly likely been assigned the task to get that payment is the collection department. The collection department might be located in a different building, perhaps a different city than the department that escrow or your Sacramento real estate agent would speak with.
These two departments rarely speak to each other or even communicate with each other. They post notes in a computerized file sometimes, but that would take a person capable of accessing the correct file on top of actually reading it to decipher. That’s probably not gonna happen, I mean, let’s get real.
The collection department, if a seller is delinquent, wants the seller to make a payment. The collection department is not likely to say, “Oh, why didn’t you tell me your home was for sale? We’ll just slink away and leave you in peace.” They are like a horse racing at Santa Anita. They just want to get to the finish line, and that’s the focus, to get a payment out of the seller. There is no other focus. There is no human element of caring and compassion.
Why do people want to think that banks are compassionate? Where do they get this idea?
If I stopped making my mortgage payments, I’d immediately change my phone number. I’d notify the bank it’s not allowed to call me at work. In fact, I’d change all of my communication preferences to mail. Snail mail. Through the U.S. Post Office. But I’m not a seller who is delinquent. I’m just a Sacramento real estate agent who will say what the hey; it can’t hurt to call the bank and let an employee know. For all the good it will do. Yet, there is that 1% chance it might make a difference, so, go ahead and call. At least once.
Feds to Allow Current Mortgage Payments for Short Sales
I realize how horrible it sounds when our government tells a seller that she cannot be current on her mortgage payments if she hopes to do a short sale. For years, the government has been telling people to stop making mortgage payments, if you can believe that. It’s true. Fannie Mae and Freddie Mac, government-sponsored entities, require a default for a short sale. Come November 1, though, all of that changes. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, yesterday announced new streamlined short sale guidelines, effective November 1, to permit a short sale in eligible cases of hardships without a delinquency. It’s about time!
This means the feds will allow current mortgage payments for short sales. What a relief for sellers worried about delinquencies. The thing people don’t realize is there are different types of short sales. The type of short sale depends on the investor. Rules that govern a traditional short sale do not apply to Fannie Mae and Freddie Mac, including other types of short sales such as FHA or VA or CalVet. And let’s not even talk about the grandmother and granddaddy of all short sales: the Fannie Mae HAFA short sale or Freddie Mac HAFA short sale. Many short sale agents would rather be forced to walk barefoot across hot coals than to do a Fannie Mae HAFA short sale or a Freddie Mac HAFA short sale because those are painful enough for everybody.
Not only will a seller be able to remain current on her mortgage if she has a Fannie Mae or Freddie Mac loan, but the new guidelines give servicers delegated authority. Banks that service these loans can determine whether the seller’s hardship will qualify for a short sale. Common hardship reasons are:
- death
- divorce
- unemployment
- relocation
- medical
Plus, if a borrower must relocate due to a commute of more than 50 miles to work, which is a fact of life for many of us in California, that constitutes a hardship as well. This is a welcome relief for this Sacramento short sale agent and my sellers in Sacramento. Being current on mortgage payments for a short sale is a huge improvement. It’s like we’ve been beating our heads back and forth in the doorway for years. You know how good it feels to stop!
Now if we can just get Fannie Mae to stop sending short sales to auction because the short sale can’t close prior to the trustee’s auction date, we’ll have something to truly celebrate. We need a way to postpone the auction in a Fannie Mae short sale. Come on, FHFA, I know you can do it. We’re rooting for ya in Sacramento. But for now, us hungry little squirrels, we’ll take the peanuts you toss.
Fannie Mae and Other Things That Don’t Work Right
It seems like I have to fix a lot of things that don’t work right. It’s not necessarily that they are broken as much as it is they simply don’t work correctly. Stuff goes haywire. In fact, I am so used to things that don’t work right that I have become somewhat complacent. I don’t get upset over it. I just fix it.
Almost nary a day goes by when I don’t run into some short sale negotiator telling me the bank won’t authorize seller credits on the HUD. Since when did a bank negotiator become a HUD expert anyway? I realize they don’t know how to read a HUD. If they had to prepare a HUD from scratch, they’d be up a creek without a paddle. Yet, here they are telling me to remove fees that are not credits under the assumption they are correct. They’re not correct. This problem has become so commonplace that I keep a stock answer prepared and ready to email. They don’t work right.
Last Friday my company email went on the blink. Stopped downloading to my computer. None of my settings changed. My email client stopped receiving. The company’s exchange server was not updated or altered. The IT department signed on to my computer to check but they couldn’t find anything wrong, either. We ended up doing a redirect. Because it doesn’t work right.
Yesterday we had to call out an electrician to remove a bulb from a kitchen pendant. We’ve had the pendants fixed twice. Third time they stopped working, we bought new pendants. None of this Lumen’s back-basement discount crap. We ordered blown-glass Oggetti. Then, the darned burned-out bulb got stuck in the socket and a wire connection busted. That’s why it doesn’t work right.
In many Sacramento short sales, I routinely encounter the dreaded Fannie Mae problem with second loans. Now, I heard a guy at DTS admit the other day that they kick out Bank of America Cooperative short sales when the investor is Fannie Mae. He said DTS has had too many problems with Fannie Mae. Because Fannie Mae is a government-sponsored entity, it doesn’t work right.
Fannie Mae has guidelines that are often somewhat restrictive. Like telling borrowers to stop making mortgage payments. Yeah, that’s your government telling you to go into foreclosure. Or, choosing foreclosure over a short sale by refusing to postpone a trustee’s sale. Another involves the payment it will approve to a second lender. Second lenders want to negotiate and try to get more, but Fannie Mae won’t allow it.
Most second short sale lenders realize the problem with Fannie Mae. They tend to get on board. Especially since Fannie Mae rarely makes exceptions. I even had the gatekeeper at Green Tree back down on a second demand a few months ago when I explained that since Fannie Mae was the investor he needed to accept 6% of his unpaid balance. He said: Why didn’t you say so? As though telling him my name was Dorothy would get me into the Emerald City. The system for some second lenders, though, is broken. They don’t work right.
And you can’t fix Fannie Mae.
Photo: Shutterstock
