What is a Short Sale & REO?


A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens' full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owned on the debt.  Any unpaid balance owned to the creditors is known as a deficiency.  Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties.  A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower; however both will often result in a negative credit report against the property owner.  Properties that are worth less than the amount owed to the secured lender(s) is often referred to as being "underwater" or "distressed properties". 


What is a REO property?

REO stands for Real Estate Owned, and refers to the properties that a lending institution/investor has acquired due to a repossession of the home, also known as a foreclosure.  Foreclosure is the legal process by which an owner's right to a property is terminated, usually due to the failure or inability of the owner to make mortgage payments on a timely basis or to comply with other conditions of their mortgage obligation.  The lending institution/investor (which may be the original lender or a subsequent holder of the mortgage) becomes the legal property owner and offers the home for sale to recover the amounts owed to it.  


ALTERNATIVES TO A SHORT SALE:  Owners of distressed or underwater proerties are faced with difficult choices that could have financial and emotional consequences.  Any of the following or other alternatives potentially have negative tax or credit consequences, or both, for the owner:


A. A Loan Modification is an arrangement between a borrower and a lender.  It can

     involve a reduction in the interest rate on the loan, a deferment in payments on the loan, 

     an extension of time to pay back the loan, a reduction in principal of the loan, a combination

     of these prossibilities, or other changes to the repayment plan.  A loan modification 

     requires the consent of both lender and borrower.  


B. A Foreclosure is a legal process through which the lender acquires title to the property

    from a borrower who has stopped making payments on a loan.  The lender can foreclose

    whether or not the borrower consents.


C. A Deed In Lieu of Foreclosure occures when the borrower offers to transfer the

    property to the lender, in lieu of the lender having to go through the foreclosure process, 

    and the lender agrees to accept title to the property from the borrower and forgives the 

    debt. A deed in lieu of foreclosure requires the consent of both lender and borrower.

 

D. Bankruptcy is a legal action typically filed by a borrower to have debt(s) discharged.  

    An automatic stay occurs as soon as a borrower files bankruptcy, staying all actions 

    against the borrower.  While a petition for bankruptcy can have the effect of delaying 

    a foreclosure, it does not necessarily prevent a foreclosure from eventually occurring.    

    No lender consent is required for a borrower to file bankruptcy. 


 

You can determine if Fannie Mae or Freddie Mac own your mortgage by going to:

*For Fannie Mae Loan:  http://loanlookup.fanniemae.com/loanlookup/

  .......Tel:  1-800-7FANNIE (8am to 8pm EST)

  .......Email:  resource_center@fanniemae.com

 

*For Freddie Mac loan:  http://www.freddiemac.com/corporate/

  .......Tel:  1-800-FREDDIE (8am to 8pm EST)

  .......Email:  borrower_outreach@freddiemac.com


Do You Qualify for HARP (Home Affordable Refinance Program)?

In a nutshell this is what you need to know about HARP as below.


*Your existing mortgage must have been sold to Fannie Mae or Freddie Mac 

  on or before May 31, 2009.


*The program will continue to be available for borrowers whose loan on their

  house exceeds 80% of its current total value.


*Borrowers must be current on their mortgage payments with no late payments

  in the past (6) six months and no more than one late payment in the past 12 months.



The best time to initiate a short sale is when you know the following:


1. That your financial hardship is long term in nature and will not be resolved by a repayment

    plan or  loan modification. 


2. When the value of your home declines to the point that you owe more that what the home 

    is worth.

Once you become delinquent and are facing the foreclosure, you need to be proactive and make

contact with your lender.  Oddly enough waiting to the foreclosure sale to be "knocking on your

door" may be too late. The bank may not postpone a sale that late in the process to allow you to

pursue a short sale, especially if you have no offer yet. The best time to reach out is today!  

In order to streamline the process, make sure you provide your bank with everything they ask.

You will need to get your hardship letter created as well as all financial documentation showing

the reduction of income and lack of liquid cash.


What is Notice of Default (NOD)?


This is an official notice from the lender to the borrower that the borrower has defaulted on

the mortgage.  The NOD formally begins the foreclosure process.  The NOD also outlines

the reinstatement period.


What is Reinstatement Period?

The time stipulated in the NOD in which the borrower may reinstate the loan-making required

payments and bringing one's account into good standing.


What is Notice of Sale?

If, after receiving the notice of default, the borrower does not or is unable to reinstate the loan,

a notice of sale is recorded.  The notice of sale explains when and where the foreclosure sale

will be held.


What is Foreclosure Sale?

A foreclosure sale entails sale of a property, commonly through an auction in order to satisfy 

an unpaid obligation.  Depending upon state laws, this is either under the authority of the 

court (judicial) and in others it is done through a trustee sale (non-judicial).


What is Redemption Period?

Typically the time after the foreclosure sale that allows the owner the ability to redeem the

property.  In many states, redemption requires that the owner pay the sales price, interest,

and other costs if occurs.


What BPO stands for?

It is a process of short sales.  This stands for “Brokers Price Opinion” – a opinion on what

the property is worth at the current house market.  

 

What HAFA stands for?

It stands for Home Affordable Foreclosure Alternatives Program. To help homeowners
who are unable to keep their homes under the Home Affordable Modification Program, 
the HAFA program may make a short sale or a deed-in-lieu of foreclosure a viable option
to help them avoid foreclosure. The HAFA Program, which took effect April 5, 2010, 
provides servicer, seller and junior lien holder incentives for these transactions and is 
designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure.

 

*Making Home Affordable Program - document for Request For Mortgage Assistance (RMA)

https://www.hmpadmin.com/portal/programs/docs/hamp_borrower/rma_english_sd1110.pdf

 

*Making Home Affordable Program - document for Hardship Affidavit

https://www.hmpadmin.com/portal/programs/docs/hamp_borrower/hardship_english_sd1110.pdf