Suzanne Voter's Expert Insight

While a short sale may be a last resort for many homeowners facing foreclosure, it also represents a great opportunity for potential home buyers and real estate investors. This article is designed to help answer a few basic questions about the substantial risk and reward involved in this extremely complex and often drawn out process.

What is a Short Sale?

A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. And, while short sales are not by any means common or easy, because of increasing inventory levels and foreclosures in some parts of the country, lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages. For potential home buyers and real estate investors, a short sale also offers a great opportunity to purchase property at a significant discount.

However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department.

Of course, lenders are not looking to bail out "flippers" or other borrowers who simply overextended themselves. In most cases, a borrower must have suffered a serious financial hardship that directly caused him or her to default on the mortgage: the loss of a job, a serious illness, or the death of a loved one.

A written declaration and supporting documentation demonstrating financial hardship will definitely be required by the lender. This may include pay stubs, tax returns, and liquid asset statements, among other documentation.

Key Considerations to Keep in Mind

It's important to note that the difference between what is owed on a mortgage and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges don't simply disappear in a short sale. The difference is called a deficiency, and the lender determines if they will be forgiving this deficiency, continuing with a payment plan on some portion of the loss, or pursuing the Seller for the full deficiency. In the past, if this deficiency was forgiven it was considered taxable income to the borrower. However, thanks to the Mortgage Forgiveness Act of 2007, the tax burden for qualifying canceled mortgage debt (as high as 35%) for primary residences only has been temporarily waived. The federal timeline has been extended to 2012 although states are not required to follow it for state income. So while deficiencies may not be taxable currently, they could be come taxable in the future and the seller in a short sale could still be liable for the deficiency balance.

If there are multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale. This is why an experienced real estate agent and mortgage professional become so valuable to this process.

Call me to discuss the many options before and after a Short Sale, Foreclosure or Bankruptcy.

Great news from FHA for just about every county across the country! With the passing of H.R. 2112 (The Consolidated and Further Continuing Appropriations Act of 2012), FHA has confirmed its commitment to keeping FHA loan limits as high as possible to stimulate the housing market. This means that FHA has reestablished the previous higher FHA loan limits that were in place before they were decreased during the period of October 1, 2011 through November 17, 2011.

The FHA loan is one of the best options for homebuyers in today's market. Buyer agents need to know the FHA loan limits so they can properly advise their buyers and listing agents need to know the FHA loan limits to know whether to accept FHA financing terms on their listings. Buyers and clients who currently have an FHA loan need to know this to make informed decisions.

If you have any questions about the FHA loan limits in the counties you service or what this development could mean for you, contact me anytime. And if there's anything else I can do for you, just let me know. I'm always happy to help and never too busy for your referrals.

In advance of a speech in Nevada later today in which President Obama is expected to expand on the initiative, the Federal Housing Finance Agency (FHFA) has announced major changes to the Home Affordable Refinance Program (HARP). FHFA unveiled what is essentially a widening of HARP to reach more borrowers in another effort to reverse the continuing flood of delinquent mortgages heading down the pipeline to foreclosure.

The current HARP limits the loan-to-value (LTV) ratio for a new loan to 125 percent (the program originally had a limit of 105 percent). While regulations and guidance for the plan won't be finalized for several weeks, relevant changes to HARP that were announced today include:

* Removing the current 125 percent loan-to-value ceiling on refinanced mortgages;
* Waiving risk-based fees on borrowers who take shorter term mortgages and reducing those fees for others;
* Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the GSEs;
* Eliminating certain representations and warranties required of lenders to obtain the GSE guarantee. This will protect lenders from many of the buy-back requirements they face under current guidelines.
* Extending availability of the program through the end of 2013.

The changes in the program may double the number of borrowers using HARP according to some estimates, but still will serve only those borrowers who are current in their loans and who have loans owned or guaranteed by one of the GSE's that were delivered to Fannie or Freddie prior to July 2009. Thus it will impact only a small percentage of distressed borrowers in the country.

Pick up the phone and call me for more details and to see if this program can work for you or your clients.