Sell - My Home Is Being Foreclosed
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You have a number of options if your home is being foreclosed. The
worse thing you could do is sit back and do nothing. Your mortgage
holder does not want to foreclose on your property; instead, they want to
attempt to work out a new modified mortgage that you can afford or give
you time to sell your home, in most cases for less than what you owe on it.

Step 1. Consider loan modification first. Contact your lender
immediately. The phone number should be on your mortgage statement.
They want you to stay in your home. If you are thinking of selling your
home because of financial difficulties and you anticipate a short sale, first
contact your lender to see if it has any programs to help you stay in your
home. Your lender may agree to a modification such as:

  • Refinancing your loan at a lower interest rate
  • Providing a different payment plan to help you get caught up
  • Providing a forbearance period if your situation is temporary

When a loan modification still isn’t enough to relieve your financial
problems, selling your home could be your best option if

  • Your property is worth less than the total mortgage you owe on it.
  • You have a financial hardship, such as a job loss or major medical
  • You have contacted your lender and it is willing to entertain a short

Resources and other great information can be found on the
Government's website:

Step 2. Selling your home. If you're thinking of selling your home, and
you expect that the total amount you owe on your mortgage will be
greater than the selling price of your home, you may be facing a short
sale. A short sale is one where the net proceeds from the sale won't
cover your total mortgage obligation and closing costs, and you don't
have other sources of money to cover the deficiency. A short sale is
different from a foreclosure, which is when your lender takes title of your
home through a lengthy legal process and then sells it.

Hire a qualified team. The first step to a short sale is to hire a qualified
real estate professional and a real estate attorney who specialize in short
sales. You want to work with those who demonstrate a thorough working
knowledge of the short-sale process and who won't try to take advantage
of your situation or pressure you to do something that isn't in your best

A qualified Blue Fence Real Estate professional can:

  • Provide you with a comparative market analysis (CMA) or broker
    price opinion (BPO).
  • Help you set an appropriate listing price for your home, market the
    home, and get it sold.
  • Put special language in the MLS that indicates your home is a
    short sale and that lender approval is needed (all MLSs permit,
    and some now require, that the short-sale status be disclosed to
    potential buyers).
  • Ease the process of working with your lender or lenders.
  • Negotiate the contract with the buyers.
  • Help you put together the short-sale package to send to your
    lender (or lenders, if you have more than one mortgage) for
    approval. You can’t sell your home without your lender and any
    other lien holders agreeing to the sale and releasing the lien so
    that the buyers can get clear title.

Step 3. Begin gathering documentation before any offers come in. Your
lender will give you a list of documents it requires to consider a short
sale. The short-sale “package” that accompanies any offer typically must

  • A hardship letter detailing your financial situation and why you
    need the short sale
  • A copy of the purchase contract and listing agreement
  • Proof of your income and assets
  • Copies of your federal income tax returns for the past two years

Step 4. Prepare buyers for a lengthy waiting period. Even if you're well
organized and have all the documents in place, be prepared for a long
process. Waiting for your lender’s review of the short-sale package can
take several weeks to months. Some experts say:

  • If you have only one mortgage, the review can take about two
  • With a first and second mortgage with the same lender, the review
    can take about three months.
  • With two or more mortgages with different lenders, it can take four
    months or longer.

When the bank does respond, it can approve the short sale, make a
counteroffer, or deny the short sale. The last two actions can lengthen
the process or put you back at square one. (Your real estate attorney
and real estate professional, with your authorization, can work your
lender’s loss mitigation department on your behalf to prepare the proper
documentation and speed the process along.)

Step 5. Don't expect a short sale to solve your financial problems. Even
if your lender does approve the short sale, it may not be the end of all
your financial woes. Here are some things to keep in mind:

  • You may be asked by your lender to sign a promissory note
    agreeing to pay back the amount of your loan not paid off by the
    short sale. If your financial hardship is permanent and you can’t
    pay back the balance, talk with your real estate attorney about
    your options.

  • Any amount of your mortgage that is forgiven by your lender is
    typically considered income, and you may have to pay taxes on
    that amount. Under a temporary measure passed in 2007, the
    Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act,
    homeowners can exclude debt forgiveness on their federal tax
    returns from income for loans discharged in calendar years 2007
    through 2012. Be sure to consult your real estate attorney and
    your accountant to see whether you qualify.

  • Having a portion of your debt forgiven may have an adverse effect
    on your credit score. However, a short sale will impact your credit
    score less than foreclosure and bankruptcy.

Note: This article provides general information only. Information is not
provided as advice for a specific matter. Laws vary from state to state.
For advice on a specific matter, consult your attorney or CPA.

Some Portions Reprinted from REALTOR® magazine ( with permission
of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2008. All rights reserved.
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This website provides general information only. Information is not provided as advice for a specific matter. There may be tax and other legal
consequences associated with a short sale. For advice on a short sale, you should consult your attorney or CPA. Blue Fence Real Estate & Blue
Fence Real Estate Consultants are not attorneys or CPAs.