The Short Sale:

A Graceful Exit

Hint: It has nothing to do with the length of time the sale

transaction takes!

When a mortgage servicer I investor (like Bank of America)

agrees to accept a discounted payoff in order to

accommodate a real estate sale. In all cases, the value of the

property is less than the amount owed.

How does a homeowner benefit from a

short sale?

• Less negative impact on the borrowers credit

• Eliminate or reduce their mortgage debt

• Can possibly qualify for a Fannie Mae home

loan in 2 years with 20%down

What is a Short Sale?

A short sale minimizes their losses in comparison to a foreclosure.

Who is eligible for a short sale?

• Borrowers that can prove a hardship that has caused them to either become

delinquent on their mortgage or delinquency is inevitable.

• Borrowers whose mortgage debt is greater than the value of the property.

• Borrowers who are insolvent (debts exceed their net worth and bills are more

than their income).

Why would a mortgage servicer or

investor agree to a short sale?

Step 1. Talk to a reputable, experienced real estate professional

about your situation. Only work with a company that is experienced

in short sales.

Step 2. If short sale is an option, list the property for sale at near fair

market value.

Step 3. Procure an offer near fair market value with a qualified buyer.

Step 4. Submit the offer, settlement sheet (HUD-1 ), the financial

disclosure, last 2 bank statements, last 2 pay stubs, last 2 years tax

returns, hardship letter, and third party authorization to the mortgage

servicer I investor.

Step 5. Wait way too long for the mortgage servicer/investor to

approve the short sale in writing. If there are multiple loans, all loans

need to approve the short sale.

Step 6. Study the verbiage in the short sale approval letter and

consult a real estate or bankruptcy attorney and a tax professional

about the potential consequences of the terms therein.

Step 7. Assuming the borrower decides to go forward, the real estate

professionals and the buyer work toward closing the transaction in

the time specified by the mortgage servicer I investor and mortgage

insurance.

What is the Short Sale Process?

How long does it take for a home

to be foreclosed in Nevada?

In todays market, a short sale usually takes anywhere from 4- 6 months depending

on the circumstances (i.e. foreclosure status, buyer commitment, types of mortgage

loans, etc.).

Do mortgage servicers or investors always approve

short sales? No. In some rare cases the mortgage servicer I investor I mortgage insurance will not

agree to a short sale. Many times it is the 2nd mortgage or an HOA lien holder that

does

What does a short sale CO$T the homeowner? Generally, nothing. However, in very few cases, the mortgage servicer I investor will

request a cash contribution from the borrower in order to agree to the short sale.

Will a borrower be responsible for the deficiency

balance (forgiven amount) after the short sale closes? On the approval letter, the mortgage servicer I investor can either agree to release

or fully satisfy the deficiency debt. Release means the debt may be collected via

deficiency judgment or third party collection company. Full satisfaction disqualifies

the debt from ever being collected.

How long does a short sale

usually take start to finish?

Yes. On recourse loans, (purchases, refinances and non­ purchase HELOCs) the in-

vestor may attempt to pursue collect of the deficiency. My goal as your agent is to

achieve full satisfaction on any and all liens.

Does a homeowner have to pay taxes to the IRS on the

forgiven amount? The mortgage investor is required to send the borrower a 1099-C for the forgiven

amount. This forgiven amount is considered income to the borrower. However, two

major exclusions exist. First exclusion: HR 3648 The Mortgage Forgiveness Debt Relief

Act Under HR 3648, if the amount forgiven was on a mortgage loan that was used to

buy, build, or substantially improve a primary residence, the borrower will more than

likely not have to pay taxes on this amount.

Note: Please consult a tax professional about the specific details of this exclusion.

Second Exclusion: Under108 (a)(1)(B) The insolvency exception: Under 108(a)(1 )(B) a

borrower may not have to pay taxes to the IRS on the forgiven amount if they are

deemed insolvent at the time of the debt discharge. This is not a real estate specific

exclusion and is not restricted to a borrowers primary residence.

Note: Please consult a tax professional about the specific details of the exclusion

Can a distressed homeowner initiate a short sale as a

backup while waiting for a loan mod to be approved?

Most loan servicers I investors will not permit a borrower to attempt two foreclosure

relief options at the same time. This is why it is very important to have a strategy in

place in the event the loan mod is not approved or takes too long to gain approval.

Is Nevada a deficiency a recourse state?

Features:

• Borrowers receive $3,000 relocation incentive

• Short sales gain a uniform and streamlined process

• Loan servicers I investors pre-determine the list price

• Investors waive right to pursue deficiency (on all liens)

• Loan servicers I investors participation is voluntary

Eligibility Requirements:

• Must be on primary residence

• Loan amount must be $729,750 or less

• Loan investor must be participating in program

• Monthly mortgage payment must exceed 31o/o DTI

• Must be in default (60 days late +)or default is eminent

What about junior liens? 2nd mortgages (junior liens) can receive up to 6o/o of their outstanding loan balance

up to $6,000 total, in exchange for releasing their liens (optional participation also).

Example: a $50k second mortgage would receive $3,000 to fully satisfy under HAFA

HAFA - The Home Affordable Foreclosure Alternative

Launched April 5, 2010

Is your loan owned by Fannie or Freddie? Lets find out

now...

www.FannieMae.com/1oanIookup www.FreddieMac.com/corporate

• Borrowers cannot have cash reserves more than $5,000 or 3xs the total

mortgage payment amount.

• HAFA short sale may not be considered if the borrower is not 60 days

late. (Freddie)

• HAFA short sale may not be considered if the property is within 60 days

of foreclosure. (Fannie)

• Borrowers must consider and apply for all other home retention options

first (i.e. loan modification).

• More differences between the Treasury version and the

GSE versions exist.

Fannie Mae and Freddie Mac’s HAFA

A short sale is very similar to a traditional sale in many ways. Actually, the only major

difference is that the loan servicers I investors must agree to the terms of the sale

(i.e. sales price, commission, closing costs, etc.) in order for us to complete the

transaction. If foreclosure avoidance is a priority, and a loan modification is out of

the picture, a short sale is a great way to move on and start on the road towards

financial recovery.

Final Thoughts

I would like the opportunity to help you with a short sale

in order to solve your current mortgage situation

• I have the experience, the training, and the resources to help

you cross the short sale finish line!

• Have I clearly explained the short sale process?

• Do you have any questions about the short sale process?

• If a short sale is right for you, may I have the privilege of being

the listing agent for your property?

Short sale in a nutshell

• Go over listing contract and disclosures

• Go over the short sale submission package

• Go over a custom strategy for your property

• Take pictures of the property

• Take notes on property amenities, details, and facts for the MLS

• Discuss showing instructions

• Discuss my marketing strategy

• Walk you through an estimated timeline of your short sale

• Explain the escrow period and how I deal with offers

How long does a short sale

usually take start to finish?

Additional agenda items

The following are suggestions for attorneys and CPAs to contact for

information.

Michael D. Bosma, CPA

The Bosma Group, PC.

5575 Kietzke Lane

Reno, NV 89511

775-786-4900

Ron Avery, CPA

450 Marsh Avenue

Reno, NV 89509

775-333-9922 ext. 102

Jason Morris, ESQ. Woodburn

and Wedge

6100 Neil Road, Ste. 500

Reno, NV 89511

775-688-3000

Paul C. Deyhle, Partner

McDonald, Carano, Wilson, LLP

100 West Liberty St. 10th Floor

Reno, NV 89501

Time Nelson, CPA

Evans, Nelson & Company

50 Continental Drive

Reno, NV 89509

775-825-6008

Resource Directory

Mark G. Simons

Robison, Belaustegui, Sharp & Low

71 Washington Street

Reno, NV 89503

775-329-3151