I began gathering my clients financial information as is required by their lender to start the short sale process and verify he was indeed in a financial pickle and could no longer afford his monthly payment on his mortgage. His lender was convinced he was indeed facing a financial hardship and agreed to allow a short sale for less than owed. Without mentioning names, he had been a successful paint salesman who had done quite well during the height of the building boom. However, new construction since had come to a grinding halt. Builders were no longer buying large supplies of exterior and interior paint as they had during the boom years of 2003, 2004 and 2005 as home prices skyrocketed by as much as 25% every time a phase was completed.
The home is located in a community with a Home Owners Association in place. The annual home owners association was $135 in 2009. The only service that this home owners association provides are management services. To manage the community the board members of this HOA hire a property management company that is compensated with the fees collected from the home owners living within this association.
As one drives through this subdivision of custom and semi custom built homes, it is evident there is a pride of ownership in this community.
The seller was approved for a cooperative short sale. The lender has
agreed to provide the seller/borrower with a deficiency waiver for the
difference owed and the offered and accepted purchase price at the
completion of the short sale. In other words, the seller, due to his
financial hardship and request to short sale versus foreclosure, walks
away from the house with owing nothing more to their lender.
Needless to say his lender will be writing down hundreds of thousands of dollars to allow this short sale to proceed.
Demands were ordered by the title company to see what fees are due such as sewer, trash, water, etc. The lender has agreed to pick up the fees as long as they fall within their guidelines.
Here's the kicker, the board members of the Home Owners Association, a body of five people elected by the home owners living within the community they serve, fined the seller $38,000 because a small patch of grass on the front lawn of this property had turned brown because the homeowner thought it best to feed his family instead of water the grass.
The HOA then hired a collection agency to attempt to collect $38,000 on their behalf from a homeowner in distress who has been approved for a short sale.
When I learned of this I was livid. I contacted several of the board members and pleaded on behalf of my seller to remove this exorbitant and unjust fine. The board members held a meeting and reached an executive decision agreeing to lower their fine to $1309 which includes a $400 charge to replace the patch of brown grass. The seller's lender agreed to cover $1145 of the amount so this short sale can proceed.
The collection agency that was retained by the HOA board members has placed a lien on the property and would like to get paid a collection fee of $2592 for their efforts to collect $38000.
No funds were allocated for this expense...this is a last ditch
effort to extort monies to allow a property to proceed as a short sale.
The transaction is scheduled to close next week. The seller is ready, the buyer is ready, the lender has approved the offer and is honoring the approval of the short sale for less than owed.
How it turned out: The buyer and agent have decided to share the expense of $1447 to close the deal!
Then, on Friday just before the long Memorial Day holiday weekend at 4:54 pm I get a communication from the sellers closing agent that my seller, a distressed homeowner is able to receive an increase in relocation assistance and asks: Does he want it? Of course...he needs it!
The property has closed. The seller is happy to move forward with the next chapter of their lives.
How does a short sale affect a sellers ability to purchase another home in the future?
One of the biggest concerns you may have when considering a short sale is how it impacts the ability to buy a home in the future. As you may know there are several loan types: Conventional (FNMA/FHLMC), FHA, VA and USDA. Each has their own set of guidelines with respect to a short sale.
The waiting period is two full years from the date that your short sale closed.
FHA has two sets of guidelines. If you were delinquent in the 12 months preceding the short sale, the time period must be 3 years from the sale date.
If the property sold in the short sale was your primary residence and you had no delinquencies in the 12 months preceding the sale, you are eligible with no waiting period!
Conventional Fannie Mae
On a Conventional loan, FNMA has different waiting periods according to down payment. The following guidelines apply:
2 year waiting period with 20% down payment
4 year waiting period with 10% down payment(primary residence only)
7 years to obtain maximum financing.
Conventional Freddie Mac
With Freddie Mac, you are eligible after 2 years with a 10% down payment.
This rural housing program requires a 3 year waiting period after the short sale
What Are The Tax Consequences Of Doing A Short Sale?
Currently through 2012, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation is in effect. This act generally allows taxpayers to exclude income from the discharge of debt on your primary residence. Extensive information can be found in the IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonment's.
Is Someone You Know...
• Behind on Mortgage Payments?
• Having To Sell Their Home But Can’t?
• Experiencing A Job Loss?
• Feeling Overwhelmed By All Of The Above?
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