Maximizing Massachusetts Short Sale Success: From Hardship Letter To Closing

by Rich Vetstein on December 25, 2011 · 5 comments

in Fannie Mae, Foreclosure, Massachusetts Real Estate Law, Short Sales

Tireless Determination The Key To Massachusetts Short Sale Success

What Is A Short Sale?

A short sale is special type of real estate transaction between a homeowner, his mortgage holder(s), and a third party buyer where the property owner’s mortgage balance exceeds the market value of the property — known as being “under water.” In a short sale, the homeowner’s mortgage lender agrees to accept less than what is owed on the outstanding mortgage, thereby being left “short.” Ideally, the lender will agree to release out the entire debt including any deficiency between the sales price and mortgage balance. This is called a deficiency waiver and most skilled short sale negotiators will insist on this.

The entire process can be extremely time consuming and typically requires a lengthy negotiation with the lender by a skilled Massachusetts short sale attorney or lawyer. Banks and loan servicers now realize that short sales are a preferred method to dispose of distressed properties as they are far less expensive than foreclosure. Short sales are generally reserved for homeowners who do not qualify for a loan modification.

Do I Qualify For A Short Sale?

Homeowners can qualify for short sale approval by proving a recognized involuntary financial hardship. An involuntary financial hardship is some event, beyond the homeowner’s control, that caused the mortgage payments to become unaffordable, even if only temporarily. Acceptable hardships typically include:

  • Loss of a employment
  • Curtailment of income
  • Increased mortgage payment or liabilities
  • Loss of tenant(s)
  • Divorce or Separation
  • Catastrophic medical event
  • Job relocation
  • Military service; or
  • Death in the family

Most lenders distinguish between someone who lost their job and someone who voluntarily quit their job. Thus, unless you are able to prove that you were forced to leave your job, or asked by your employer to take a significant pay cut, a change of employment status may not automatically qualify you for a short sale. Furthermore, many homeowners have suffered multiple hardships, and it can be difficult deciding which hardship you should present to your lender when requesting a short sale. 

The Hardship Letter

As a part of the short sale application process, a skilled Massachusetts short sale lawyer will draft a hardship letter detailing why you are no longer able to make mortgage payments on your home and why you qualify for a short sale. The hardship letter can be one of the most important aspects of the short sale process and should be as detailed as possible, telling a compelling story about the applicant’s individual circumstances.

As part of the short sale hardship package, the short sale applicant will also submit the following:

  • Third party authorization (allowing your lawyer and/or realtor to communicate with your lender)
  • Financial worksheet (breakdown of monthly expenses and income)
  • Hardship letter (why you could pay your mortgage before and why you cannot now)
  • Recent pay-stubs
  • Recent Bank statements
  • Offer to Purchase
  • MLS listing showing the market history of your property
  • Last 2 Years Federal Tax Returns

How Long Does Short Sale Approval Take?

Depending on who your lender is and how many loans you have, short sale approve can take on average between 60 – 120 days, depending on the particular lender and complexity of the case. If the lender makes a counter offer on the purchase price or if there are multiple mortgages and liens against the property, the process will take longer. One of the keys is to submit requested documentation as fast as possible, and to stay on the lender, with frequent requests for status updates. That’s what separates a skilled short sale attorney from the run-of-the-mill negotiators who’ll let your file languish.

Credit and Legal Ramifications

A short sale is far less damaging to your credit and ability to secure a mortgage down the road than a foreclosure or bankruptcy, although it does have some impact.

Foreclosure Short Sale
Credit Score Same impact as a bankruptcy, 200 – 300 negative points on a credit score.  Score affected minimum of 3 years and will report for 7 – 10 years. Any late/missed mortgage payments will show on credit score. Once the short sale is completed, it will be reported as settled for less than full amount due (or similar verbiage).  Impact can be as little as 50 points, lasting apprx. 12 to 18 months.
Credit History On credit history for 7 to 10 years. Only the late payments will be reported on your credit. The short sale will appear the same as a charge off on a credit card and will be reported as settled for less than full amount due (or similar verbiage).
Future Home Purchase (Primary Residence) Ineligible for Fannie Mae backed mortgage for 5 years. Ineligible for Fannie Mae mortgage for 2 years. (Can use local bank or private lender).
New Mortgage
Must disclose foreclosure on 1003 loan application which may affect future rates after the 5-7 waiting period. There currently are not any questions related to a short sale on the loan application.
Deficiency Rights In Mass., lender retains right to collect any deficiency judgment after foreclosure. It is rare however. We are typically successful in negotiating full and complete deficiency waiver in a short sale approval.

 

Do I Need A Short Sale Attorney?

Only if you want to maximize your chances of getting short sale approved, obtain approval in the fastest manner possible, and protect your legal rights and future credit history at the same time! There are real estate agents and short sale firms advertising themselves as short sale negotiators — and some are really good — however, they are not licensed to provide legal or tax advice, and you must seek that advice elsewhere at additional cost. With an experienced Massachusetts short sale attorney, the applicant can “kill two birds with one stone,” by having the attorney take over the entire short sale approval process. While negotiating with your lender, the short sale attorney can simultaneously perform all necessary short sale legal work, including reviewing and drafting the offer to purchase, short sale approval letter and purchase and sale agreement with short sale addendum/riders. The cost is relatively the same across the board, and some of the fees may be paid by the lender, depending on who it is.

We highly recommend Andrew Coppo at Greater Boston Short Sales LLC, an experienced and successful short sale negotiator. Andrew writes all about Massachusetts short sales on his fantastic blog, The Closing Table.

______________________________________________________________

Richard Vetstein, Esq. is an experienced Massachusetts short sale attorney. For more information, please contact him at info@vetsteinlawgroup or 508-620-5352.

  • Pingback: New Trends Emerging In Massachusetts Short Sale Legal Practice | The Massachusetts Real Estate Law Blog()

  • Anonymous

    Nice article, Rich. As someone who exclusively negotiates Massachusetts short sales, and has a very high success rate, I agree with most of the information set forth in your article. One thing I would like to point out, however, is that a short sale is not always less damaging to one’s credit score than a foreclosure. In fact, lenders report both events to the credit agencies as a “serious delinquency.” The only time a short sale will be less damaging to one’s credit score is if they are able to complete a short sale without becoming seriously delinquent on their payments. Serious delinquency is defined as being at least 90 days delinquent on their payments. Otherwise, according to current FICO guidelines, a foreclosure and short sale have the exact same effect on one’s credit score . The primary distinction, and one that you pointed out,  would be the time frame in which an individual can purchase another home. According to current lending guidelines, an individual who completed a short sale will likely qualify for a subsequent purchase much sooner than someone who has a foreclosure on their credit history.As always, good post. Nice to see you getting your feet wet on the Massachusetts short sale market. 

    Regards, 
    Andrew N. Coppo
    Greater Boston Short Sales, LLC

  • Pingback: Today's Mortgage Rates for Tuesday December 27 2011 | Mortgage Rates & Trends: Mortgage Blog()

  • It’s true, it takes almost twice as long to buy a home again if someone chooses foreclosure. We had one client relocating to California who was able to buy again immediately after selling their home through a short sale. 

  • Rich a borrower does not need to pick and choose when presenting their hardship. If they have more than one hardship they both should be included in the hardship letter.

Previous post:

Next post:

Real Time Analytics