Qualifying for HAFA; Exploring Alternatives to Foreclosure

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If you feel you are stuck with a home that has a mortgage larger than its value, it may be time to consider a short sale. For more reasons than ever now, there are programs issued by the government designed to help homeowners through this very difficult time in their lives.

With already existing incentives, such as the $3000 relocation funding that is disbursed in many short sale transactions, there are now some more guidelines that have widened the scope of qualifying homeowners.

First, let’s look at the six must-know items about the HAFA (Home Affordable Foreclosure Alternatives Program) that have been around for some time now:

• The home must have been purchase prior to 2009
• It must be delinquent, in default or seriously in jeopardy of being in default
• An unpaid principal balance of less than $729,750 is the limit
• The lender servicing the loan must be a HAMP (Home Affordable Modification Program)
participating lender
• The home must be the applicants’ primary residence*
• The monthly mortgage amount is not to exceed 31% of the homeowners’ gross income*

Now, having said all this, notice the asterisks on the last two points above. The notes below will share the most recent changes to the program that have enhanced qualification eligibility guidelines.

*Effective June 1, 2012 President Obama Administration made some important changes to the HAMP Program. Among other relaxed guidelines, homeowners with secondary properties that are currently rented or where the homeowner intends to rent them may qualify.

Another change reported to the program is related to homeowners’ debt-to-income ratios. As of the newest guidelines, borrowers that exceed 31% debt-to-income ratio may still be eligible for the program.


We know that not all benefits are available but a lot of it has nothing to do with whether a seller qualifies for it or not. The real reason many homeowners never see light of day on some of these cash incentives is because they are dealing with an agent that has little to no experience with short sales and the HAFA program. A good real estate agent that understands the HAFA process is critical. If you end up working with a real estate agent that is less experienced with these types of sales then you stand to risk losing thousands of dollars. And for no good reason.

It’s all about knowing the timing of the process, filling out all documents precisely and completely, making sure everything is perfect. As far as the $3,000 relocation incentive that is a part of the HAFA program or other potential lender-based incentives, only your lender will actually be able to tell you whether you qualify for an incentive. What we can do is position you to be a strong candidate for what might very well be rightfully yours. For a customized consultation to discuss your specific home and situation, contact us today.

Mortgage Debt Forgiveness Act

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By now, chances are you have probably heard the term “short sale” – especially during the past five years with our housing market struggling to recover from the housing market crisis of 2007. Luckily, we have enjoyed a strong economy and have not seen too much of the same dire circumstances many homeowners across America have experienced. Still, if you owe more on the house than what it is worth and are looking to sell it, a short sale is likely your best option.

Everyone has a pretty good idea of how a short sale might impact one’s credit outlook. Though it may not have as heavy an impact on credit as a foreclosure might, a couple years after a short sale before the homeowner can consider buying a home again. There is, however, a tax implication of doing a short sale that many people are not aware of. The amount of debt that a bank agrees to forgive in order to allow a short sale to take place is forgiven debt and the IRS considers that amount as income. As such, all income is taxable, leaving the homeowner that opts for a short sale with a significant tax bill at the end of the year.

Mortgage Forgiveness Debt Relief Act

In light of our nation’s struggles with property ownership after housing values plummeted, the Mortgage Forgiveness Debt Relief Act was signed into action, allowing homeowners an exemption on discharged or forgiven debt from the sale of a primary residence.

This benefit has been around for some time now and has been extended by the government in the past, however its deadline is fast approaching with a program end date of December 31, 2012. This means that all homeowners considering short sales should complete their transaction before the end of the year.

Short Sale Process Can Take Months

At first, when countless Americans struggling with the economy and declining values, short sales were slowly began picking up pace. Then, when the 2010 robo-signing scandal broke loose, banks again lacked confidence in doling out relief in this form to borrowers, ending up in short sale processes that could take up to a year or even more. 

Today, however, many banks have streamlined the process and even prefer the short sale route versus a foreclosure. Compared to the lengthy process times and extensive legal fees involved in a foreclosure, banks are even willing to pay out cash in some short sale cases.

Window Of Opportunity Will Not Last Long

Since the halfway mark of the year has passed, we strongly advise any homeowner looking to sell their home despite owing more than its current value, to contact us today. Timing is key and with just a few months before the end of the year to take advantage of this benefit, now is the good time to start the process.

Ten Facts the IRS Wants You to Know About the Mortgage Debt Relief Act

1.  Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence. 

  

2.  The limit is $1 million for a married person filing a separate return.

3.  You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure. 

  

4.  To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. 

  

5.  Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion. 

  

6.  Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion. 

  

7.   If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven. 

  

8.  Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions. 

  

9.  If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. 

  

10.  Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

My Credit is Shot, Why Do I Need a Short Sale?

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As a homeowner, if your credit is already shot and you are having financial hardship to the point you cannot pay your mortgage, you should consider a short sale in opposition to foreclosure.  There are many reasons why you should consider a short sale, even if you are just late on your mortgage.  If you are late on your mortgage and do not need to foreclose your property, you will still slip farther into financial difficulties due to the late fees.

When you are late on your mortgage it affects all of your payments.  Your mortgage payment history can affect your credit score by up to 35 percent of the total score.  35 percent of your total score is a huge impact on your credit score, so you must minimize it as much as possible.  If you find yourself in a situation where you have gotten behind on your mortgage payments and your credit score is getting killed, a short sale is a viable option.

A short sale will still impact your credit; however, the impact will not be as severe as a foreclosure.  A short sale will impact your credit score for around 18-36 months, while a foreclosure will impact your credit score for between 5 and 8 years.  Also, if you have credit cards through any company, the contract that you signed with the credit card agency will have a clause stating that if your credit changes significantly, the credit card company can change the interest rates.  So when your credit score drops drastically due to a foreclosure, the interest rates on your credit cards will sky rocket, leaving your in further financial trouble.

Your credit card interest rates are not the only thing affected by a declining credit score.  Your insurance rates are also affected by your credit score.  Insurance companies often times base their rates on a person’s credit.  If you foreclose on your house, in addition to seeing your credit card interest rates increase, your insurance rates will increase as well.

On credit applications, there is a box that asks if you have ever had a foreclosure.  Any time after you have a foreclosure, you will always need to mark this box.  There is no expiration date; it will be with you from that point on.  There is no such box for a short sale.

A short sale is often a much better option than a foreclosure.  A short sale can stem the tide, stop the bleeding, and protect yourself and your family from financial devastation.  

Do You Have to File Bankruptcy to Avoid Foreclosure?

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Foreclosure and bankruptcy are two of the scariest words for any home owner. However, if you are having serious financial difficulties and fear that you might have to declare bankruptcy to save your home, you may have other options. So instead of panicking and declaring bankruptcy in haste, consider your options and you may be able to retain your home without taking such a drastic step.

If a notice of default has yet to be filed or a notice of sale has yet to be recorded, bankruptcy may not be your best option. If you are having problems paying off your home, but are not overwhelmed by any other bills, then, again, there may be better options than bankruptcy.

The best thing any home owner who finds them self facing a possible foreclosure or bankruptcy, is to talk with experts about what their top prospects are. Meeting with an attorney to answer any questions you may have is a great place to start. Also, real estate agents are very knowledgeable in this field, so consulting with a professional in the real estate industry can help you find the option that is most suitable to your position. Because every instance of possible foreclosure is different, there are many different options the person facing foreclosure can choose from. The best thing to do is to arm yourself with insight into the problem and find the solution that is most pertinent to you.

5 Tips for Selling in Today's Market

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Selling a property in today’s market can be a daunting and stressful experience for any homeowner.

However, there are five easy, proven tips to lighten the load of selling your home.

Make Your House “Show Ready”

Living in a house and selling a house are two different things.   When you are going through the process of selling your home, make sure that the property is clean and ready for showings at all times.  Having sparkling counters in the kitchen and a fresh smelling bathroom can go a long way in making a great first impression to the prospective buyer.  By having a “show ready” house, this tells the buyer that you are a serious and dedicated seller.

Give the Buyer Some Privacy

As a seller, you want to avoid being present during the showings.  If you give the potential buyer some privacy, he or she will be more inclined to speak candidly about the pros and cons of your property.  Also, by vacating the property during the showing, the buyer is more easily inclined to imagine the house as their own.  They feel freer about rearranging furniture, envisioning which rooms their kids will be able to play in, and any other modifications they would like to make.  If the house is open to the buyer, they are able to start to feel like it could be theirs instead of yours.

Make Your House Available 

Never underestimate the power of a lockbox!  Many of the agents showing houses in your market are going to prefer to show a property that they know that they will have access to.  You want to have the most showings possible in order to sell your house quickly and the best way to have the most showings is to have an extremely accessible property.

Price Your Property Effectively 

The housing market is a very competitive entity.  It may seem very tempting to list the price of your house at a rate which will make you the most net dollars, but this is a mistake that trips up many sellers.  You want to make sure that your house is priced right to bring in the highest amount of net dollars AND at a price that will sell the property in the shortest time possible. When agents and buyers see that a home has been on the market for an extended period of time, they assume that there is something wrong with it. The National Association of Realtors has backed this up statistically.  The NAR states that sellers that price their property 10% above market value end up selling their property at as much as 6% below the market.  The numbers don’t lie!

Hire the Right Agent

Take time in finding the right agent.  The right agent should be someone you trust and the best way to find the right agent is to interview the candidates thoroughly.  Ask each potential agent about their experience in real estate and in the local market.  The right real estate agent can be worth their weight in gold and make the process of selling your home enjoyable.

Exploring the Main Differences That Makes a Short Sale a Better Choice Than a Foreclosure?

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Just a couple years ago, most people usually thought they had to give up their home in a foreclosure when they faced a financial stonewall.  However, since then the phenomenon of short sales has been on the rise, leaving homeowners a bigger, better and brighter option for the present and future.  In this article, we explore the comparative differences between the two so you can gain an edge when deciding which is better for you.

Purchasing Power

After walking away from your mortgage through a foreclosure, you can expect to feel the negative impact of it for five years, in terms of being able to purchase another home.  Even then, like a bankruptcy, a foreclosure is something you will perpetually have to report no matter how long it has been since the home went into foreclosure.  

Though these days you see a lot of talk about the financial and credit impact foreclosures have on homeowners, the unseen part of it is something to be dealt with.  Going through this process can leave a lasting emotional hole in people who otherwise were law-abiding citizens, going about their normal lives when all of a sudden they are faced with severe financial hardship and must resort to extreme measures.  That, or if the value of their home has dropped well below the amount they paid for it and they see very little hope for the future.

Short sales are much simpler.  They will affect your purchasing power for a mere two years, often just the amount of time it takes to get back on one’s financial feet.  Not only that, there is no requirement to report a short sale transaction.

Credit Outlook

There are two main areas that are of concern when it comes to your credit – your credit score and your credit history.  In case of a foreclosure, credit scores drop a whopping 200 to 300 points.  This can have a significantly negative impact on your ability to purchase big-ticket items or secure loans in the future.   Not to mention it takes years to rebuild a credit score that has dropped that low.   In terms of credit history, a foreclosure remains visible on your credit report for anywhere from ten years or more, rendering each future potential lending transaction either useless or very hard-pressed at getting approved.  The overall impact you will see on your credit will be for about three years.

Short sales are far easier on your credit outlook, in that the point drop is only about 50 on average and the transaction itself will impact your credit profile for as relatively little as 12 to 15 months.  The one thing to keep in mind is that if you have defaulted on any payments or if you already have a weak credit profile, the post-short sale point drop on your credit report can be more than just 50.  Also, there is no formal reporting or declaration of a short sale on your credit report like a foreclosure although the transaction will show up as either settled or not paid in full.

Amount Still Owed

Usually there is a gap in the amount owed after owners walk away from a property and the bank assumes responsibility.  In case of a foreclosure, given the amount of processing time and resultant vulnerability and exposure of the property, the value can and often does drop greatly after vandalism and from sitting there unused.  The Deficiency Amount (also called Judgment Amount) is the difference that remains after the bank calculates what was owed on the property at the time of foreclosure and when they sold the home. Because of this vandalism and vulnerability, the amount of value drop is far more than with a short sale, when the homeowners are still residing in the property during processing.  The bank has the legal right to pursue homeowners for the amount difference.  

Short sales differ in that not only is the deficiency amount much less but also, your Realtor can negotiate a waiver of that amount so you don’t have to pay for it.

How To Write a Hardship Letter So You Get What You Want From the Lender

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What Is a Hardship Letter?


As the name implies, when a person owning a property with a mortgage on it faces difficult times that result in an impact on their ability to pay the loan, the need to communicate to the lender arises.  Regardless of whether the loan can no longer be paid in a timely manner or if it is difficult to pay most of it – there are some avenues other than leading to foreclosure that the homeowner can pursue.  

Loan Modification Hardship Letter

There are two types of hardship letters that are commonly written in light of the nation’s challenged real estate market these days.  First, a loan modification hardship letter is the initial communication between the homeowner and lender, notifying them of the financial hardship but with the intention to manage most of the loan.  The goal of a loan modification is to hold on to the home, only reduce the amount owed or in other words, adjust the loan.  The basic language in this type of hardship letter states the type of hardship the property owner is facing, their intention to continue living on site and the expected amount sought to be modified in order for the owner to manage.

Short Sale Hardship Letter

Unlike a loan modification, where the property owner is able to continue living in the residence with the provision of a smaller loan, a short sale request entails the bank accepting less money than what is owed on the home, through a sales transaction.  This occurs when the value of the home is worth less than the amount owed on the mortgage.  A common occurrence lately, short sales are an alternative option to many homeowners who are unable to maintain their mortgage payments due to job loss, medical situations or anything else. 

Given the state of our current economy, there are many cases of short sale applications and each begins with a hardship letter stating that the homeowner’s financial situation does not seem to be improving anytime soon and the only viable option is to move out to avoid foreclosure.  Banks prefer this to foreclosures since the latter often result in legal fees and other costs that would not necessarily occur in a short sale transaction.  Making that determination, however, is what impacts the amount of time that goes into a short sale application and approval or denial process.

What Should Be Included?

Not too much information is needed in a hardship letter but it should be enough that the reviewer is able to make an informed decision about your case and determine next steps.  You will need to include the property address, reference a loan number or numbers if multiple loans are involved and name all persons or parties that are named on the loan.  If the motivation for seeking relief from the lender is due to extreme conditions in your life that have hindered your income or caused unemployment, provide supporting documentation and outline the relevant specifics in the letter.  Over-exaggerating will frustrate the loan officer and possibly impede processing so it’s important to remain straightforward and write in a clear manner.

Things to Keep In Mind When Writing

Be sure to write clearly, without the use of unnecessary jargon and be as direct as possible.  Avoid overly emotional statements, without missing the boat entirely on explaining your financial hardship.  Do not write more than one page, as the hardship letter’s purpose is to notify the lender of your current financial state and request review of the loan.  The briefer the letter is, the easier it will be for the loan officer to review it.  Make sure you are able to corroborate the statements you are making in the letter with documentation.

Why Does This Matter?

Despite news reports, the mortgage industry is very busy and with the influx of short sale applications on many lenders’ tables, the processing times are very long involving arduous and tedious paperwork.  When a short sale reviewer receives a short, simple, succinct and to-the-point hardship letter, not only does it make their job easier but it also eliminates the need for further clarification and consequently more time wasted.

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Of course, depending on how complex the situation may be – a longer and more detailed hardship letter may be necessary, but once an application moves forward additional information can be provided.  The key is to communicate your request to have your loan reviewed, the reasons for such and relevant specifics that would be needed in order for the application to be considered.