Nick and Bill Pallis
Windermere Real Estate/East, Inc.

Distressed Property Owners


"If you own real estate that you would like to sell and suspect it might be considered a short sale or are faced with a foreclosure, call us! We are Certified Short Sale/Foreclosure Specialists (CFS) and we can help you navigate the rough waters to effectively make the best of a difficult situation and provide you with an effective solution."

Few people are immune to the ill effects of the downturn of our economy our real estate and job markets. It's estimated that approximately 25% of homeowners are carrying mortgages that are greater than their home is worth. Given these circumstances, record numbers of homeowners are in need of assistance. Financial duress can mean something different for every homeowner. However, if you are falling behind in your mortgage payments or think you may not be able to make your payments in the future, don't wait!

Effectively communicating with your lender is the first step. But each homeowner�s circumstance is unique and every lending institution treats its borrowers differently. So being armed with the right information before approaching and negotiating with your lender is crucial. There are a myriad of resources and options available to homeowners. We're here to listen and guide you through those options that you may otherwise be unaware of.

That said, the most important advice we can offer is to act early and resist the temptation to postpone what you might think is a no win situation. YOU DO HAVE OPTIONS.  Call Us!

Nick and Bill 

 Short Sale

If modifying your existing loan will not help your situation, your next best option may be to sell your home. If you owe more for your home than it is worth on the open market less selling costs, then you fall into what is called a short sale status. With our help, the first step is to facilitate preliminary arrangements with your lender then get your property sold quickly in order to ease your burden and minimize the loss. The quicker you act the better you preserve your credit standing.


Q:           If I need to sell and I owe more than my home is worth, am I eligible for a short sale or is my only option foreclosure or bankruptcy?

A:           Always consult your lender as to what your options are first. Depending on your circumstance and who the lending institution is, in order of preference for both borrower and lender are 1) short sale, 2) deed-in-lieu of foreclosure (an accelerated voluntary surrender), then 3) foreclosure. The banks like to prevent foreclosure when at all possible. They've even been known to lower customer�s rates and payments because of all the new defaults over the past few years. Either way, the first step is to communicate with your lender to find which options may be available to you.


Q:            Does a good credit score help the seller trying to do the short sale?

A:            Only inasmuch as their credit score will stay high as long as they don't make any late payments leading up to the short sale. Some lenders may call the deficiency a judgment though, which will hurt the score a bit.


Q:             Will I have to pay capital gains taxes if I sell a property as a short sale?

A:             No. Capital gains would indicate that you are in some way "better off" financially

 due to money you have made. In a short sale, you lose or owe money. 


Q:       If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?

A:            In some cases it will and in some cases it won't. It depends on the amount of the deficiency. Usually the mortgage insurance only covers a certain amount of the loss. Moreover, the lender will try to collect from you before they file a claim with the mortgage insurance company. The mortgage insurance is not there for your protection, just the lender's.


Q:            We had a first and second loan and went through a short sale. The first was paid off and we were told the second would be forgiven. Now a collection company is coming after us for the second, what do we do?

A:            This is why its crucial from the onset to utilize the services of a team of specialists well versed in distressed sale properties, namely that of a competent real estate professional, an attorney and credit counselor. The bank will never forgive debt unless it is explicitly stated in writing. In a short sale or foreclosure situation, you should 1) always have a qualified attorney review the agreement and 2) demand a 1099 from the bank disclosing the loss. Otherwise, the only options are to either negotiate payment arrangements, engage in a legal dispute against the lender or as an absolute last resort, bankruptcy.


Q:            What are the implications of unpaid judgments?

A:            Worst case scenario, your wages can be garnished.


Q:            Will I still have to pay taxes if I do a short sale?

A:            This is a broad question depending on whether we're talking about property taxes or federal income taxes. You'll always have to pay extra income tax if the bank sends you a 1099 for the deficiency. SOMEONE will always have to pay property taxes. Whether its you or the lender will depend on their policies and the specific agreement you reach while negotiating the short sale.



If you have missed three or more payments, your lender may choose to foreclose and take ownership of the home in order to minimize its loss. YOU DO HAVE OPTIONS. If you are within the new 220-day period it may not be too late to prevent a foreclosure. Knowing what your options are puts you in a much stronger position to deal effectively with the foreclosure process. Armed with the right information, you may be able to save your home from foreclosure and in some instances, avoid the foreclosure process altogether. Call us to discuss your options.


Q:           What is foreclosure?

A:           The legal process that banks and mortgage companies use to force the sale of your home to repay a debt; usually the mortgage on your home. Even if one payment is missed the lending institution can take the property back and then sell it to repay the money owed them. A foreclosure notice is typically filed after three or four payments are missed.


Q:            What is the foreclosure process and how long does it take?

A:            Each state governs the foreclosure process differently. As a minimum, the law requires that the borrower receive sufficient warning or notice before the foreclosure can take place. Other rights and responsibilities may be outlined in the mortgage or loan documents you signed when you purchased the home.

Q:            Do I have any options and if so, how much time do I have to exercise my options?

A:            You have several options available to you as long as you own your home. Once your house is sold, whether by you or through foreclosure, many of your options disappear. Knowing what your options are, puts you in a much stronger position to deal effectively with the foreclosure process. Armed with the right information, you may be able to save your home from foreclosure and in some instances, avoid the foreclosure process altogether.

Q:            I get letters and notices from people claiming they can help me save my home - are they for real?

A:             When foreclosure documents are filed they become a matter of public record and many people review these records for various purposes such as compiling lists to sell to bankruptcy attorneys, investors, real estate professionals and other people interested in either purchasing your home or . . . helping you save it. Some of these offers are probably legitimate but, none of them have your best interest at heart. Never forget that these offers come from people who are in the business of making a profit from your foreclosure situation.

Q:            I would rather sell my home than lose it to foreclosure . . . is this possible?

A:            Yes. It's called the Compromise Sale or the "Short Sale" and a foreclosure notice does not prohibit you from selling your home as long as you own it. However, you must act quickly and select the right real estate professional, one well versed in these types of sales.

Q:            I don't want to keep the house nor bother with trying to sell it. What would happen if I just walked away?

A:            There is a legal process, often referred to as a �deed in lieu� for walking away from your home or forfeiting your property. You should seek the advice of a real estate professional well versed in this area because you could face catastrophic consequences if you just walk away. That�s where we come in.

Q:            What happens when the bank forecloses?

A:            While the actual process may vary from state to state, typically a trustee is appointed and announces the sale by auction of your home by informing the public. The usual announcement includes the name of the lending institution, who the borrower(s) is, the amount of overdue debt, and your total indebtedness. After a specific period of time, the trustee opens the bidding process, (in some states your lending institution may do this). Then, either someone purchases the property or it reverts back to the lending institution. Once the property is sold or reverts back to the lender, the eviction process begins!

Q:            What does "Short Payoff" mean?

A:            Your lender agrees to accept less than the total owed in exchange for releasing the mortgage as a lien on the property (it's also called a pre-foreclosure sale, short sale, pre-sale and compromise sale).

Q:            Can they sell my house for less than what I owe?

A:            Yes. Banks are not in the business of owning or selling homes and they do not like to foreclose on property because it's expensive and they usually lose money. They must prepare the home for sale, hire a real estate agent to sell it, and until it's sold, it remains a non-producing asset on their books. The lending institution would rather take a loss on the home than have it remain on their books as a non-producing asset. (see next question on profit)

Q:            They sold my house for more than I owe, do I get any money?

A:            Yes. Any amount over the total debt owed will be paid to you upon the transfer of ownership (closing). However, if they sell it for less, the balance is called a deficiency and your bank can use whatever means they deem necessary to collect the outstanding balance. Most states treat this as an unsecured debt (just like credit card debt) and give the bank (or creditor) the same legal rights to pursue you, usually by suing you in court.

Q:            What happens if no one bids on my property?

A:            The bank simply takes possession of your property, through eviction if necessary, and then hires a real estate agent to sell the property.

Q:            Do I really stand a chance of saving my home from foreclosure?

A:            Yes. However, knowing and understanding what options are available to you is the first step. Your success depends on you implementing the proper option in a timely manner.

Q:            I've missed a few mortgage payments, now what happens?


Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When the actual foreclosure happens you must move or you'll be evicted anyway. Also, you may still owe the lender if they sell the house for less than you owe. You do have several options but because foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future, you should avoid foreclosure it if all possible!

Q:            I received a foreclosure notice, what should I do?

         Contact your lender immediately and explain your situation to them and why you are having trouble making your payments. Provide them with your monthly income and expenses. Do not ignore the letter. Do not move out of your home. If you do, it may be considered abandoned and cause you to not qualify for assistance.


Q:            What options do I have once I've received a foreclosure notice?

A:             The most popular options are:

Special Forbearance:
 Your lender may be able to arrange a repayment plan based on your financial situation. Your lender may even provide for a temporary reduction or suspension of your payments. You may qualify for this if:

You have recently lost your job or source of income or you had an unexpected increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.

Mortgage Modification: 
You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay).

Partial Claim:
 Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current.

            You may qualify if:

1) your loan is at least 4 months delinquent but no more than 12 months delinquent;

2) your mortgage is not in foreclosure; and

3) you are able to begin making full mortgage payments.

When your lender files a Partial claim, HUD will pay your lender the amount necessary to bring your mortgage current. You must execute a promissory note, and a Lien will be placed on your property until the promissory note is paid in full. The promissory note is interest-free and will be due if you sell or leave your property, or when your mortgage matures.

Pre-foreclosure Sale:
 This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating.

You may qualify if:

        1) the "as is" appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value;

        2) the loan is at least 2 months delinquent prior to the pre- foreclosure sale closing date; and

        3) you are able to sell your house within 3 to 5 months (depending on what your lender agrees to).

An additional benefit to this option is the assistance you will receive with the seller-paid closing costs.

Deed-in-lieu of foreclosure:
 As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it will help your chances of getting another mortgage loan in the future.

You can qualify if:

         1) You are in default and don't qualify for any of the other options;

         2) your attempts at selling the house before foreclosure were unsuccessful; and

         3) you don't have another FHA mortgage in default.


Bankruptcy: Consider this option carefully.

Q:             How do I know if I qualify for any foreclosure alternatives?

A:             A housing counseling agency can help you determine which, if any, of these options may meet your needs. You should also discuss the situation with your realtor and lender.

Q:             What about foreclosure scams?

A:            You can usually spot a scam because it sounds too good to be true. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty.

Be especially alert for the following:

Equity skimming: In this type of scam, a "buyer" approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The "buyer" may suggest that you move out quickly and deed the property to him or her. The "buyer" then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember that signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.

Phony counseling agencies: Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. Most of the time these services are things you can do such as negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale.

If you have any doubt about paying for such services call a HUD-approved housing counseling agency. (We can provide a list of references)

Q:            How long does the foreclosure process usually take?

A:            It depends on your state and how aggressive the lender is. It could be as quick as 60 days or longer than six months.

Q:            Who gets the money when the house is sold at auction?

A:            First, all real estate taxes are paid. Then mortgages are paid. Next comes any lien holders or attaching creditors. Finally, you'll get any money left over after all debts are satisfied.



Windermere Real Estate/East, Inc. 11100 Main Street, Suite 200, Bellevue, WA 98004 | Office: 425-455-9800
Nick: 206-499-7000 | Bill: 206-979-2880
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