The long and short of short-selling homes

By Sean Sposito/The Star-Ledger

February 17, 2010, 6:00AM

Sommer.jpgED MURRAY/THE STAR-LEDGER Goldie Sommer, a real estate attorney who has overseen more than 250 short-sale deals in the past two years, does research at her office in Fairfield.

Record high unemployment has put some borrowers in jeopardy of losing their homes.

They are considering refinancing, home loan modifications and even

But those who are thinking of a short sale have a lot to ponder.

The agreement, in which a lender accepts less than what is owed on a loan, can be arduous – leaving buyers and sellers sitting on the sidelines for months in the best-case scenarios.

But Goldie Sommer, a real estate attorney and agent, said there is no reason why anyone can’t navigate a short sale.

Sommer, a principal at Fairfield-based Sommer and Engelhart, has overseen more than 250 short-sale deals over the past two years.

Your Business took a closer look at short sales with Sommer:
Q. Can anyone apply for a short sale?

A. Yes, you can even do a short sale on government-backed (HUD loans) and FHA loans. Many of my short sales are on government-backed loans.

The restrictions for short sales of a government-backed loan pertain to the purchase of a subsequent home with government backed funds (FHA funds), not the short sale of one.
Q: How does a short sale affect your credit score?

A. I can’t give you exact numbers. But I’ve heard it’s about 50 points off your FICO (score) versus 200 on a foreclosure. And it doesn’t say foreclosure on your credit report. It will say "mortgage paid not full amount." So, everybody knows. But my clients are so upset. They are devastated, because they always had good credit. I tell them, you don’t stick out as an unusual case because everyone is going to have this on their credit score.
Q. The U.S. Treasury recently passed voluntary guidelines for lenders
that are servicing short sales. What are some of the major changes these rules might cause?

A. The new rules to accelerate short sales are scheduled to begin April 5. A major change under the new rules is a $1,500 relocation credit or allowance for moving purposes. In the past, no money could go to the seller. The other major change involves the issue of the second lienholder (second mortgage). Many short-sale homeowners have home equity lines or second loans on their home.

Also, the short-sale lender will be given a time limit of 10 days to approve or disapprove an application. This, should it work as proposed under the new rules, will be the most significant plus.

Many buyers walk away from the transaction because of the incredible amount of time it can take to get an approval from a lender. This leaves the seller, Realtor and attorney starting the entire process over.
Q. What’s the sticking point for people in New Jersey?

A. In our state, lienholders are allowed to pursue homeowners for any deficiency under a short sale. We have found that we encounter more problems negotiating the short sale with the second mortgage holder than with the first, especially if the second loan is high.

I do not believe this problem is addressed under the new rules and will continue to be an issue for our homeowners if they have second mortgages.
Q. How long does the process take?

A. If you are lucky, you can get a short sale approved in as little as two or three months. But we’ve seen them take as long as a year.

That doesn’t mean that the bank won’t go forward with a foreclosure. They will, and they usually do. Normally, however, the house will get approved for short sale well before a house goes up for a sheriff sale.

When an approval is received on a short sale, the typical letter states that we have 30 days from approval to close title. The buyer must scramble to obtain financing, order title work, survey, etc. in a short amount of time. The new rules will give homeowners a minimum of 90 days to close. This is a big plus.

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