Short Sale Blog

Here is the latest short sale news at Seattle Short Sales. We assist hundreds of Seattle area homeowners with short selling their home and avoiding foreclosure.

How to Use Bankruptcy to Stop Your Foreclosure

- Monday, January 28, 2013

Many homeowners who are under the threat of foreclosure do not consider filing bankruptcy as a strategy to get their finances in order. They may think that bankruptcy means that they will have to give all of their property to the court, or that they will have to start over completely. This is not true. In fact, the majority of consumers do not have to give any of their possessions to the creditors! Many people have successfully used bankruptcy to avoid foreclosure and to stay in their home.

Here are just three ways that filing bankruptcy can help you if you are facing the threat of foreclosure.

1. Delay, or even stop the foreclosure sale

Filing bankruptcy stops all debt collection actions immediately. This includes foreclosure.

If you are under the threat of foreclosure, filing for bankruptcy immediately before the foreclosure sale date can help delay the process while you work at getting your finances together.  A Chapter 13 bankruptcy will allow you to get back up to date with your payments and keep your home. This works very well for those homeowners who have faced a temporary setback which caused them to get behind on their payments, such as temporary unemployment or an injury.

Through Chapter 13, your unpaid mortgage balance would be consolidated with your unsecured debts, to be paid through a payment plan over the course of 3 to 5 years at a rate you can afford. For those who simply cannot afford their mortgage payments at all, filing bankruptcy will delay the foreclosure process temporarily while you search for new living arrangements.

2. Reorganize your debt

Many people who face foreclosure are simply over-extended. Medical bills or overuse of their credit can leave people struggling to make all of their bills payments each month. At this point, many homeowners find they simply do not know what to do. They feel over their head, and may simply give up - when what they really need to do is to start prioritizing their debts.

Filing bankruptcy can allow you to eliminate your credit card payments, medical bills and other debt that is weighing you down. By eliminating these debts you can refocus your resources on priority debts, such as your mortgage - and save your home. If you are faced with too many bills every month but need to stay in your home, consider using bankruptcy as a way to keep reduce your overall debt and get your mortgage payments back on track.

3. Eliminate second and third mortgages

Many people were enticed by low interest rates and rising property values to take out a home equity loan on their property in the years before the housing market crash. For many of these homeowners, their home is now worth less than their combined mortgages.

If you are one of these homeowners, a Chapter 13 bankruptcy can remove the second (and third!) mortgage on your home. It will allow you to pay only a portion of what is owed on those junior mortgages, without going through foreclosure.  You pay that portion of what you owe over the course of three to five years. At the end of that time, any remaining balance on your junior mortgages would be eliminated.

If you have multiple mortgages on your underwater property, consider using Chapter 13 bankruptcy to reduce your monthly payments and get your finances under control.

Seattle Short Sales has the most experienced and most successful real estate short sale specialists working with us. We close, on average, 15% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

A short sale can improve your credit, and help you to avoid foreclosure and get a fresh start. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner, and would like to learn more about short selling your home, please go to:

The Servicemembers Civil Relief Act (SCRA) Part 2: Rights for Homeowners During Foreclosure Or a Short Sale

- Friday, January 25, 2013
This article is Part 2 of a two-part series on the Servicemembers Civil Relief Act (SCRA). Part 1 focussed on how homeowners and renters can take advantage of the protections that the SCRA provides for them. This instalment looks at protections for servicemembers who are undergoing foreclosure, and the case where servicemembers who are considering a short sale of their home are asked to sign a waiver to relinquish their SCRA rights.

How can SCRA help servicemembers through foreclosure?

If a lender elects to judicially foreclose on a property then the borrower may, within 12 months after the trustee sale date, “redeem” the property by paying the amount of the highest bid at the trustee auction. During this 12-month redemption period the borrower may continue to reside in the home. (Note that, in Washington state, that this right of redemption does not apply in the majority of cases, as most lenders foreclose non-judicially).

Within the context of a judicial foreclosure lawsuit, the SCRA generally provides the servicemember with three types of relief:

  • a stay (delay) of the foreclosure proceedings, or an extension of the maturity date of the loan, along with reduced monthly payments;
  • where foreclosure judgment has already been ordered, reopening the case and “undoing” the foreclosure;
  • and where a sale has taken place under a judgment of foreclosure, the redemption period may be extended during the servicemember’s period of military service. This means the time during which you can reclaim your home by paying back the full amount of the mortgage loan, plus legal costs and fees, is extended.

The foregoing rights are only relevant to the extent that you want to put a stop to foreclosure and only if your goal is to remain in the home. For some people, however, it may make more financial for them to get rid of the underwater property, for example, via a short sale.

What if I am asked to sign a waiver of my SCRA rights in order to get a short sale approved?

If your objective is to walk away from the property or you wish to undertake a short sale, then the rights under the SCRA won’t necessarily provide you with a great deal of meaningful protection.

Lenders may require that a servicemember sign a Waiver of Rights Under the SCRA in order to approve a short sale and complete the transaction. What is a homeowner really “giving away” by signing such a waiver?

The most important rights that one would be waiving by signing the release include the protections against foreclosure and the right of redemption, both described above. In Washington State, these rights become largely irrelevant if the homeowner wishes to walk away from the property. The rights are intended to protect military homeowners who wish to keep their homes, rather than those who want to start fresh so that they may “move to freedom.”

In most cases, within a short sale transaction, signing such a waiver would result in only a very limited release of one’s rights. The waiver of rights would only apply to that particular property and only if the short sale actually closes.   

If you have additional questions about how the SCRA applies to you, you should consult with your Judge Advocate General or other military lawyer. Military legal assistance attorneys are available to provide guidance on the SCRA. You can also read the entire Act here: Servicemembers Civil Relief Act (SCRA)

Seattle Short Sales has the most experienced and most successful real estate short sale specialists working with us. We close, on average, 15% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

A short sale can improve your credit, and help you to avoid foreclosure and get a fresh start. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner, and would like to learn more about short selling your home, please go to:

New Cenlar Short Sale Approval Letter: Homeowners in Seattle, WA, Receive $146,000 Loan Discount, Deficiency Waived!

- Wednesday, October 31, 2012
These Seattle, WA, homeowners avoided foreclosure through a short sale. They owed nearly $290,000 on their Cenlar mortgage, including arrears. They relocated to California in April, 2011 - at which time their home was valued at more than the balance owing. But rapidly dropping property values meant that, by the time their home was on the market, its value had dropped to less than their mortgage debt.

They could not afford to pay both their rent in California and their mortgage in Seattle. Their only hope to avoid foreclosure was to negotiate a short sale with Cenlar.

Cenlar has just issued their approval letter for the short sale, accepting $142,528 net proceeds on the $288,400 mortgage balance owing - a discount of $145,872. The short sale approval letter waived the Seattle homeowners of ever having to repay that deficiency.

You can read the Cenlar short sale approval letter here: 9.12.12_Cenlar_1st_Lien_146k_Deficiency_Debt_Settled_Short_Sale_Approval.pdf

If you are a homeowner, and would like to learn more about short selling your home, please go to:

Will My Condo Association Get Anything if They Foreclose On Me?

- Monday, October 01, 2012

What happens when my condominium owners association records a lien against my unit? Can the condo association foreclose on that lien and still expect to recover anything if there are other previously recorded liens?

Before we address these questions, it might be beneficial to briefly review what a lien is, what it does, and how it can impact a homeowner’s ownership rights to his or her property.

Simply put, a lien is a document that memorializes a debt, using the property as collateral for repayment of the debt. In other words, the property acts as a security for money owed. The general rule of lien priority is that once a lien is recorded, it becomes next in line to any previously recorded lien in terms of lien status. So, in most cases, a lien against real property has priority based on the date it is recorded.

The most common kind of lien on a home relates to money borrowed against the home, such as a mortgage taken out to purchase the home, or a Home Equity Line of Credit (HELOC). However, in the context of condo liens in Washington state, if a condo owner fails to pay his/her condo assessments (or fees), a lien will be created automatically for the amount owed.

Under Washington’s Condominium Act, any condominium owner’s association (COA) created after July 1, 1990, will be provided additional protections for condo liens, and such liens are given a “super-priority lien” status. The super-priority lien has priority over mortgages or any other liens, provided that the assessments were due during the six months immediately prior to the date of a trustee/sheriff’s sale. COA’s formed before July 1, 1990 may also avail themselves of the “super-priority lien” protection by amending or modifying the condo declaration to incorporate priority lien language.

Thus, the lien priority hierarchy under the Condo Acts looks something like this:

  1. Government liens for unpaid taxes;

  2. Association lien for the most recent six months’ delinquent assessments prior to trustee/sheriff’s sale;

  3. Mortgages and other liens according to the date they were recorded; and

  4. The remaining amount of the association’s lien.

However, this super-priority lien status only applies if the condo association initiates a judicial foreclosure, i.e. a foreclosure that is processed through the court. If the association forecloses its lien non-judicially, the lien no longer has super-priority over previously recorded liens.

In sum, a condo association can attempt to foreclose on its super-priority lien by filing a judicial foreclosure lawsuit against the homeowner and the beneficiary of the deed of trust (the bank). Usually, the bank will defend the lawsuit and try to arrange to pay the COA’s super-priority lien in effort to reestablish the bank’s senior lien priority.

So, in the context of a short sale, a lien on the condo recorded by the condominium owners association makes the short sale process more complicated. For this reason, we almost always advise our clients to stay current on their COA dues/assessments, to avoid a situation where the COA forecloses on the condo unit.  

If you are a homeowner, and would like to learn more about short selling your home, please go to:

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to:

How to Short Sale a Rental Property: What Owners Need to Know

- Monday, September 10, 2012

What does an owner of a distressed rental property do if the property that they intend to sell in a short sale is subject to a tenant's lease?

In most cases, owners of unprofitable or “upside-down” (negative equity) rental properties may short sale their property - without providing notice to the tenants or seeking the tenants’ permission. The exception to this would be where the rental agreement contains a provision that requires that the landlord give the tenants notice of his or her intent to sell, or contains a "subject to tenant's approval" clause. An example of such an approval clause would be a "rent-to-own" option, where the occupying tenant would have the first right of refusal.
That said, the new owners must take the property subject to the existing lease. For some prospective buyers, this could be a reason not to buy - for example if the buyer would like to live in the home shortly after the sale. However, other buyers might find a home that is currently occupied by a renter more attractive, especially those looking to purchase an income-generating investment property.  
One wise move for a landlord who is about to list a rental property as a short sale is to renegotiate the lease with the tenant, offering reduced rent in exchange for moving to a month-to-month basis. Doing so will enable the selling landlord to provide sufficient notice to the tenant, affording him or her ample time to relocate prior to the approval of the short sale.
In contrast, in a foreclosure setting, tenants have a statutory right to occupy the property for 60 to 90 days following a trustee's sale. (However, if the lease terminates prior to foreclosure, then the tenant cannot avail him- or herself of this right to reside for 60-90 days).

More importantly, and of more concern to the landlord, is that in a foreclosure situation, the tenant can pursue the landlord for damages in court for breach of the lease. So, whether there is a short sale or a foreclosure in the works, it is in the homeowner’s best interest to re-negotiate the terms of the lease with the tenant prior to the transfer of property.  

If you are a homeowner, and would like to learn more about short selling your home, please go to:

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to:

Real Estate Sales and Prices up in King, Snohomish Counties - Seattle

- Tuesday, August 28, 2012

A report published in the Bellingham Herald this weekend indicated that the real estate market is improving in the greater Seattle region - but that home sales in the rest of Washington state are just “sputtering along.”

Snohomish County leads the way in both number of sales and in prices, with second-quarter sales of existing homes up 23% from the same period a year ago, and the median sales price up by 8.2%.

King County also showed marked improvements from a year ago, with home sales up by 17.2% and the median sales price up by 6.5%.

Although the number of home sales increased statewide by 10.4% over the previous year, the Bellingham Herald quotes Runstad Center for Real Estate Studies (University of Washington) associate director Glenn Crellin as expressing caution at this apparent positive trend.

Crellin notes that, even though home sales increased over the 12 months, the seasonally adjusted rate actually dropped from the first quarter of 2012 to the second quarter - which means the pace of that upward trend is decreasing.

Crellin believes that the market has actually been suffering from a shortage of properties. With property prices increasing, at least in the greater Seattle area, this may be a sign that the bottom of the market has been reached.

However, there are currently around 80,000 mortgages in Washington state that are either more than 90 days delinquent, or already in foreclosure proceedings - and that number does not include the number of properties that have already been foreclosed upon. All of these properties will come on the market at some point, and the real estate market in Washington will not be able to truly recover until that REO inventory has been substantially decreased.

If you are a homeowner, and would like to learn more about short selling your home, please go to:

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to:

Is my Income too High to be Approved for a Short Sale?

- Saturday, August 04, 2012

Many homeowners who are underwater with their mortgages are still employed. Their financial troubles stem from added expenses: caring for elderly relatives, unexpected medical costs, or children starting college, rather than from low income. They may be reluctant to apply for a government short sale program (such as FHA or HAFA) because they are afraid that their income is too high to qualify.

The good news is that neither of the two government short sale programs run by the Department of Housing and Urban Development (HUD) have any income limits for homeowners who are considering a short sale. The two programs are the FHA Pre-Foreclosure Sale Program, and the Home Affordable Foreclosure Alternatives program (HAFA). While you may be able to get your short sale approved outside one of these programs, the advantages of these government short sale programs are:

  • your deficiency balance (the shortfall still owing after paying sales proceeds to your lender) will automatically be waived, and
  • you may be eligible for a cash payment of up to $3000 for relocation assistance.

FHA Pre-Foreclosure Sale Program
The Federal Housing Administration (FHA) is a non-taxpayer-funded division of HUD. Its role is to improve housing standards and loans, particularly by insuring mortgages for home-buyers who might otherwise have difficulty qualifying for a loan.

If your mortgage is insured through FHA, you may be eligible for the FHA Pre-Foreclosure Sale Program.

FHA does not have any upper income limit that might disqualify a struggling homeowner from their short sale program. However, they do have a requirement that the homeowner’s inability to continue to make their mortgage payments must be a result of a change in their financial situation, e.g. either a drop in income, or increased living expenses.

A lender looking to approve a homeowner for a short sale will also run a financial analysis to determine the homeowner’s ability to pay. They add up the homeowner’s total income, and subtract from that the homeowner’s total expenses (mortgage payment, food, bills, other debts). If they calculate that the homeowner can actually continue to afford mortgage payments, they may deny the short sale request and suggest a loan modification.

You can find the complete FHA short sale eligibility requirements here:
HUD Mortgagee Letter 2008-43


HAFA is run by HUD as part of the Making Home Affordable program (MHA). As for the FHA program, there is no income limit for homeowners to qualify for a HAFA short sale.

To qualify for a HAFA short sale, homeowners must qualify for HAMP, the Housing Affordable Modification Program. If their income or cash flow is not sufficient to meet the qualifications for a loan modification, they then may apply for a HAFA short sale.

The original HAMP criteria required that the homeowners’ income not be too high relative to their mortgage payments. The monthly payments on their first mortgage had to be more than 31% of their gross monthly income for them to qualify for HAMP (and therefore for HAFA).

For example, if a homeowner’s mortgage payment was $1600/month, and they earned $5000 per month, they would qualify (because their mortgage payment is 32% of their income). But a homeowner with the exact same income, whose monthly mortgage payment was $1200 (or 20%) would not qualify.

However, effective February 2011, changes were made to HAFA eligibility regarding income. The servicer no longer is required to verify that the mortgage payments are more than 31% of the income - but they may implement their own income requirements. In other words, a letter documenting hardship is still required, but each servicer may decide on their own income thresholds.

Although further changes to the HAFA program took effect this past June, they do not include any changes about income requirements.

If you are a homeowner, and would like to learn more about short selling your home, please go to:

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to:

Can’t See The Forest for the Trees: CitiMortgage and HUD Dispute about the Details of Borrower Eligibility for the FHA Preforeclosure Sale Program

- Friday, October 21, 2011

Here is an interesting case, of not being able to see the forest for the trees: the dispute between HUD and CitiMortgage regarding evaluating borrower eligibility for FHA’s Preforeclosure Sale Program (PFS). While HUD focuses on the details of borrower eligibility for the PFS program, CitiMortgage contends that the details of the plan are less important than the overall aim: cutting losses for both borrowers and lenders.

The HUD’s Office of Inspector General has released its new audit report of Citimortgage, Inc. According to the HUD audit report, CitiMortgage did not properly determine borrower eligibility for FHA’s PFS program. Included in the 103-page audit report is CitiMortgage’s response to the HUD claims.

Guidelines for the FHA PFS program are outlined in FHA Mortgagee Letter 2008-43, a letter to all lenders which outlines the aims of the PFS program.

FHA provides mortgage insurance for loans by borrowers who are considered to be “risky” - whose credit history is poor or moderate, or who can only come up with a small deposit.

The FHA PFS program is for borrowers who have an FHA-insured loan, and who find themselves unable to meet their mortgage payments, and unable to sell the home because it is worth less than the balance owing on the mortgage. The PFS program helps borrowers to avoid foreclosure by providing cash incentives to both borrowers and lenders, to encourage them to negotiate a pre-foreclosure sale, rather than let the mortgage proceed to foreclosure.

The dispute between HUD and CitiMortgage comes from different interpretations of eligibility criteria outlined in FHA Mortgage Letter 2008-43. HUD works with numerous lenders; they identified CitiMortgage for this audit because of “an issue identified
in a prior review and a review conducted by HUD’s quality assurance division.”

HUD reviewed 68 loans that CitiMortgage had submitted claims on. Claims paid out by HUD on these loans included mortgage insurance payments (on the deficiency balances) as well as incentive payments to both borrowers and lenders. According to HUD’s review, though, CitiMortgage did not properly determine borrower eligibility for the FHA PFS program for 63 of these loans. A total of nearly $5 million was paid out by HUD to CitiMortgage for those 63 loans. The auditors have recommended that CitiMortgage reimburse HUD for these claims.

The report details, case-by-case, examples where HUD contends that CitiMortgage did not determine borrower eligibility criteria. According to HUD, CitiMortgage did not follow eligibility guidelines detailed in Mortgage Letter 2008-43, including:

  • borrowers’ reason for default is a result of an “adverse and unavoidable situation”
  • expenses and income claimed by borrowers were not independently verified by CitiMortgage
  • borrowers with assets were not required to repay the indebtedness through a repayment plan
  • borrowers who were still current on their mortgages were accepted into the plan, and HUD disputes CitiMortgage’s determination of borrowers facing “imminent default”

CitiMortgage has responded to the audit (their response is included in the audit report as Appendix B), defending their practices, and indicating that only 7 of the 63 examples that HUD has presented have any merit.

Most significantly, though, CitiMortgage’s Director of Default Servicing, Brian McWhorter, wrote in his response to HUD:
“In our view, if the changes recommended in the draft report are implemented, the PFS process would slow down and negatively impact borrowers by now allwing them to qualify for a short sales treatment, possibly resulting in foreclosure and a higher loss.”

McWhorter goes on to explain that, in all of the sampled cases, the pre-foreclosure sale that was executed represented a lower loss to CitiMortgage than a foreclosure proceeding followed by an REO sale would have.

Avoiding foreclosure, through FHA’s Preforeclosure Sale Program and through numerous other short sale and foreclosure-prevention programs that exist, is in everyone’s best interest. The faster that short sales can be processed, the more foreclosures will be avoided - and the more quickly our housing market will turn towards recovery.

For more information, download The Homeowner's Guide to the U.S. Government Short Sale Programs, our free in-house guide to the FHA PFS program as well as to VA, HAFA, Freddie Mac, and Fannie Mae short sale programs.

If you are a homeowner, and would like to learn more about short selling your home, please go to:

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to:

Bad News Nationally, Worse News for Seattle: Home Prices Down 4.1% Nationwide and 6.4% in Seattle, Compared to a Year Ago.

- Thursday, September 29, 2011

The Standard&Poor’s/Case-Shiller Home Price index published this month shows that home prices have declined nationwide by 4.1% over the previous year - but that Seattle home prices have fared over 50% worse than the national average.

The S&P/Case-Shiller Home Price is the leading measure of US home prices. It is published monthly by Standard&Poor’s, using a three-month moving average, with a two-month time lag, so the figures published this week reflect home prices up to July 2011.

S&P’s 20-city composite index shows that, although home prices rose by 0.9% in the month from June to July 2011, they are down by 4.1% compared to July 2010. The June-July increase, as well as small home price increases in the previous three months, reflect a normal seasonal upswing. However, S&P’s Chairman of the Index Committee, David Blitzer, told DSNews that the rate of the July increase was a better-than-usual price increase.

The bad news in the numbers comes for the Seattle area, though. Seattle home prices were down by 6.4% over the previous year - a performance more than 50% worse than the 4.1% drop seen nationally. And the month-over-month increase from June to July for Seattle was a negligible 0.1%.

Only two of the 20 cities used in the index showed price increases for the year. These recent drops bring home prices back down to where they were in 2003 - what some are referring to as “the lost decade in the housing market.” Prices are now down 32% from their peak in 2005, and nearly $7 trillion have been lost in homeowners’ equity through the period.

Stan Humphries, chief economist for the online mortgage marketplace Zillow, told DSNews that he expects only a weak performance from the housing market through the remainder of the year.

Many analysts tie the recent home price increases to the recent drop in foreclosure filings. As we reported to you earlier this month, foreclosure processing times have reached record highs. Since foreclosures tend to sell at lower-than-market prices, the effect of less foreclosure sales is to raise average sales prices for an area. As discussed in an analysis by Bloomberg, investigations into banks’ foreclosure practices which have slowed foreclosure filings may have also helped to slow the drop in home prices (the 4.1% drop was not as high as analysts had predicted a year ago).

However, as banks catch up on their paperwork and bring up the pace of foreclosure filings, home prices may experience increased downward pressure. The Bloomberg article notes that foreclosure filings surged by 33% in August compared to the previous month - a sign that the foreclosure process may be speeding up again.

And that home prices may continue their slide downward.

If you are a homeowner, and would like to learn more about short selling your home, please go to:

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Foreclosure Processing Times Reach Record Highs

- Saturday, September 03, 2011

A report released this week by Lender Processing Services indicates that the delays for lenders to process foreclosures have reached record highs.

As of the end of June, this year, there were 4.1 million home loans across the nation that were either greater than 90 days delinquent, or in some stage of foreclosure.

Of the 2.2 million loans that are in some stage of foreclosure, the average homeowner has not made a payment on that loan in a record 599 days.

And of the 1.9 million loans that were 90 or more days delinquent, 42% of the homeowners had not made a payment on over a year, and the average delinquency was more than 13 months - also a record.

The rate of foreclosure starts is three times the rate of foreclosure sales - which means that the number of homes in some stage of foreclosure is growing.

This backlog, due to lender delays in both initiating and processing foreclosures, does not bode well for the future of the housing market. The high number of homes that have not yet entered foreclosure means that the foreclosure numbers right now are artificially low. And it means that, once lenders catch up on their paperwork, these homes will move into foreclosure and the foreclosure rate will then become even higher.

However, the backlog does present an opportunity for delinquent homeowners who have not yet been foreclosed upon. These processing delays essentially buy them time to find other alternatives for settling their debts - such as negotiating a short sale.

If you are a homeowner, and would like to learn more about short selling your home, please go to:

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to:

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