This document contains Short Sale Guidelines and, when accompanied by all appropriate signatures (Borrower, and Servicer), is typical of a Pre-Negotiation Agreement and consent to commence review of a short sale request.

DEFINITIONS:

Short sale. A short sale is the sale of a property whereby the net proceeds (sale price less the closing costs) are insufficient to pay off the outstanding mortgage or lien balance(s) at the time.of closing. Borrower is obligated to pay any shortfall in full in order to release the lien on the secured property, unless the parties have agreed otherwise by written of agreement signed by Servicer.
Hardship. A hardship is an event or series of events that are generally beyond the Borrowers control and that resulted in a reduction in income and/or increase in expenses.

PROPERTY MARKETING:

The secured property should be formally listed with a licensed real estate agent/attorney as evidenced by a signed listing agreement.
The listing real estate agent/attorney should have territory that includes the area in which the secured property is located.
The listing real estate agent/attorney must hold a valid state license and be a member of the local Board of Realtors.
The listing real estate agent/attorney should list the secured property with the local l\/I.l..S. (Multiple Listing Service) to ensure that the secured property has fair exposure to all potential buyers/investors.
Any sales contract/purchase agreement Sales Contracts entered into should state the purchase price may be contingent upon Servicers written approval of a short sale if there will not be sufficient funds to pay the lien on the secured property in full.
Any sales contract entered into should allow for a minimum of thirty (30) days from the date of contract acceptance by all parties (investors/buyers and sellers) to closing date.
Servicer is not a party to the Sales Contract or the seller in the transaction.

PROCESSlNG:

If the above referenced account is in default, any and all collection activities, including foreclosure proceedings will continue until an approved short sale has closed, the account has been paid in full, or the default has otherwise been resolved.
A delay in the foreclosure process, up to thirty (30) days, will be considered by Servicer and approved only on an exception basis. Such exception approval must be documented in writing and signed by Borrower and Servicer. Approval of a delay will require evidence that all Sales Contract conditions and contingencies have been met. In no case will a delay greater than thirty (30) days be approved.
The processing time for a short sale review is thirty (30) calendar days from the date of receipt of the completed financial package.
Servicer requires a valuation of the property based on an interior and exterior inspection. Servicer reserves the right to terminate review of the short sale request if the Borrower fails to provide Servicers appraiser or Realtor with such access to the property as deemed necessary by Servicer, or the designated appraiser or Realtor. The cost of the valuation will be the sole responsibility of the Borrower.
A complete financial package includes all documents Servicer has requested from the Borrower and the listing real estate agent/attorney, including, but not limited to:
Complete financial information from Borrower:
- A signed copy of the listing agreement with all addenda and attachments.
- A signed copy of the Sales Contract with all addenda and attachments.
- A written, signed hardship letter from Borrower outlining his/her financial situation and the events that caused the financial hardship.
- Borrower's last two bank statements, checking and savings all pages.
- Borrowers last two paycheck stubs.
- A commitment letter from the investor/buyers lender.
- A Settlement Statement (HUD 1 or Sellers Net Sheet) indicating the allocation of all the proceeds of the sale.
- A payoff demands statement from the senior lienholders, if applicable.
- Borrower's two most recent state and federal tax returns with all schedules.
- Borrowers most recent summary statements for any 401 k, retirement, or investment accounts.
- Servicer reserves the right to request additional documentation as may be necessary to verify change in Borrower's tinancial situation and/or hardship or the status of the secured property prior to close of the short sale. Such documentation may include reveritication of Borrowers financial status at the time of loan origination.
- Borrowers execution of a quitclaim deed will not automatically release him/her of liability under the referenced loan. A quitclaim deed only releases an ownership interest in the property. Likewise, the attempt to execute a short sale without Servicers consent will not automatically release Borrower from liability.
- Servicer expressly reserves the right to not accept the transfer of title to any secured property unless it has entered into a prior written agreement to accept the transfer of title.
- Borrower must contract all subordinate lien holders prior to closing to secure a written release of each lien in recordable form.
- Servicer reserves the right to terminate review of a short sale request if Borrower fails to provide all requested documentation.

COMMUNICATIONS:

Seri/icers communications regarding activities and the decision status of a short sale request is limited to Borrower and/or Borrowers representative (i.e. attorney).
Servicers communications regarding account status, payment history, Borrower's financial status, or ability to contribute to a shortfall is restricted to Borrower and/or Brrowers representative.
Servicer's communication with the listing real estate agent/attorney is limited to marketing activities for the subject property and the terms and conditions of the Sales Contract, unless prior written authorization has been received from the Borrower.
Servicer's communications with any third party other than Borrower, Borrowers representative or the listing real estate agent/attorney is not permitted. The listing real estate agent/attorney is responsible for informing the selling real estate agent/attorney and investor/buyer of Servicers processing status and decision.

LOSS MlTlGATlONS:

Servicer is not obligated to accept or approve a short sale.
Servicers short sale terms and conditions are based on the requirements of Servicer, investor, private mortgage insurance company and/or lienholder, if applicable. Servicers communications and negotiations do not constitute short sale approval.
Short sale approval must be in the form of a written short sale agreement signed by Servicer.
Servicers short sale terms and conditions must be accepted by Borrower in writing.
lf Borrower requests any changes to Servicer's terms and conditions, such changes must be requested in writing with supporting reasons and, likewise, must be approved in writing by Senricer.
If the written short sale agreement is not accepted by all parties within the designated time frame, the written approval becomes null and void.
Must be an ARMS length transaction.

PAYMENT HISTORY REPORTING:
Servicer will not change the historical payment record to reflect a payment history other than the actual payment history. You are hereby notitied that a negative credit report reflecting on your credit record may be submitted to credit reporting agencies. This information may include the historical actual payment history and account status.

IRS REPORTING:

Servicer will report any short sale transaction to the IRS as may be required by IRS regulations.

It is Borrowers responsibility to consult with his/her tax advisor regarding any tax implications of short sale transaction.

Short Sale Effect on Credit

The short sale has been widely touted as the best alternative to foreclosure. And for the most part, it´s true: it´s faster, less costly, and much less stressful. But many people are thinking twice because of the short sale credit effect. How does a short sale really reflect on one´s credit report? Should a seller be worried about it? This page explains how short sales can influence your credit score and what you can do to reduce the damage.

Point Drops

According to Fair Isaac, originator of the FICO score, a short sale and a foreclosure can have more or less the same effect on the credit rating. However, a short sale´s impact is easier to reduce. Both will pull a score down by an average 85 to 160 points, not including the effect of the default. Bankruptcy, on the other hand, can reduce one´s score by up to 240 points, so the short sale effect on credit is actually mild in comparison.

Duration of Default

Usually, what causes the biggest point drops isn´t the short sale itself, but the missed payments that led to it. The average short sale seller is about 60 days behind, which lowers a score by 70 to 110 points in addition to the short sale itself. But since it´s possible to do a short sale without being in default, the short sale credit effect can be as low as 30-although few banks are willing to do short sales on loans with good standing.

How Short Sales are Reported

How the bank reports the transaction also influences the short sale effect on credit. A short sale usually turns up as a "pre-foreclosure in redemption," which means the home was already in foreclosure but was saved from being seized by the short sale. This adds a loss of around 200 points, bringing the total on average to be around 300.

Short Sale vs Foreclosure

So is it still worth it to choose a short sale over foreclosure? Experts say it´s still a big advantage, considering the short sale credit effect is still lower than that of a foreclosure. The total point drop on a foreclosure can total 400 or more and will stay on record for ten years, whereas a short sale can be cleared in about five and will allow you to buy a new home shortly afterwards.

Short Sales and Tax Credit: A Homeowner´s Guide

For a good majority of homeowners, a short sale is the most attractive option against foreclosure, especially when other solutions such as loan modification do not work out. But what few are aware of are the short sale credit and tax consequences. Your bank may let you off with a short sale, but as many sellers have learned, the IRS is another story. How does short sale credit affect your taxes? Learn more with this quick homeowner´s guide.

Forgiven debt
In a short sale, the lender agrees to accept less than the amount you owe on the home as payment for your mortgage. Basically, short sale credit involves forgiving part of your debt. And as far as the IRS is concerned, forgiven debt is income - and naturally, they'll subject it to taxes. Few homeowners are aware of this because the bank doesn't always bring it up during short sale credit negotiations. You may want to talk to your short sale attorney or agent to see if you can handle the tax obligations that come with the deal.

The Mortgage Debt Relief Act
In 2007, the government passed a bill called the Mortgage Debt Relief Act. Under this law, debt forgiven in a short sale is exempted from taxes for up to $2 million (married couples filing separately are eligible for $1 million each). The exemption will be in effect from 2007 to 2012. Note that the law only applies for forgiven debt that's related to the homeowner's financial hardship or a decline in property values - it does not work when the discount is given in exchange for services to your lender.

Other protections
The Mortgage Debt Relief Act applies to most homeowners doing a short sale on their principal residence. Besides this, short sale credit exemptions also include the following:

-Bankruptcy: Any debt forgiven through a bankruptcy filing rather than a short sale is not considered income and therefore will not be taxed.

-Insolvency: You are considered insolvent when the fair market value of all your assets is less than your total liabilities. If this is the case at the time your short sale credit was granted, the forgiven debt may not be taxable.

-Farm debt: Debts incurred for farm business purposes are not taxable when forgiven in a short sale credit transaction, as long as the farm accounted for more than 50% of your income for the past three years.

-Non-recourse loans: In a non-recourse loan, a default can only be resolved by repossessing your property or collateral - they cannot personally go after you. If the short sale forgives part or all of the loan, the forgiven amount is exempt from taxes, although there may be other short sale credit tax consequences.

Repairing Your Credit After a Short Sale

One of the reasons many people opt for short sales over foreclosures is that short sale credit damage is much less drastic. A borrower's credit score can drop by 100 to 200 points on average after a short sale, whereas a foreclosure brings it down by 300 or more. Still, many are looking for short sale credit repair options to help them minimize the damage - after all, we´re in a market where credit plays a central role in our every move.

So how do you repair short sale credit damage? It doesn't happen in a snap, but there are ways to go about it. Read on to find out how.

What the law allows

The first thing to keep in mind is that it's your lender, not you, who can remove the short sale from your credit report. The particulars vary from state to state, but short sale credit reporting is generally allowed for up to seven years. Your lender can choose to remove it sooner, but not later. Short sale credit repair often involves negotiating with the lender to clear the record, usually when the score itself has rebounded enough to merit good rates.

Negotiating with your bank

Experts say the best way to negotiate short sale credit repair is to point out that the short sale benefits both parties. Since you didn't let the house go to foreclosure, you do them a favor by taking on the responsibility of selling the home yourself. You may have suffered the short sale credit damage, but in the process you saved your bank thousands of dollars in foreclosure costs and the pressure of having a nonperforming asset in their checkbooks.

Getting informed

Of course, it´s always better to find out what short sale credit damage to expect before completing the deal. Ask your bank how they will report the short sale and try to get them to do otherwise. Or if this isn't an option, ask about short sale credit repair options for after you've closed. Most banks will have credit improvement programs for clients, and since you´re working in their favor, they´ll be more than happy to show you your options.

Rebuilding credit

You can start taking steps towards short sale credit repair as soon as the home is sold off. As soon as you're able, start taking out minor credit and make sure to keep them current. You may not qualify for optimal rates just yet, but each payment you make counts toward your credit score and reduces short sale credit damage.. Over time, the little points add up and your short sale credit will be back in the positive zone.

HAFA SHORT SALE INFORMATION

Why Sellers Want to Do a HAFA Short Sale

Most sellers have never heard of HAFA. They have no idea why they would do a HAFA over a traditional short sale. But those who follow short sales closely know there are many benefits to a HAFA. For starters, let me debunk a myth that HELOC's refuse to participate in HAFA. HELOCs do participate in HAFA because they get more than they would get in a traditional sale.

#1 benefit to a HAFA is a full release of liability
#2 benefit to a HAFA is to receive up to $3,000 in relocation funds
#3 benefit to a HAFA is the bank cannot foreclose during the HAFA short sale process

If you have applied to the HAFA short sale program in 2010 and were rejected because your payments did not exceed 31% of your gross monthly income, that ratio no longer applies after February 1, 2011, except for a GSE. You might want to reapply for a HAFA.

Two Types of a HAFA Short Sale

When I first heard the two types of HAFA short sales described, I was very much against the preapproved HAFA short sale. I have since reversed my position. If I have any inkling that a client in Sacramento might qualify for a HAFA, I help the seller to go the preapproved route. I've been very successful with this approach. There are basically 2 ways to go:

A Preapproved HAFA. Get preapproved for the HAFA before putting your home on the market or before receiving an offer. There are advantages to doing a preapproved HAFA short sale. In a preapproved HAFA short sale situation, the bank will preapprove your sales price and the property.
Traditional HAFA. Submit paperwork for the HAFA when you receive an offer. While submitting an ARASS (alternate request for short sale approval) is fine, there are disadvantages to this approach. A major downside is you do not know if the offer price will be approved.

The Advantages for a Preapproved HAFA Short Sale

You eliminate much of the hassle, confusion and stress of a short sale when you apply for a preapproved HAFA. You can ask the bank to preapprove you or ask your real estate agent for help. Under no circumstances should you ever have to pay advance fees for a HAFA. You pay nothing for a HAFA. No seller contribution whatsoever. Here are more advantages:

There is no guesswork in pricing short sales. Some short sale agents dislike this feature because they say banks price them too high, but the bank always approves the price of the short sale, whether it's on the front end or the back end. With a preapproved HAFA, you know exactly how much the bank will accept.
There are no buyers traipsing through your home while you are getting preapproved for the HAFA, unless you decide to go on the market. If it won't take long to sell your home once approved, it might be better to stay off the market and wait for preapproval. Besides, if you are not approved, then you have not gone through all of the work of signing offers and going into escrow only to be disappointed and to crush the hopes of the prospective buyer.
Banks are given specific guidelines and time frames to follow. Once you are preapproved, a bank must respond to your buyer's offer within 10 business days of receipt. That means your short sale will stand a head taller than all of the others on the market because your short sale is preapproved. If you submit an offer instead and wait for a HAFA response, if rejected, this rejection adds an additional layer and even more time to your short sale process. Buyers don't always want to wait while a seller applies for HAFA.

If you are rejected for a HAFA, then you may very well qualify for a traditional short sale. A HAFA rejection does not mean that you cannot do a short sale. It means the bank probably believes that you can afford to pay something toward the short sale, to help offset the bank's loss.