In the state of Nevada, a home owner has thirty five days from the first day following the day of notice of default and election to sell to pay the balance of the mortgage. To pay the balance of the loan or a reasonable portion of the loan, the home owner may elect to sell the home using a short sale. A short sale is an alternative to foreclosure.
In most cases, a short sale results in the lender accepting less than the amount owed on the loan. When a short sale is accepted by the lender, there may be a deficiency amount owed to the lender. The deficiency amount can be collected by the lender in Nevada because Nevada is a recourse state. In a recourse state, the lender can get a deficiency judgment against you and garnish your wages to collect the remaining amount of the loan.
In Las Vegas, the closure rate of short sales is less than thirty percent because lenders have taken as long as six weeks to reply to offers submitted on a defaulted loan.
To add insult to injury, the time constraints of the foreclosure process ties the hands of the seller, agent, and buyer and puts the burden on the lender to act quickly. The latter may or may not happen due to the lender’s complicated approval process, therefore, the government developed the short sale guidelines called Home Affordable Foreclosure Alternatives or HAFA to combat several issues with the short sale process.
HAFA forces all lenders to utilize the same standard documents and requires that the lender disclose timeframes required to response to an offer on the defaulted loan.
In addition, HAFA has improved the short sale process by forcing the lender to determine the minimum acceptable proceeds prior to an offer on the defaulted loan. The latter requirement alone takes at least two weeks off of the previous four to six weeks response rate.
The most important requirement that the HAFA has is an agreement from the lender not to complete the foreclosure sale as long as the home owner complies with the terms of the Short Sale Agreement (SSA).
The short sale agreement includes the following:
• Lender’s approved list price for the home
• Identified sales costs that will be deducted from the final negotiated sales price
• Moving expense for home owner if funds are available
• Home owner has 120 days to sell the home upon entering in the SSA
• Home owner must pay specified partial payment until home sells
• Home owner must provide clear title
• Home owner must complete required paper work during different stages of short sale
Remember, the lender can get a deficiency judgment against you in the state of Nevada and levy your income by wage garnishment years after the sale. To reduce this scenario, it is wise to consult and attorney and/or accountant and file Form 982. Form 982 is the mortgage forgiveness documentation from the IRS, and you will have to prove yourself to be insolvent to use the form.