Relocation Information

Jon Gilbertson, GMS, of SIRVA, Inc. and Susan Dawson of Genworth Financial discussed principles and techniques to apply to any RFP, contract or service relationship.

When developing an RF, there are many things that need to be considered during the process. Gilbertson and Dawson highlighted that for each program in your relocation policy you should have at least three questions related to the most critical service delivery process steps.

Specifications

The specifications in an RFP for commodities convey the style, appearance and quality of the product. The goal for specification of a service is to solicit information for you to understand how the specific service’s delivery steps will be satisfied. Be sure you are clear whether defining more specifications and expectation does not result in higher costs and higher management fees.

Evaluating

When evaluating RFPs, it is important to identify the importance of each service criteria by weighting or rating them on a scorecard. This can be done by your evaluation team scoring the comments and evidence that the supplier has provided. Gilbertson and Dawson give two ways to evaluate the RFP – the Business Process Review (BRP) or the Conference Room Pilot.

Business Process Review

The BRP is a walkthrough of the process to gain a better understanding of the clarifying comments by reviewing the process from beginning to end, clarifying gaps or questions in the process, asses any changes required and validating the potential supplier process.

Conference Room Pilot

The CRP approach is a more robust validation technique that validates real life scenarios by conducting an exercise with a team that would support your business. This can be done by role playing to assess answers and questions. This will help the team identify the gaps, review the process and make changes to the procedures.

However, the supplier assessment process doesn’t end at the RFP! Gilbertson and Dawson outlined 4 key categories to ensure the success of your service provider – Quality, performance, cost and continuous improvement. The process is continuous and clients should consistently change their policies and expectations. Equally important to keeping your expectations consistent, it is important to be aware and track the total cost when managing and assessing a supplier. Hidden fees can easily be lost and should be critical to consider in all relocation-related expenses.

To learn more about the RFP process, check out our other sessions at www.sirvauniversity.com.

As relocation professionals, what are some things we can do to prepare our transferees to navigate through this complicated and confusing time?
The first and probably best thing a transferee can do is talk to a relocation lender early in the process. Knowing where you are and what you need to do is critical to avoid stress, as well as be in a position to be aggressive with a home purchase offer, close on your terms and complete a successful relocation. The up-front application discussion should cover these seven things to ensure a successful home purchase. 

1. Know Your Credit Report: Many people don’t know what is on their credit report, a complete review is necessary to understand your credit situation and fix any issues that may exist.

2. Be Prepared to Provide Documentation: Income and asset documentation is required now. With all of the changes that have occurred in the mortgage industry, the level of verification is considerably higher than it was a few years ago.
 
3. Do Research on Product Availability: There are still many products available to fit a variety of needs. Understanding what is available and how you qualify is essential.

4. Learn about Property Type Trends: With declining property values, some property types such as condominiums, and other unique housing types are experiencing resale issues as guidelines have become more restrictive on property issues. Preparing for this reality is essential in setting sale expectations.

5. Be Ready to Provide Information for Rate Calculations: Many applicants call to ask “what is your rate?”, but this isn’t an easy question to answer anymore. Interest rates take into consideration factors like credit, LTV, property type, location, and loan size—so be prepared to provide your loan counselor with additional information.

6. Get Pre-Approved: You can still be approved over the phone or online quickly and easily in most cases. By being approved up front, you will be in the best negotiating position when you are ready to buy.

7. Talk through the Complete Mortgage Process: A complete conversation will include the entire mortgage process. Understanding the what, when and whys of returning your documents, the home appraisal, your loan commitment as well as what is involved in closing your loan is critical. It is important to know exactly what you should expect after the closing. Setting the right expectation will lead to a successful transaction.

Talking to a professional relocation lender applies to those buying in the short, intermediate or long-term. Start the conversation early on and a successful purchase will follow.  Please contact me if you have any questions.
 

Some companies have very sophisticated well-thought-through global mobility programs that have been tried and tested for many years. Others are stepping into the global arena for the first time. Either way it doesn’t hurt to check the health of your global mobility program and consider what I would believe to be the 10 best practices to ensure your global relocation program is a successful one.

10 Best Practices to Ensure a Successful Global Relocation

1. Policy
   1. Make sure you have a formal global policy in place that has been reviewed by your global relocation provider for competitiveness and efficiency and bench-marked against industry standards.Candidate Selection 
2. Candidate Selection
   1. Utilize pre-decision surveys or interviews to ensure that your candidate is flexible, adaptable and ready to take on the challenge of an international assignment.
3. Benchmark
   1. Keep up-to-date as situations change, trends develop, and new products come to market.
4. Cost Estimates
   1. In today’s economic environment it’s prudent to have a cost estimate completed before sending someone on an assignment so you have an idea how much it is going to cost.
5. Cost Analysis
   1. Know what you’re spending and what policy changes or exceptions are costing or saving money. There are many examples of companies focusing on elements that are inexpensive and denying them, while allowing exceptions for other elements that are very expensive.
6. Track Exceptions
   1. Be sure to always track any policy exception that was made or declined and the cost of that exception. This will help you be consistent in how you treat other exception requests in the future.
7. Use Proven Providers
   1. Proven providers can give you good advice on all elements of a global relocation and can make the process easier for you.
8. Don’t Cut Corners to Reduce Costs
   1. There is usually a good reason to do something well.
9. Create a Repatriation and Reintegration Plan Well Before the Assignment Ends!
   1. If you don’t, you may risk losing a valuable employee. Statistics show that up to 70 percent of repatriated assignees leave their employer within two years, usually to join a competitor.

For more information on the above global mobility program components and services, please contact SIRVA Relocation for a consultation.

 

Now may be a good time to reflect on the fact that the “bursting of the housing bubble,"which impacted many parts of the United States, was preceded by record setting increases in home prices. While most of the country has seen two year price decreases, some areas like Las Vegas (down 37%), Phoenix (down 39%) and Miami (down 38%) stand out as being especially hard hit. Some experts are now saying that it may take decades for home prices to recover and that we should expect price growth to revert to more post World War II “historical norms." By historical norms we mean that housing prices are much more likely to rise consistent with income levels and inflation. This reality has not been lost on the real estate speculator (now driven out of the market) but what does this mean for corporate relocation transferees? Transferees need to be counseled through the home sale process to ensure that they are basing their decision-making process on current market conditions. For example:

1. The new home is less likely to appreciate during their years of occupancy
2. They should not only buy a home they can afford, but one that they will live in until their next transfer
3. Transferees should choose a home that will suit their long-term needs, as the ability to leverage home appreciation to “buy up” is far more difficult

For more information about counseling your transferees through the the corporate relocation home sale process, please contact SIRVA. 

In today’s precarious economy, many employers are considering giving relocation loans to employees. Several of these employers may not have provided relocation loans to employees before, but are now looking for ways to increase the opportunity to make such loans available.  .

A relocation loan that is done correctly can be offered to the employee interest-free and without exposure to creating imputed interest to the employee which would be treated by the Internal Revenue Service as compensation income.

The following information concerning below market rate loans is an excerpt from an article published by the Worldwide Employee Relocation Council® (ERC) in its Tax and Legal MasterSource:

A. Types of relocation loans

1. Mortgage loans

A mortgage loan is extended by the employer to the employee with the understanding that the employee will use the proceeds of the loan to purchase a new principal residence. Such loan may be a demand or term loan, and is conditioned on the future performance of substantial services for the employer. The loan may have a market interest rate, a below market interest rate, or no interest at all.

2. Equity bridge loans

A loan may be offered to an employee in order to enable the employee to receive the equity out of an old unsold residence to make the down payment on a new residence. The terms of the loan may require that the proceeds be repaid within a short time after the sale of the former residence. The loan may have a market interest rate, or a below market interest rate, or no interest at all.

B. Imputation of interest on a loan transaction

1. Explanation of imputed interest

When a loan is made at a below market interest rate, or with no interest at all, the Internal Revenue Code may impute interest to the loan even though the lender and borrower never did. If imputed interest rules apply to an employee relocation loan, the amount by which a market rate of interest exceeds the loan’s actual rate of interest is considered income to the employee borrower. (The market rate used is the "applicable federal rate," which is computed by the IRS under a formula in the Internal Revenue Code and periodically adjusted.) This income is considered to be derived from the employer-lender, because the employer-lender is considered to have paid interest on the loan to itself on behalf of the employee-borrower.

2. An example of imputed interest

An example of imputed interest may be helpful in understanding this complex area. Assume that the employer has made an interest-free bridge loan to the employee. The market rate of interest on the loan would be $100 per month if interest were charged by the employer-lender. No interest is paid by the employee-borrower or received by the employer-lender. However, the tax law considers the employee-borrower to have owed $100 of interest, and since the employee’s obligation to pay this $100 was satisfied by the employer-lender, the transaction is treated as though the employer-lender paid $100 per month to the employee-borrower, who then repaid it to the employer-lender. This characterization of the transaction gives rise to $100 per month of compensation income to the employee-borrower.

3. Reporting requirements for imputed interest

The employee-borrower must report imputed income on his/her tax return, even though the employee never received it, but then may be entitled to a corresponding deduction for the interest theoretically paid on the employee’s behalf by the employer-lender.

4. Negative tax consequences of imputed interest

If interest is imputed to loans it has negative tax consequences for the employer-lender and may have for the employee-borrower. The employer-lender must pay payroll taxes (FICA, RRTA, and FUTA) on the amounts imputed as interest income to the employee-borrower. (The employer-lender, however, does not have to withhold federal income taxes on the imputed interest income.) The employee-borrower may or may not be eligible for a deduction of the imputed interest. The interest on a mortgage or bridge loan may be deductible as "qualified residence interest" under the general rules applicable to homeowners. However, there may be situations in which interest income is imputed to the employee, but the employee is unable to take a corresponding interest deduction. For example, there is a $100,000 limit on the amount of home equity debt upon which interest is deductible.

C. Avoidance of imputed interest

1. De minimis exception

If the total principal amount of the employer’s mortgage loan, bridge loan, or both outstanding to the employee does not exceed $10,000 during the year, the loans are ex-empted from the imputed interest rules due to their small size. No interest will be imputed in this situation.

2. Exemption for employee relocation loans under regulation 1.7872-5T

Under a temporary regulation, imputed interest will not apply to compensation-related mortgage or bridge loans if the following requirements are met:

      a. Exemption for mortgage loans

          The loan agreement must require the following provisions:

i. The proceeds of the loan must be used only to purchase the new residence.

ii. Such loans must be secured by a mortgage on the new principal residence acquired in connection with the relocation of the employee to a new principal place of work.

iii. The loan must be a demand or term loan.

iv. The benefits of the interest arrangements must not be transferable.

v. The below market interest rate (or the lack of interest) must be conditioned on the future performance of substantial services by the employee.

vi. The employee must certify to the employer that the employee reasonably expects to itemize deductions for each year the loan is outstanding.

     b. Exemption for bridge loans

The terms of the bridge loan must meet all the requirements for the mortgage loan as stated above except for the security requirement. Note, however, that any interest actually charged on a bridge loan will not be deductible by the transferee unless the loan is secured by either the old or new residence. In addition, the bridge loan agreement must provide that the loan is payable in full within 15 days after the sale of the employee’s immediately former principal residence. The aggregate of the principal amount of all outstanding bridge loans must not be greater than the employer’s reasonable estimate of the equity in the former residence. The former residence must not be converted to business or investment use.

     c. An unresolved issue

One issue that remains unresolved under the temporary regulation is whether the exemption applies in situations where imputed interest would not be deductible under the general rules applicable to home mortgage loan interest deductions. This problem is particularly acute for bridge loans, which are often unsecured by either the old or new residence, and, even if secured by the old residence may be considered home equity loans, and therefore limited to $100,000 of principal on which interest would be deductible. Although the IRS has not spoken to this issue, it is arguable that the 1986 Tax Reform Act, which imposed the current limitations on deductibility of interest, would be held to modify the exemption contained in the temporary regulation. However, in the absence of any IRS statement of position, it should be assumed that the regulation may still be relied upon. The IRS continues to follow the regulation, and has shown no interest in revisiting it.

Lynn Bragg, Worldwide ERC® CEO, has agreed to speak at this year's SIRVA University, which will be held on April 1 - 4, 2009 at The Ritz-Carlton in Palm Beach, Florida.

Lynn will be presenting a 2009 relocation industry outlook address, which is sure to be an informative session for the relocation professionals who attend this year's event.

Lynn's Full Bio
Video of Lynn Speaking at ERC's Global Workforce Symposium

More information about this anticipated event to follow.

With today’s business focus on managing costs, there may be an opportunity for you to do a review of your corporate relocation spend. 

Closing costs on the purchase of a home by the transferee in the new location are nine percent of the total relocation cost, averaging over $8,000. Your results may differ depending on your move patterns, demographics and relocation reimbursement policy.

Home purchase reimbursement policies can be categorized into four styles:

1. Full reimbursement
2. Capped reimbursement
3. Lump sum
4. No reimbursement

The first thing to consider, when reviewing home purchase costs, is the company’s philosophy toward corporate relocation benefits. Are you part of a company that desires to reimburse all expenses or is the idea to assist with the costs associated with the move? The answer will certainly impact the relocation policy language and the expense associated with each move.

Preferred relocation lenders that are partnered with you will assist in controlling your costs. Preferred lenders will have negotiated lender fees and will not engage in fee add-ons. Higher fees from outside lenders can cost the company or the transferee hundreds or even thousands of dollars more.

One of the most costly line items in home purchase is points, also known as origination or discount points (fees). These can vary depending on the loan amount. Each point is one percent of the loan amount and typically can reduce the interest rate by a quarter of one percent (.25). Many companies that had reimbursed two points have dropped down to reimbursing one point, while others have reduced one point to zero points. In today’s low interest rate environment, a reduction may be an opportunity to reduce costs without disturbing reasonable benefit levels.

With FHA loans becoming more prevalent, reimbursement of the Mortgage Insurance Premium (MIP) should be avoided. Like the VA funding fee or Private Mortgage Insurance (PMI) these are buyer paid costs that should not be company paid.

Construction loans can also be a costly expense. Many construction loans have two closings, one for the construction and one for the end or permanent loan. Best practice is to pay for only one of the closings, not both.

A general inspection can be a good way to improve the quality of a home purchase and increase home eligibility in the event of another move. These inspections should be capped at $500 to limit the company’s exposure to unnecessary inspections.

Many policies include the reimbursement of home purchase closing costs for current renters. Elimination of this benefit can produce cost savings—however this should be aligned with your company’s philosophy concerning the level of financial support offered during the relocation process. 

Also be aware that sellers, and many builders, can try to push their closing costs onto the buyer, especially when relocating buyers are not familiar with local customs. To reduce the company’s exposure, your policy should indicate reimbursement of normal and customary buyer closing costs. SIRVA is available to review your relocation policy to ensure you are using best practices to safeguard your costs. David Barlow, SIRVA’s senior consultant and author of Navigating Today’s Real Estate Market, has done extensive benchmarking on relocation policy components. He is a great resource to call upon as you examine your policy,

SIRVA Mortgage also provides a free consultation with any transferee to compare Good Faith Estimates (GFE). The consultation will ensure the transferee has “apples to apples” comparison and that the fees are in line with the relocation policy. Oftentimes, we see an estimate that has a lower interest rate that is offset by increased fees. These situations are discussed and reviewed to determine the best option for the transferee.

For more information visit http://www.sirva.com/CorpRelo_Mortgage_Landing.aspx

Selling homes in the current real estate market, with so many sellers chasing so few qualified buyers, has been hard on corporate relocation transferees and their employers. Last year SIRVA reevaluated the way it markets and sells homes in an attempt to lower real estate carrying and operating costs and reduce the financial risks of home ownership to clients. The results were impressive.  

After nine months, SIRVA reduced its number of homes in inventory by 86 percent--from 843 to 118 homes. SIRVA has also reduced its client's AVO home inventory by 60 percent year-to-date. SIRVA now has its lowest inventory level in almost five years. Jon Gilbertson, vice president of risk and quality for SIRVA, attributes the success to a new approach that emphasizes local market expertise and home marketing.

As part of SIRVA's new approach, the company reorganized its risk management team to focus on key components of the risk management process and break down each property individually to ensure it is marketed correctly. The group also enhanced its property performance tracking and improved the appraisal review process to ensure homes were priced accurately, thus minimizing loss-on-sale.

For more information about SIRVA's risk management program, please contact Jon Gilbertson at 763.525.3710.

Accurate and timely accounting of relocation expenses has a far-reaching impact on the overall performance and success of a corporate relocation program, to both the company and the individual transferee.

The company benefits in several ways when a “best in class” expense management process exists, including:

Unquestionably, reimbursement of brokers’ commissions and closing costs, in conjunction with the sale of a relocated employee’s home, creates taxable income. During the mid-1960s corporations created the first home purchase programs in an attempt to eliminate the creation of taxable income resulting from the reimbursement of these costs to the employee thus eliminating the creation of income as well as the cost to gross up that income to keep the employee whole.

In the typical home purchase program the employer, or a supplier retained by the employers (throughout this white paper, utilization of the word employer also refers to a relocation supplier retained by the employer), offers to purchase the employee’s home at “fair market value” as set by an appraisal process. The employer then allows the employee to test the market for a set period usually 30-60 days to see whether they can sell the home for more than the appraised buyout offer. If the employee elects to accept the buyout, then the employer (or relocation supplier) buys the home and closes with the transferee. Closing costs are not charged to the employee, as the employer is simply willing to take a deed for the home without any obligation incurred for such costs. The only exception to this is the first transfer tax (where it is assessed), which is the sole responsibility of the transferee. Further, if the employee lists the home for sale, he or she must have had the real estate broker sign an “exclusion clause,” so that the employee does not incur any obligation for real estate commission if the employee sells the home to the employer. Accordingly, no commission upon the sale from the employee to the employer is due.

If during the offer period the employee does find a buyer willing to pay more than the employer’s offer, the recommended procedure to maximize the tax benefits of using a compliant home sale program would be to use the Amended Value Sale process described below:

• Amended Value Sale: In an amended value sale, the employee informs the employer that a buyer is willing to pay more for the home and the employer (or relocation provider) then amends its fair-market-value offer up to the amount offered by that buyer.

If no buyer is procured by the employee, he or she will accept the offer from the employer. The employer then completes the sale with the employee and conducts a closing where prorations are made up to a certain date (generally the date at which the employee vacates the home). Thereafter, the employer attempts to resell the home and upon such resale all the costs of brokers’ commissions, closing costs and any losses on the resale of the home are incurred by that employer. read more.

To read the rest of the conversation, visit our resource library.

Last month I posted a story about Mr. Jones who worked through a short sale situation.  This month we highlight Mr. Johnson who lives a few doors down from Mr. Jones.

Mr. Johnson has had his house listed for 120 days. Home values continue to decline and there are few buyers in the market. Mr. Johnson has received considerable pressure from his new manager to get moved and settled into his destination city. Mr. Johnson isn’t sure what he should do or what solutions may be available to him.

This relocation situation has become more common in today's market. With the tightening of qualifying guidelines, available options have become limited in the past year. The current solutions include:

• Qualify with both the existing home and the new home mortgage payments
• Rent the existing home
• Hold off from buying until the existing home is sold

Qualifying with both house payments
If a current residence is under contract for sale but has not yet closed, and a transferee is purchasing in the destination city, both the current and the proposed payments must be used in qualifying for the new mortgage loan. In addition, loan underwriting guidelines will require:

• Minimum cash reserves of six months principal, interest, taxes and insurance (PITI) for both properties if the equity in the existing residence is less than 30 percent
• Minimum cash reserves of two months principal, interest, taxes and insurance (PITI) for both properties if the equity in the existing residence is 30 percent or more

Underwriting guidelines will not require the PITI of the existing home to be counted against the transferee if:

• The above cash reserve requirement is met
• The current residence is under an executed sales contract
• There is confirmation that any financing contingency has been cleared**
  
  ** Guaranteed purchase offer agreements can be used to replace executed
  contracts with outside buyers in the case of a relocation loan. The purchase offer must be guaranteed and agreement must be in force.

Renting the existing home
Lending underwriting guidelines allow up to 75 percent of the rental income to be used to offset the current mortgage payment for qualifying purposes if all of the following requirements are met:

• There is documented equity of at least 30 percent in the current property (derived from an appraisal, AVM or BPO less all outstanding liens)
• There is a fully executed 12 month lease agreement
• There is a copy of the security deposit from the tenant and confirmation of deposit into the borrower’s account

If the 30 percent equity in the property cannot be documented, the rental income may not be used to offset the mortgage payment. Both the current and the proposed payments must be used to qualify for the new transaction and six months of PITI for both properties would need to be in cash reserves.

Hold off buying until your existing home sells
This is the option we see most transferees accept. Unfortunately, with the decline in the real estate market and decrease in home sales—we see relocation fatigue, an increase in temporary living costs and cancelled moves. Staying consistent with your communication messages to transferees is important during the listing period. Encouraging aggressive marketing tactics and active involvement with the listing agent will help the transferee through this time. See David Barlow’s blog on Navigating the Real Estate Market for more information.

After reviewing his options Mr. Johnson’s next concern is his down payment. We will look at the possible solutions for a down payment next month and see how Mr. Johnson is progressing with his move.

If you have a group move to manage and are seeking assistance, SIRVA Relocation is able to provide the following services:

Defining Objectives
SIRVA works closely with your Company’s management team to define the overall objectives of the move and ensure their implementation during the move process. As a part of our consultation, we will discuss the Company’s business and human resources goals and objectives, policy issues, the group move timeline, and factors to consider in the cost analysis and process development.

Relocation Cost Analysis
We provide expertise in analyzing the total cost of a group move by detailing the cost impact of policy decisions and local market conditions on both the Company and the employee.

Policy Design
SIRVA can incorporate your business objectives into an appropriate group move policy. A key component of policy design is the solicitation, review and analysis of your employees’ input via the employee survey that we will design to meet the needs of your employee population and the constraints your management has placed on the process. This information, along with policy and benefit guidelines, will result in a Group Move Policy Handbook detailing the corporate relocation program for your employees.

Employee Presentations
We have the depth of experience to assist the Company in securing the employee’s enthusiastic commitment to the move through a carefully planned and professionally presented program for the entire family. This program includes a complete overview of the new destination city and state, plus the ability for employees to ask questions and address concerns about the move. In short, we bring the experts in each resource area to the transferee.

Relocation Resource Center
SIRVA can prepare an on-site, on-going “Relocation Resource Center” for employees and their families, which provides information about the destination city’s schools, housing options, medical facilities, etc.

Information Kit
Each employee will receive a complete package of information about the destination city including, if appropriate, a video about the city. Employees will be assigned a personal relocation counselor who is available to answer questions, research any specific needs they or their family members may have, and arrange for individual home finding trips to the new city (if included in the plan).

Area Tours
SIRVA can organize area tours guaranteed to satisfy your employees’ questions about their new city.

Other services include:
• Home Marketing Assistance
• Home Purchase Assistance
• Home Finding Assistance
• Temporary Housing Assistance
• Spouse Job-Finding Assistance
• Employee Expense Tracking Administration and Tax Calculation Capabilities
• Mortgage Assistance
• Vendor Selection and Management
• Training Material and Programs

• Efficient use of staff
• Sophisticated processes that track corporate “spend” from initiation to payroll reporting to the “true-up” of expenses (as a result of the tax gross up methodology used)
• Consistent policy interpretation
• Objective and accurate expense reimbursement audits
• Reduction of exceptions requested
• Consistent tracking of exception approvals
• Convenient, accurate, single-source management reports
• Efficient reimbursement via payroll or check processing
• Reduced risk of penalties from IRS tax audits
• Accurate gross-ups, payroll reporting and year-end tax true-up

• Timely reimbursement of expense reports, normally within four days
• Information typically available online with easy access to policy, FAQs, and electronic expense reporting
• Convenience and speed in answering questions
• Year-end summary report including all expenses paid to or on their behalf
• Year-end reconciliation of relocation expenses, including an itemization of what is and what is not taxable and the tax gross up where applicable

In my previous post, Mr. Smith completed his home sale in a tough real estate market leaving him with little equity to put down on his new home. Thankfully, he was able to use an FHA 3% down program for his home purchase.

This month we shine the spotlight on Mr. Jones, Mr. Smith’s co-worker. Mr. Jones was also able to sell his home, but it didn’t go as smoothly. His challenges began when he realized he was in a negative equity situation during the relocation home sale process. He heard about a possible solution called a short sale and asked his lender for more details on this type of solution.

A short sale is a solution that can potentially help sellers settle—with their lender—for a lower balance than is owed to payoff the mortgage. Typically a short sale can occur when the documented home value is less than the loan amount and the lender believes the real estate market condition will not improve in the foreseeable future and a costly default may be imminent. 

Sellers in a negative equity situation face several decisions at the time of settlement:

• Make-up the difference between the value and loan amount through savings or by liquidating other assets
• Start a short sale process
• Decide not to sell their home
• Walk away from their home causing default and foreclosure

In this type of situation, there are very few options—all of which propose life challenges that must be considered.

In today’s market, lenders treat short sales as a necessary evil. They thoroughly research each situation for home value and marketability, market condition, seller condition and situation, loan history and compare it to their policies and benchmarks for acceptability. This is a time consuming and information laden effort for the lender and seller as neither party wants to lose in the transaction. After the review the lender can decide to:

• Agree to an unsecured note with the seller for the short balance
• Settle the loan for less than the agreed upon balance (Note: this may or may not include the seller’s credit report reflecting the account being settled for less or written off)
• Forgive the balance and record it as paid in full

All three scenarios are happening today with transferees. In the first two scenarios, the seller has either a new debt for a lender to consider when qualifying for a loan in the destination area or a credit blemish that will need to be considered in a loan decision. Mortgage lenders look at settling a mortgage debt for less, unfavorably. 

Mr. Jones did complete his home sale. After 90 days of negotiation and stress—providing a great deal of information to the lender—he received an unsecured note loan for the remaining balance. Fortunately, he was able to qualify with this additional payment and closed on his new home on time.

Next time we will explore Mr. Jones’ neighbor Mr. Johnson. He faced a different challenge—he couldn’t sell his existing home and needed to buy a new home in his destination city.