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Short Sale FAQ (Frequently Asked Questions)
What is a Short Sale?
Simply put a Short Sale is a real estate transaction where the homeowner owes the lender(s) more than what their property is worth. In a Short Sale, the lender(s) must approve and accept less than what they are fully owed.
I have more than one mortgage, can I still do a Short Sale?
Yes, an expert Short Sale Agent will work with both lenders (many times the same lender will hold the 1st and 2nd mortgage) to negotiate a Short Sale transaction.
Do lenders approve all Short Sale?
No. This why it is critically important you work with someone that knows how to negotiate on your behalf. An expert Short Sale Agent must qualify your lender before they move forward. Most Investors and Real Estate Agents do not understand this step. That is one of the reasons they have such low success rates when it comes to closing Short Sales. Investors have a 10% success rate. Most other so called "Real Estate Experts" don't do much better. Because a properly trained Short Sale Agent knows how to qualify you for a Short Sale Transaction, the success rate is over 80%. So before hiring just any "Agent" to assist you in a Short Sale, make sure they are qualified and understand all the work that is required to see you through to the end.
Who qualifies for a Short Sale?
Anyone who has a valid reason or hardship. You can't just say "I can afford the house, but I don't want it anymore." If that's the reason, the bank will just laugh at your case as they proceed to Foreclose on your property. You must also be in a position where a traditional sale is not an option (in other words, you have no equity and you don't have the cash to pay the difference if you were to sell your home for less than what you owe).
What is a valid hardship?
To some extent that will depend on the lender considering the Short Sale request. Generally, as long as the hardship is real and the lender believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the loss mitigation department. Some examples of common hardships are: family or personal medical problems, job loss or significant income loss , job relocation, divorce, adjustment in mortgage payment or unforseen increase in living expenses, etc.
Why would a lender accept a Short Sale?
The lender gets out of the property sooner than later. There is a saying in the industry, "Your first loss is your best loss." By accepting an amount less than is owed, the lender reduces the risk of not selling the property at auction or worse, not selling it for 6-8 months after the auction. If the market is declining, this could make it a much greater loss than had the lender accepted the short sale option.
If my mortgage payments are not past due, can I still do a Short Sale?
Yes, you don't need to be behind, but you should have a valid hardship and be able to show that you will soon start missing payments if the short sale is not approved within a set timeframe. For example, if you know you will miss payments in March once your loan adjusts and the bank is not willing to approve a loan modification to keep your rate from adjusting.
How will a Short Sale affect my credit?
With a Short Sale, you will have avoided the serious "foreclosure" or "paid less than agreed" ding that can affect our credit for 7-10 years. Plus, an expert Short Sale Agent can assist you in avoiding a deficiency judgement on your credit for the amount of money that the bank lost from selling the home for less than was owed.
Most people who have had a foreclosure on their credit have a difficult time buying a home within the first 3-5 years, unless they have a very sizeable downpayment. Even then, their interest rate will be higher due to the fact that the new lender knows the person has lost a home to foreclosure in the past.
How much will it cost me to do a Short Sale?
Nothing. It’s true, NO OUT OF POCKET EXPENSE. When your lender approves the Short Sale, all commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the Short Sale approval. Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
What are the tax consequences to the seller of a Short Sale?
Typically, the tax consequences will be less severe vs. letting the home go to Foreclosure. If the home is sold at foreclosure auction, you will still receive a 1099-A for the amount the lender lost due to the sale. In a short sale, most lenders will ALWAYS give you a 1099-C for the amount they have lost due to the short sale, if they decide to not seek a deficiency judgement (in almost EVERY case they will opt to send you a 1099-C for the amount of the loss). You may be exempt from paying any taxes on the loss if you qualify for the Mortgage Forgiveness Debt Relief Act and Debt Cancellation of 2007. Always consult a qualified Tax Professional to review your personal taxes consequences.
My property needs a lot of repair work, can I still do a Short Sale?
Yes. In fact, lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work. Aside from expense of completing the work, lenders are simply not set up to get the work done. They are in the loan business, not the fix it business.
How long does it take to complete a Short Sale?
The actual Short Sale process can take as little as 3 weeks or as long as 4 months. In most cases, 60-90 phone calls back and forth between the lender are required. The proper negotiation skills and documentation are required in order to have the correct presentation of the "packet". The lender must be able quickly see that you are qualified for a Short Sale. The process can seem long and painful if you go into the transaction without knowing what to expect. If you know what to expect, then it is not too bad and actually can help you in quite a few ways, (besides saving your credit from foreclosure and/or a deficiency judgment).
Why Should I do a Short Sale? If I am going to have to move anyway, why not let the bank Foreclose so I can stay in the house rent free for longer?
The main benefit of a Short Sale is that in many instances you can still stay in your home rent free just as long as if the house were to go to Foreclosure and you will still be able to show your mortgages as "paid in full" vs. "Foreclosure". The amount of loss is usually less in a short sale, thus the amount of the 1099 to the homeowner in a short sale is less. You will also want to have an expert Short Sale Agent on your side dealing with the lender. If you allow your home to go to foreclosure, there is no one there to help you clean up the mess and pick up the pieces as you struggle with bad credit for the next several years.
If your state permits a deficiency judgment, this can allow a lender to garnish your wages, attach your other properties and aggressively collect for years to come any amount that remains unpaid after a sheriff’s sale of the property.
Can I simply deed my property to someone else to avoid Foreclosure?
No. Be wary! If you fall behind on your mortgage payments you will quickly find yourself drowning in mail and phone calls from different people promising to "save" you. But deeding your property to someone else without first paying off the loan(s) is almost always a bad idea. Even if you deed the property to someone else you are still responsible for the loan payments. If the loan payments are not made, it is your credit that is affected (regardless of who holds the deed). In other words, you lose control of the property and can still be foreclosed on. What ever you decide, do NOT deed your property to someone without first paying off the loan unless you have consulted with your OWN personal attorney.
How can I get started on a Short Sale?
It's easy. To find out if you qualify, give me a call at 305-883-9877 and we will review your situation. Believe it or not, you may just need help getting a temporary reduction in your payment to "catch up." In any case, call me to talk about the several options that you may not be aware of. There is no charge and no obligation.
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