What is a “Short Sale”? A “short sale” is a term that is commonly used when a property is sold for an amount which is insufficient to pay the existing liens, encumbrances and costs associated with the sale of the property. The seller is often said to be “upside down” in the property.
The current market value for the property is $300,000.00. Closing costs are estimated to be $40,000.00 and the current balance on the loan secured by the property is $390,000.00. The sale proceeds will be insufficient to meet the seller’s obligations at closing by $130,000.00.
What will a short sale cost me?
Watch out for people who want to charge you up front for Short Sale Services...they may never perform! When you hire me to handle your short sale transaction, all fees and commissions will be paid out of the proceeds of the sale of property. No additional fees will be charged to seller by Intero Real Estate Services or its agents. Any payment for services rendered by Intero Real Estate Services and its agents in the sale of this property are a reduction of the proceeds of the sale and are paid through escrow at closing.
Can I simply deed my property to someone else and avoid the hassle?
Deeding your property to someone without paying off the loan is nearly always a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit. Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property. Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.
What are the possible solutions?
The seller can deposit the additional funds required into escrow at closing or the seller can contact the existing lender to determine if the lender is willing to reduce the amount required to release their lien from the property. The second of these two solutions is what I work to facilitate in the short sale process.
Do I need to be late on my mortgage to do a short sale?
You do not need to be behind in payments, the bank will need to see that you have a hardship. A hardship can be the loss of a job, a divorce, a catastrophic medical event, job relocation, or a death in the family. Even if your hardship is not mentioned here, you may still qualify for a short sale.
What sort of hardship would my lender consider legitimate?
To some extent, that will depend upon the mortgage company considering the Short Sale request. Generally, so long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file. Below you will find a list of “hardships” that are common and frequently accepted by mortgage lenders:
o Family illness or injury
o Illness or injury in the extended family – particularly if it forces relocation
o Job relocation when the property is equity deficient
o Job loss or significant income loss
o Divorce or split of domestic partners
o Adjustment in mortgage payment or unforeseen increase in living expenses
My house is in perfect condition, will my lender still accept a short sale?
Absolutely - a short sale is dependent upon what you your property's current value is and your specific financial hardship, not the condition of the property.
What kind of communication to the lender is needed?
The seller should contact the existing lender to determine the documentation required to start the “short sale” approval process and the amount of time necessary for the lender to provide a preliminary determination, once the seller has provided the required documents. I will be happy to provide you with a list of documents that will be required as well.
I have two or more loans, can I still do a Short Sale?
Yes. I can work with all lenders to put together a Short Sale transaction. Even if the value of your home is below the balance of the 1st mortgage, we can normally get the other lenders to cooperate. In the end, none of the lenders want to own another home through foreclosure. I have successfully completed many short sales on homes with more than one loan.
Can I get any money out of this transaction?
No. Nearly every lender has requirements when they give an approval and accept a short sale offer that state, the seller will not receive any funds from the sale of the property.
Will my lender forgive the balance owed when short selling my house?
This is something that has to be negotiated between you and your lender(s). Some will forgive the entire debt owed, while others will not.
Why would my lender accept less than what I owe?
Banks do not want to get your house back. Let me repeat that, banks do not want to get your house back. Your lender is interested in minimizing their loss. If a short sale is less of a loss than a projected loss from a foreclosure, your lender may accept a short sale.
How long is the Short Sale process?
The short sale process is entirely in your lenders hands. The short sale process can take up to 60-90 days and in some situations up to 6 months. Some lenders can have a response to us within 30 days while others take longer.
How will my credit be affected? Short Sale vs Foreclosure?
While a short sale or a foreclosure is not a mark you'd like to have on your credit report, generally speaking, a short sale may be better in the long run. A foreclosure may affect your FICO score as much as 300 points while a short sale might affect your score 75-100 points. While those with a foreclosure may not be able to buy another home for 7-10 years, families with a short sale and good credit may be able to purchase a home in 36 months.
What are the tax, legal and credit implications of a short sale?
Tax ramifications of a short sale vary from a zero tax burden for some to a significant tax burden for others. As a real estate sales professional I am not licensed advise you on these issues. Please seek professional tax, legal and credit advice. I recommend that you visit online: http://www.irs.gov/individuals/article/0,,id=179414,00.html which is the IRS site explaining the Mortgage Debt Relief Act of 2007 and how it exempts many people from Federal Income Tax on a short sale.
The Purchase Agreement:
The lender will not provide final approval for the short sale until the seller has entered into a purchase agreement with a prospective buyer and the seller’s acceptance of this agreement should be contingent upon the successful negotiations with the seller’s existing lender to reduce the amount required to release the lien of record.
If the short sale is approved, the lender will provide the escrow holder, upon request, a written statement reflecting the amounts required to release the lien of record and any final conditions which must be met before the lender will authorize escrow to close.