What does Short Sale mean?
A short sale simply means the amount of the existing mortgage is greater than the sales price or value of the home. A short sale would result. The mortgagee would accept the lesser amount and avoid the foreclosure proceedings. The balance of the loan would be forgiven by the lender.
Why do lenders allow a short sale? Simple. The seller cannot afford the home any longer and the lender avoids the costly foreclosure proceedings.
If I have equity in my home, will my lender allow a short sale?
Depending on the amount of equity, lenders may choose the traditional means of foreclosure. This may allow the lender to recapture some of the expense of the proceedings. Though on the other had, the home may be encumbered by other liens, and the inventory of homes may detour the lender from wanting to take title.
Can I still profit on a short sale?
No – Though the seller may have used the equity on a previous refinance or equity line, the current loan balance will be higher than the selling price of the home. A seller may not receive proceeds from a short sale.
Can I stay in my home while my house is being sold?
Yes!!!! We market and show the home as any other home is shown. No embarrassing signs in front of your home, no one knows other than the Realtor and client. The only place it is noted as a short sale is on the multiple losing system. We do everything we can to ensure your pride. Guaranteed!
How much time do I have to start a short sale?
In a Pre-foreclosure “Time is of the essence”. Time lines starts from the date the notice to the borrower is filed. Each state has individual foreclosure laws and regulations. In some states a foreclosure can proceed as quickly as 35 days. Do not delay. In most cases you have no more than 60 days from the date of the notice, to contact lender to effectuate a lender approved short sale.
Is there an application process to start a short sale?
Yes – In basic terms you are applying for a short sale in much the same way you applied for your mortgage.
The individual short sale process will depend on the lender. Be prepared to submit a hardship letter detailing the circumstances behind the short sale; Current financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement.
Additional, they may require a monthly budget assessment. Lastly, a signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender.
How will a short sale affect my credit rating?
Current estimate is -50 points. Each individual lender to decide what to report. Often it will note loan as “paid” on their credit report, while in the footnote it may reference “settled for less than amount owed”. though it is a mark on the credit report, it is more favorable that “foreclosed” which is currently about -250 points.
I have filed for bankruptcy, can I still do a short sale?
Most lenders would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. A short sale by nature is a collection activity which is prohibited in a bankruptcy.
Will I need an appraisal for a short sale?
This is not on your list of things to do. Lenders vary on whether they will use a full appraisal or real estate BPO brokers price opinion to be submitted in the short sale package. All lenders will require a formal assessment of value of the home. Some will use more that one type of appraisal.
What are the tax implications in the short of real estate?
This is a biggie. Consult a tax accountant and a Real Estate Attorney as each case varies. Generally, taxes are reported as a loss to the lender and a gain to the buyer. If the lender forgives 20K on your mortgage, you would receive a form 1099C in that amount as income, and responsible for paying the tax.
The mortgage forgiveness act of 2007 allows forgiveness of up to 2 million on the principal residence. This is purchase monies only – meaning the mortgage you took out to purchase your home.
Sellers need to understand that if you then took a HELOC (home equity line of credit) for other reasons (debt consolidation, college, home remodel etc) this money IS NOT purchase monies. Many lenders will require you to sign documents (promissory note) that you understand you are responsible for the deficiency / short fall.
Understanding the process is imperative to sellers and buyers alike. As a certified short sale and foreclosure resource, we have the knowledge and expertise to help navigate and negotiate on your behalf.
Speak with your lender regularly. Call customer service to locate the loss mitigation department and ask to speak with the manager. It is your money and your home, so speak with the individual that will have the most accurate information.
Make professional contact and give a brief summary of your situation.
Follow up, follow up and follow up.
Above all understand what your lender wants and their procedures for a short sale. Does the lender have any alternatives? Are they willing to work with you? Can you modify your existing loan? Now is not a time to be shy. Ask the questions. It is extremely important to find out their position up front in order to increase the likelihood that the short sale will occur.
Don’t delay. In a pre foreclosure, the clock is ticking. Know your time lines and stick to them. Communicate any delays to your lender and all parties involved. It is extremely important that you stay informed of your total financial picture.
The myth that banks would rather foreclose than be bothered with a Short Sale hurts homeowners the most. Today many lenders would stall a foreclosure with the knowledge you are committed to completing a short sale transaction.