How do you know if a short sale is right for you?
How do I start the process?
Start your search for a real estate agent as soon as possible. Look for an agent who has experience working with mortgage companies on home sales.
Once you have found a real estate agent. They will walk you through the short sale process.
What is a Short Sale?
A Short Sale is the sale of a home when you owe more on your mortgage then what the home is actually worth in the current sales market and your mortgage company accepts a discounted payoff to fully satisfy the loan.
Is a Short Sale right for me?
Mortgage Companies are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship that makes it likely you will be unable to meet your obligation on your mortgage, your mortgage company would prefer to settle the matter with you as opposed to taking the property through foreclosure.
As you consider the option of pursuing a Short Sale, remember your mortgage company is looking to limit any potential loss on your loan. By completing a Short Sale, your lender has arrived at a solution that is, for them, much better than a foreclosure.
If I do a Short Sale, how much will I have to pay to sell my home?
Nothing. It’s true, in most cases you will pay literally no sales costs if your mortgage company approves the Short Sale. We will include the following clause in the contract.
“Seller’s agreement to sell is subject to approval by existing lender of a Short Sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow.”
Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
How do I get started on a Short Sale?
It’s easy. Just contact one of our representatives at Chantel Ray Real Estate and we can get you started with the short sale process. Just call 757-717-1003 for more information.
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, your mortgage company 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 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.
- Family illness or injury
- Illness or injury in the extended family – particularly if it forces relocation
- Job relocation when the property is equity deficient
- Job loss or significant income loss
- Divorce or split of domestic partners
- Adjustment in mortgage payment or unforseen increase in living expenses
I am current on my mortgage, will my lender consider a Short Sale
The answer is, maybe. Some mortgage companies will accept a Short Sale file for approval on loans that are not behind. Other mortgage companies will not accept the file until the loan is delinquent. We can put your Short Sale file together within a couple days and submit it for approval during which time we will list your house for sale. (Remember, there is no charge for this). That is the best way to determine if your mortgage company will accept a file for approval on a loan that is current.
Why would a mortgage company agree to accept a Short Sale?
There are actually several reasons why a mortgage company would approve a Short Sale, including the following;
Legal Concerns – Mortgage companies have come under legal pressure to work with borrowers to resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets. Keeping properties maintained, keeping utilities on, making repairs. A successful Short Sale eliminates most of these costs.
A successful Short Sale lets the lender put more money to work.
Should We Choose a Short Sale Over a Foreclosure?
In some cases, it might be easier to let a home go to foreclosure than endure the struggle and stress of a short sale. Whether you should consider foreclosure may depend on the financial and legal consequences of a foreclosure. You should always, without fail, get legal and tax advice because real estate agents, unless licensed to practice law, cannot provide it.
Do lenders approve all Short Sales?
No. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved. For more information on Short Sales and our companies experience please call 757-717-1003.
I have two loans; can I still do a Short Sale?
Yes. We can work with both mortgage companies (many times the same lender hold the 1st and the 2nd loans) 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 two mortgage companies to cooperate. In the end, neither mortgage company wants to own another home through foreclosure.
My property is in rough shape and needs work, can I still do a Short Sale?
Absolutely. In fact, mortgage companies are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. The mortgage company knows the risk of loss goes up when they foreclose on a property that needs lots of work.
Mortgage companies are simply not set up to get the work done. They are in the loan business, not the fix- it business.
I am concerned about my credit, how will a Short Sale affect my credit?
The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event your credit status can encounter – worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit.
By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.
My income problem was temporary. Do I need to sell my home?
You may be able to keep your home. You need to convince your mortgage company of two things:
The problem that caused the mortgage payment disruption was beyond your control – illness, injury, temporary disability or forced job change are a few examples.
What is a Forbearance Agreement?
A Forbearance Agreement is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:
The borrower’s promise to remain current on the mortgage going forward
Some plan for making up the delinquent interest and other charges. It may mean making additional payments to the mortgage company or the delinquent amount could be added to the loan to be paid later.
How Can a Seller Get Multiple Offers on a Short Sale?
One sure-fired way to get multiple offers is to price your short sale below market value. There are other ways to get buyers bidding over each other for your home. Beware of pricing your short sale too low because the bank is unlikely to take a low bid and some buyers might get confused and make lower offers that are unreasonable.
Should We Stop Making Our Mortgage Payments to Do the Short Sale?
It is a myth that you must be in default, behind in your payments, to do a short sale. However, there are certain situations in which your payments must be delinquent. Most of those involve government loans because yes, in some cases, the government wants you to stop making your mortgage payment.
Ask your agent they will be able to guide you in the right directions.
Will the Bank Come After Us for the Difference?
One of the main reasons to do a short sale is to get a release of personal liability, yet not every seller is released. Some loans carry a personal guarantee in some states. Some hard-money loans in certain states allow for deficiencies. Absence of verbiage pertaining to a deficiency in an approval letter doesn’t necessarily mean the seller is released.
Why Would the Bank Reject Our Short Sale?
Banks look for crucial elements to approve a short sale but perhaps the biggest motivator is whether the bank will make more money by granting a short sale over pursuing foreclosure. Sometimes, the bank won’t tell you that it stands to profit far greater through foreclosure. It will simply state a price it wants that no buyer would ever pay.
The HAFA short sale program, effective from April 5, 2010, through December 31, 2015, is touted as the answer to every short sale agent’s nightmare. HAFA promises short sale approval within 10 days and gives the seller up to $3,000 in cash at closing. But because HAFA is a government-sponsored program, it’s a lot more complicated than that.
HAFA is an acronym for Home Affordable Foreclosure Alternatives, and it’s part of President Obama’s Making Home Affordable Program. The first step is for a borrower to apply to HAMP, Home Affordable Modification Program. Here are the rules to be eligible for the HAMP program:
- Only personal residences are eligible.
- The mortgage amount must be less than $729,750.
- The borrower suffers a hardship such as loss of income, an increased mortgage payment or an unexpected increase of expenses.
- The mortgage originated before January 1, 2009.
- The PITI mortgage payment, including HOA, is more than 31% of the borrower’s gross monthly income
What is a short sale negotiator?
A short sale negotiator is someone who provides assistance in negotiating with the mortgage company on the your behalf. The goal is to convince the mortgage company to accept less than the debt amount on them mortgage(s). There are currently several variations of the term “short sale negotiator.” Foreclosure consultants help a person stay in their home, typically by working with the mortgage company to lower monthly mortgage payments. Short sale negotiators engage in activities intended to result in the sale of the home.
How long does the process take?
Once you complete and send in your documentation, the next step is listing your home for sale. Once in a contract is written on the property the Short Sale Negotiating begins. This may take from 60 – 90 days for the bank to approve the short sale.
How will a short sale affect my credit?
Depending upon how the short sale is negotiated and the agreement made at the bank, it is possible that the short sale could have only a small impact on your credit score. However, missed mortgage payments (if there are any) will definitely have a negative impact on your credit.
What are the tax consequences of a short sale?
You should always check with your accountant regarding the possible tax consequences of a short sale. President Bush did sign into law the Mortgage Debt Relief Act of 2007, which does have positive tax consequences for those who participate in the short sale of an owner-occupied property.
Why is a short sale better than a foreclosure?
When you participate in a short sale, you will avoid the foreclosure ‘ding’ on your credit report. Additionally, the FHA has stated that those who participate in a short sale can purchase in as little as two years, whereas those who have lost their home to foreclosure will likely be unable to purchase for 5-7 years. Consult an attorney and/or an accountant to help decide what option is best for you.
Can I participate in a short sale if I have no late mortgage payments?
The simple answer is ‘yes.’ If you have a significant hardship, then you can participate in a short sale.
My foreclosure date is 2 weeks away. Can I still participate in a short sale?
Some mortgage companies will postpone a foreclosure date if they have a complete short sale package from the seller and the seller’s agent. This package must include a purchase contract as well as important financial information. Without these items, lenders will not postpone a foreclosure date.
For more information on short sales please contact Chantel Ray Real Estate at 757.717.1003 or email firstname.lastname@example.org
Short Sale Q&A
1. Who is a short sale right for?
Those who have had a hardship, and are financially unable to pay for, due to said hardship(s), their current mortgage with a lender who is willing to agree to a short sale rather than go through the expensive process of foreclosure.
2. What are typical hardships that allow for a short sale to be possible?
Common hardships include family illness/injury, loss of job, job relocation, unforeseen increase in living expenses, proof of insufficient income to pay current mortgage and divorce.
3. Must there be a delinquent payment on mortgage to be eligible to qualify for a short sale?
It completely depends on the lender, and their policies. Some lenders require for a delinquent payment, where others do not.
4. Why would a lender accept a short sale, if they know they will lose money in the deal?
Lenders want to work with the borrower to reach a compromise solution, in such they will do extensive calculations to see if it is more financially viable to accept the short sale and have the opportunity to sell the property, netting a smaller loss than with the other option of a foreclosure. The foreclosure process is usually time consuming, and expensive, not to mention, if the property goes to auction, it could bring significantly less than it would through a short sale.
5. Do all lenders accept a short sale?
It completely depends on who the lender is, and what their level of experience they have in dealing with short sales. The larger the bank, the more likely they are to accept, and the smaller, “local” banks tend to be more hesitant, or may not even accept at all. The scenario may also, have a considerable bearing on the lender’s decision as well.
6. In the event of a short sale, who is responsible for expenses necessary for resale?
Once a lender has accepted and approved the terms of the short sale, the lender then incurs all of the foreseen expenses involved in the resale of the property, often paying for most of the repairs necessary for resale. The lender has most likely taken these expenses into consideration in their calculations prior to acceptance.
7. After a short sale, is the person responsible for paying taxes on the cancelled debt?
President Bush passed legislation which is still in effect, specifying if a primary residence goes into short sale, the previous owner is not responsible for paying taxes on the cancelled debt via a 1099 form.
8. Does a short sale affect one’s credit?
The short sale itself does not directly affect one’s credit, it is a fair better solution than a foreclosure which is catastrophic to credit. The problem that arises with a short sale affecting credit comes in the form of delinquent mortgage payments while the short sale is in progress.
9. What is an “Arms Length Transaction”?
Mandatory in a short sale, it is an agreement by the previous owner of the property in the short sale that they are at “Arms Length” from the Seller, meaning they are not related to, or friends with the seller in the deal.
10. Why is a deed in lieu not recommended over a short sale?
A deed in lieu is basically viewed as a foreclosure, and carries significant damage to one’s credit, typically marring credit for 3 years. A short sale is a safer option, and is much easier to repair damages to credit.