Selling a Short Sale FAQ's
Do I Qualify for a Short Sale?
Contrary to popular belief, it is not difficult to qualify for a Short Sale. Typically, lenders require these four ‘conditions’ in order for you to qualify for a short sale.
1. The homeowner must be experiencing a hardship.
Hardship: Many conditions may qualify as a ‘hardship’ such as a death of a spouse, job loss, or even a forced move. But something has to exist in order for the lender to move onto the next step. Call us to find out the many more options that may be available to you to qualify.
2. The homeowner must owe more than the home is worth (negative equity, upside down,under water).
Upside down/under water: Seems basic as many homeowners are experiencing a legitimate hardship, but are not in a upside down position as it relates to the current value of the home versus the mortgage balance.
3. Typically, the homeowner must be in arrears (past due, behind or will be soon) on their mortgage payments.
Arrears: Most of the time the lenders will want to see the homeowner behind in their payments. But not always. We have successfully negotiated with lenders for our clients that are not behind!
4. They must be financially insolvent.
Insolvency: This is a big one. Some homeowners can demonstrate a hardship, are upside down and behind on the mortgage, but have the assets available to bring to a closing. You must be able to demonstrate insolvency, you have no more money to offer the lender.
How should I select the right team to successfully market & negotiate my Short Sale?
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.
A properly trained Short Sale Agent knows how to qualify you for a Short Sale transaction and therefore has a very high success rate. Most Realtors®, Investors and Real Estate Agents do not understand how to qualify you and your lender for a Short Sale Transaction. This is one of the reasons they often have such low success rates when it comes to closing a Short Sale. Investors have around a 10% success rate. Most other so called ‘Short Sale Specialists’ have between a 20-50% success rate.
Be smart and make sure that you ask many questions before trusting your future, your credit and your financial situation with a self-proclaimed ‘Expert’ that may have a “special designation” after their name and just learned about Short Sales from a Title or Escrow Company, a Real Estate Seminar, or their Broker.
How long does it take to complete a Short Sale?
This simple answer is that it takes approximately 5-7 months to complete a Short Sale from initial contact with you as the customer to closing.
There are several stages that are involved with the Short Sale process…
1. The first stage requires working with you as the homeowner to get all of the required documentation that your bank will require us to send them – we refer to this as completing the Short Sale Package. This stage shouldn’t take longer than a couple of days but this stage lies solely in your hands (to get this process started right away, please complete the Short Sale Start-Up Documents.
2. The second stage involves us preparing the listing paperwork and scheduling an appointment with you to see your home and prepare your home to be listed for sale. This stage only takes a few days as well.
3. The third stage entails us aggressively marketing your home for sale and producing a willing, ready, able, and committed buyer. This stage can take as little as a few days or as long as a few months.
4. The fourth stage is the actual presentation of the offer to your bank. This is where our expertise and experience in negotiating Short Sales takes place. The actual negotiation/approval process can take as little as 30-45 days or as much as 90+ days. On average most Short Sales take between 60-90 days from the date the offer is presented to the lender to the date of the Short Sale approval. The process would not typically be described as “fast” on the banks side of things, but with the right team working on your behalf, you can put your mind at ease knowing that everything is being handled diligently and professionally.
5. The fifth and final stage to the Short Sale process is the period of time between Short Sale approval from the bank and the buyer closing on the home. We prepare all of the buyers that we work with to be ready to close in as quickly as 3 weeks from the time of Short Sale approval. Often buyer’s will even close sooner than this as we always advise them to keep all of their lender documentation up to date.
Why would a bank agree to do a Short Sale and are there any credit consequences to doing one?
It is much more cost effective for a bank to do a Short Sale rather than Foreclose on a home. Banks are not interested in owning real estate. While banks will take a loss doing a Short Sale, they can often minimize their loss by as much as 40% by avoiding a Foreclosure.
As for credit consequences,there are many different variables involved. The first thing to keep in mind is that the moment you go 30+ days behind on your mortgage payment, your bank has the right to report to all of the credit bureau’s that you are 30 days behind on your payments. When a late payment is reported to the three major credit bureaus, it does have a direct affect on your credit. After going through a Short Sale or a Foreclosure, most people have multiple 30, 60, and 90+ day late payments reporting on their credit report.
When the actual Short Sale is completed, most banks will report to your credit report that your account was “paid in full for less than the full amount.” Your credit report may also be marked as “settled.” It is important to keep in mind that each lender has a different way of reporting that a Short Sale was done, but this is the most common language that is seen. If your home were to go to Foreclosure you would most often see the bank report “Foreclosure” on your credit report.
It is difficult to gauge how much of a credit scoring affect a Short Sale has vs. a Foreclosure. Credit experts will agree that neither a Short Sale nor a Foreclosure is favorable to your credit or credit score, however, the impact of a Foreclosure is much. With a Short Sale, it is typically the missed payments that negatively impact your credit score. We strongly advise you to work with a Credit and Credit Scoring Expert for more specifics on this topic, and for ways to improve your credit after the Short Sale is completed.
Who benefits from a Short Sale? This sounds too good to be true.
Short sales are a win-win situation. Lenders, Mortgagees and Realtors all benefit from the successful short sale.
Mortgagors get the majority of their money back, Mortgagees get the relief they need and are able to sell their property and avoid foreclosure, and Realtors can facilitate the transaction and receive compensation (commission) from the sale of the property.
Things that are ‘too good to be true’ usually don’t make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is, mortgage companies and banks are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.
Why not just let my lender foreclose?
NO! What is the first thing banks do when they foreclose on a property? Hand it over to a real estate agent to get rid of it quick!
The foreclosure process is a legal process. It involves attorneys and it costs a lot of MONEY. Once they get the property back via foreclosure they must often sell it for MUCH LESS than market value and pay Realtor commissions and all customary closing costs. Doesn’t it make more sense for them to take at or a little below fair market value before foreclosing?
And, even when they do sell it through foreclosure… this does NOT remove your obligation to repay the remaining balance! It is not wiped away!!!
Will my lender send me a 1099 on the debt forgiven?
In 2007 the U.S. Congress passed the Mortgage Debt Forgiveness Relief Act and it is in effect until 2012.
As a result of that act, borrowers no longer pay taxes on the debt forgiven on their primary residence. So if the property is your primary residence, then no, you should not receive a 1099 for the debt forgiven or have to pay any taxes on the forgive debt.
For investment property, the lender does have the right to report to the IRS the amount they have ‘forgiven’ in a Short Sale transaction, the amount of the resulting tax will be far less than the debt forgiven. For example, we had one client who did get a 1099 for $30,000 forgiven. This resulted in additional taxes of $1,300 for that year. The resulting tax is far superior to paying the difference of the debt. Also, if the property is in foreclosure, the foreclosure would have a much more devastating affect on you than the amount of the 1099. As always, you should always contact you tax professional and/or attorney to see how you will be affected.
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What if I’m not behind on my payments OR what if my home is already in foreclosure?
Short sales work – even if you’ve never missed a payment!
Yes, I know… short sales have gotten a stigma of being only available for folks who are in foreclosure. But I have successfully negotiated dozens of short sales for folks who have never missed a mortgage payment! They just happen to be in a negative equity position and need the short sale in order to sell their home.
What if my home is already in foreclosure? Your foreclosure sale will usually be suspended during the short sale process. That’s why it’s imperative that you contact us right away!!!
Can I lease out my house while we’re waiting on the short sale?
No. We don’t recommend that you lease your home while waiting on the short sale to be finalized.
Lenders will not be sympathetic to sellers who are collecting rent payments and not making their mortgage payment. Also, homes with tenants are subject to legal rules (tenant rights) and much more difficult to show and to sell.
Do you think I should just do a loan modification instead of a Short Sale?
If you desire to keep your home and can afford to make the monthly payments, then YES you should keep it!
In order to qualify for a loan modification, you will need to demonstrate to the bank that you are generating more income than your current monthly expenses.
Is this the case? If so, you will need to call your lender and let them know you want to do a loan modification, and see if they will qualify you for their loan mod program. If you aren’t approved, we can then move forward with a short sale. We can’t work the short sale at the same time you are working with your bank on a loan modification.
How much will the short sale cost me?
Absolutely Nothing!!!
The real estate commission, attorney fees, title fees etc., will be paid by your lender.
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