What is a Short Sale?
A Short Sale in real estate is a type of agreement entered into between the seller of a property typically in the beginning periods of a foreclosure and the lender, which allows the property to be sold for less money than what is presently owed. The seller would accept less than the amount owed because they want to avoid a foreclosure. The short sale would result in a significantly reduced purchase price for the buyer of the property. The buyer would then continue with the purchase of the property in the same way as a typical real estate transaction. One of the benefits of such a transaction is that the current lender pays most, if not all, of the sales costs which include real estate commissions, escrow and title fees. The property is sold, the loan is paid off and foreclosure can be avoided.
Is a Short Sale beneficial to me?
Lenders are more and more interested in working with borrowers that are faced with financial hardships and agree to take a reduced payoff on their mortgage. When a borrower is faced with a financial hardship which likely makes them unable to meet their financial obligations on their mortgage, their lender would prefer to settle the matter with them as opposed to proceeding with a foreclosure. As you consider an option with pursuing a Short Sale, you should remember that your lender is usually looking to minimize any potential losses on the loan given to you. By effecting a Short Sale, your lender arrives at a resolution which is much more advantageous to them than a foreclosure. In simple terms, your lender will want to work with you.
Can I start a Short Sale once a pre-foreclosure has commenced?
This greatly depends on each states law and regulations, however, a foreclosure can progress as quickly as 35 days from the date of the notice which has been provided to the borrower. For this very reason, time is of the essence and it is recommended that you should allow an extra window of more than 90 days to allow the lender time to approve a Short Sale.
How much money do I need to pay to sell my property if I decide to do a Short Sale?
Zero. It is true, in many cases you will not have to pay any sales costs if the lender approves the Short Sale. All of the real estate commissions, title & escrow fees are paid for by the lender as a part of the Short Sale approval. Your lender will typically include the following agreement in the contract: “Seller’s agreement to sell the property is subject to an approval by the existing lender of a Short Sale and is at no cost to the Seller. The Seller shall not be obligated to deposit any funds to close escrow.” Please remember that most lenders will approve Short Sales and will accept any resulting losses because they want to avoid even bigger losses if the property continues to go through a foreclosure.
What do I need to do to get started with a Short Sale?
It is a very simple process. You simply need to fill out the Contact Us form and we will get started right away. There is never a fee to you to get started. It is simply us contacting you to schedule an appointment to visit the property and making an offer to you. If you accept the offer, we will contact your lender and start the process. Again, we cover all of the costs. Also, if you later decide that you do not want to do a Short Sale, that is also fine.
What documents do I need to start with a Short Sale?
The documents that you will typically need to proceed with a short sale greatly depends on your existing lender. Most lenders will need a hardship letter from you which details the reasons for the short sale, i.e. why you are behind on your payments, why the property value is below the mortgage amount, what has financially changed in your life, etc. They will also need a signed, valid purchase and sales agreement, preliminary HUD-1 settlement statement and a preliminary estimate of the proceeds which the lender will receive. There might be some supplementary requests for additional detailed information regarding the financial situation of the seller such as paycheck stubs, bank statements, a personal financial statement and a monthly budget valuation. We will help you with these documents and the entire process along the way.
Can I just transfer my property to someone else and avoid the aggravation?
When you deed your property to someone else without paying off your existing loan, it is usually a bad idea. Firstly, your lender will still consider you as the primary responsible party for the required payment on the existing loan. If the loan payments are not made, or if the lender eventually forces a foreclosure, this will show as a negative mark on your credit. Secondly, you will be giving up total control of your property. Together with the deed comes the ability to control your property. Losing control of your property is not something that you want. It is highly suggested that you consult with an attorney prior to deeding your property to someone else.
What kind of a hardship would my lender believe is legitimate?
This generally depends on your current lender since all lenders have individual Short Sale guidelines. In general, as long as the hardship is true and you can prove it, and the mortgage company understands that your loan will become delinquent, the Short Sale request will be processed by the lenders Loss Mitigation Department. One of the greatest struggles in getting the Loss Mitigation Department to accept your hardship request is to submit a very strong hardship letter. Your hardship letter is one of the most important documents in the file. Typically, the most common and frequent hardships accepted by lenders are family illness and/or injury, job relocation, unemployment, divorce, mortgage adjustment, and unforeseen expenses in living. Of course, there are many other reasons as well. We will also help you with your hardship letter.
If I am current on my mortgage, would my lender still approve a Short Sale?
This is a tricky question and once again, greatly depends on the lender. The short answer is, possibly. Certain lenders will approve a Short Sale on loans that are not delinquent. However, some lenders will deny a Short Sale until the time that the loan actually becomes delinquent. Please note that we can put together your Short Sale paperwork for submission to your lender within a few days for approval and since we do not charge you anything for this, it allows you the opportunity of determining whether or not your lender will approve your Short Sale.
Why would a lender approve a Short Sale?
There are several reasons as to why a lender would approve a Short Sale. Here are a few of the reasons:
Legal Concerns – Lenders have increasingly come under legal scrutiny to help property owners resolve financial situations where borrowers cannot make their monthly mortgage payments, especially when a borrower contacts the lender and asks for help.
Wall Street Eye – Lenders heavily rely on their abilities to put together and sell bundles of loans on secondary mortgage markets. Bundles of loans are sold in order to transfer available funds back to the lenders which enables them to lend money to borrowers once again. This process allows them to collect fees along the way. Mortgages that poorly perform after they have been sold could make the lender’s ability of reselling the loans on the secondary market much more difficult. By contrast, an approved Short Sale quickly gets money back to the lender.
Asset Management Expenses – Once a lender obtains a property through a foreclosure, the property needs to be managed until it has been repaired and resold. This can be a significant cost to manage the properties assets. By keeping properties well maintained, paying for the utilities, making necessary repairs, administrative costs, and other costs – these are simply expenses that the lender would like to avoid. A Short Sale would eliminate these costs.
Reserve Requirements – A delinquent and non-performing loan typically places yet another burden on the mortgage lenders. For example, all delinquent and non-performing loan lenders need to have available funds in order to deal with possible losses. Therefore, these funds cannot be utilized for more lucrative investments such as providing funds to new borrowers which can generate new loan fees. A Short Sale would avoid this problem.
Do lenders typically accept all Short Sales?
In a short answer, unfortunately no. This is the reason for why it is important to work with someone who has lots of experience with getting Short Sales approved. From the first submittal of the Short Sale Package to the delicate nature associated with working with the Loss Mitigation Department, you need a true professional on your side.
If I have a few loans, can I still do a Short Sale?
Yes, you can. We are able to work with multiple lenders. Often times, one lender holds multiple loans. It is also important to note that even if the value of your property is below the balance that you owe on your 1st mortgage, it is possible to get two lenders to cooperate. In essence, neither lender wants to own another property through a foreclosure.
Can I do a Short Sale if my property is in bad shape and needs work?
Yes, absolutely! Most lenders are actually more interested in doing a Short Sale on a property which needs repairs as compared to a property which does not need repairs. Lenders know that their risks of financial loss go up significantly when they foreclosure on a property that needs repairs. In addition to the expenses associated with repairs, lenders are not set up to make repairs. Lenders are in the business of issuing loans, not repairing houses.
How will a Short Sale affect my credit?
The important thing to consider is to avoid a foreclosure. Certainly, a foreclosure is very harmful to your credit. It is even worse than a bankruptcy and can lower your credit score by at least 100 points. Throughout the course of getting your Short Sale approved, while you are going through a financial hardship, you will likely miss your mortgage payments, and these late payments will appear on your credit report. Each lender makes a decision regarding what to report to the credit bureaus but what normally happens is that the loan will report as “paid” on your credit report. This may certainly be considered as good news but the bad news is that there will also be a reference to the term which indicates “settled for less than originally owed” or something fairly similar to these words. Having a few late payments and a lender indicating “paid” and “settled for less than was owed” is still much better to a credit score in comparison to a completed foreclosure appearing on your credit report. In summary, it is more beneficial to have a reported Short Sale referenced as compared to having a completed foreclosure on your credit report. By avoiding a foreclosure, you are much more likely to be able to obtain credit in the future.
What if my income problem was only temporary and not permanent, do I need to sell my home?
It may be possible for you to keep your home. You will need to convince your lender of a few things. Firstly, you need to show the lender that the problem which caused you the inability of paying your mortgage payments was beyond your control, i.e. you were injured, there was an illness, temporary disability, required job change, and several other reasons. Secondly, you need to show the lender that you are now presently in a position to continue making monthly mortgage payments, you can pay off the delinquent amount, and you are in a position to stay current on your mortgage obligations going forward.
Can a seller make a profit on a Short Sale?
A seller cannot make a profit on a Short Sale because the current mortgage balance will usually be higher than the value of the home. However, a seller may be entitled to Borrower Relocation Assistance. This is determined on a case by case basis and this amount will be presented to the seller at the time that an offer is made to the seller.
Can I short sale a property if I filed for bankruptcy?
Most lenders will not consider a short sale if the borrower has filed for bankruptcy. That is because the negotiation of a short sale between all respective parties is considered collection activity and such a negotiation is prohibited when one of the parties is in a bankruptcy. However, there may be a method available to have the property released from the assets included in a bankruptcy which will allow the agent to complete the Short Sale.
Is an appraisal required for a Short Sale?
While each lender has their own requirements, most lenders will require an appraisal of the property which needs to be submitted as part of the Short Sale package. Some lenders may only require a Broker’s Price Opinion (BPO) instead of an appraisal. The reason that an appraisal or BPO is required is because a formal assessment of the property value is needed in order for the lender to make a decision as to whether or not to accept or deny a Short Sale.
Are there any tax implications during the course of a Short Sale?
Since a short sale represents a financial loss to the lender, a lender may report the amount of loss as a debt forgiveness to the seller. In the event that an IRS Form 1099 is filed, the seller may be responsible for paying taxes on the forgiven amount. It is recommended that you discuss the issuance of an IRS Form 1099 with your accountant as there may be available options for you to avoid paying taxes on the forgiven amount.
How long does it take for a Short Sale to be approved?
Unlike a regular real estate transaction which can close relatively fast as soon as all of the required signatures have been affixed and there has been a meeting of the meetings, a short sale is rather different. In a short sale, all agreements are subjected to an approval from the lien holder. Since the seller is requesting a reduced payoff from the lien holder, all parties must allow the lien holder to complete an assessment in order to determine whether the value of the property in comparison to the loss that the lender entails is justified. The lender certainly wants and needs to mitigate their losses, therefore, the process of assessment needs to be finalized before an approval is granted. This can take several months, however, we attempt to expedite the process.
How long after a Short Sale can I purchase another property?
The ability to purchase another property is dependent upon a few factors. Your credit is only one of the factors that a lender will look at. There have been cases where a borrower’s credit score was only slightly lowered after a Short Sale and a borrower was able to repurchase a property. In reality, a lender is primarily interested in a borrower’s ability to repay a loan. If the previous financial hardship is no longer an issue and a borrower can demonstrate at least 12 months of good credit, purchasing another property with a small down payment and a low interest rate should not be a problem. Remember, lenders are in business to make money and they make money by issuing loans. What has happened to you in the past is in the past so if you can show that the situation from before will not reoccur and your financial situation has now changed, you should not have a problem with being approved for a new loan.
Where are you located and what areas do you service?
Our company is located at P.O. Box 2126, Douglasville, GA 30133. We only work with properties located within Atlanta.
Do I need an attorney’s assistance?
It’s never harmful to speak with an attorney regarding a short sale, and often times, it may be the best thing you can do if you think that an attorney’s advice can help you. Although we aren’t a law firm and we cannot provide anyone with any legal advice, you are more than welcome to speak with an attorney that we use for our company. We truly want to get familiar with our clients, and help them in any way we can. Simply send an email to firstname.lastname@example.org and we’ll be sure to forward it.
Still need help? If you have a question that isn’t answered here, or if you feel like you could use advice when it comes to a short sale, we are here to help you make the best choice for you and your family. You may call us at (678) 983-4555 or email: email@example.com. You’re also more than welcome to visit our office. Evening and weekend appointments are available.
DISCLAIMER: The Credit Express is not a law firm and we cannot provide anyone with any legal advice. None of our customer service representatives are lawyers and they also do not provide legal advice. The information provided on this page is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or should be formed by use of the site. The content provided on this page is strictly for informational purposes only.