Is a Short Sale for me?
Mortgage lenders 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 lender 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 lender 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. Your lender wants to work with you.
How late in the pre-foreclosure process can you start a short sale?
Depending on individual state law and regulations, a foreclosure can proceed as quickly as 35 days from the date the notice to the borrower is filed. For that reason, time is of the essence.
If I do a Short Sale, how much will I have to pay to sell my home?
In most cases you will pay literally no sales costs if your lender approves the Short Sale. All Real Estate commissions, title and escrow fees are paid by the lender as part of the Short Sale approval. 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.” 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. You simply fill out the Short Sale Borrower information and we’ll get started. There is no charge to you to get started.
What documents are necessary to proceed with a short sale?
The individual documents necessary to proceed with the short sale will depend on the lender. Typically the lender will require hardship letter detailing the circumstances behind the short sale. A signed, valid purchase and sales contract, preliminary HUD-1
settlement statement and a preliminary estimate of proceeds to the lender. There may be additional requests for more detailed information on the financial condition of the seller, i.e.; pay check stubs, bank statements, a personal financial statement and monthly budget assessment, amongst other things.
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. Please consult 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, if 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 their Loss Mitigation Department. A Loss Mitigation department will need to accept your hardship letter.
Below you will find a list of “hardships” that are common and frequently accepted by mortgage lenders:
– Family illness or injury – llness 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 unforeseen increase in living expenses
I am current on my mortgage; will my lender allow a Short Sale?
Maybe. Some lenders will accept a Short Sale file for approval on loans that are not delinquent. Other lenders 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. (Remember, there is no charge for this). That is the best way to determine if your lender will accept a file for approval on a loan that is current.
Why would a mortgage company allow a Short Sale?
There are actually several reasons why a mortgage company would approve a Short Sale payoff, including the following;
Legal Concerns – Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution. A successful Short Sale gets the loan payoff resolved quickly.
Asset Management Expenses – If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. A successful Short Sale eliminates most of these costs.
Reserve Requirement – Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved.
Do lenders approve all Short Sales?
Not always, that is why it is critical to work with someone that has extensive experience at getting Short Sales approved. From the presentation of the Short Sale package to the lender to working with the lenders Loss Mitigations Department, we know how to keep the file moving towards approval.
I have two loans; can I still do a Short Sale?
We can work with both lenders or if the same lender holds 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 lenders to cooperate. In the end, neither lender wants to own another home through foreclosure.
I am concerned about my credit, how will a Short Sale affect my credit?
The key here is to avoid foreclosure. Again, the best advice is to consult your lender. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit. While it is up to the individual lender to decide what to report, what often happens is the loan will report as “paid” on their credit report. The credit scores will recover faster, with a loan “settled for less than was owed” than it will with a completed foreclosure. By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such).
My income 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 You are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount.
Will a lender allow the seller to make a profit on a short sale?
By the nature of the transaction, the seller is not going to make a profit on the short sale. The current loan balance will be higher than the selling price of the home.
If a seller is in bankruptcy, will that affect the short sale of the property?
Most lenders would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. Negotiating a short sale between the parties is considered a collection activity and such a negotiation is prohibited in bankruptcy.
Will the bank or lender require an appraisal on the home in a short sale?
The lender will need some formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer.
Are there tax implications in the short of real estate?
Much like the issue of credit reporting, the circumstances are individual to the lender and there may be tax implications in certain instances, please consult a tax advisor.
Why does it take so long to close a short sale?
A normal real estate transaction can close at will once the contract is “four cornered” or that all signatures are affixed. In the short sale, all agreements are “subject to lien holder approval”. Since the seller is requesting a discounted payoff from the lien holder all parties must allow the lien holder to complete an evaluation to determine the value of the home and determine if the loss is justifiable.
If the client files a bankruptcy should he still complete the short sale?
One of the main goals in the completion of the short sale is to minimize the damage to the credit of the individual. There are methods available to have the home released from the assets included in the bankruptcy allowing the agent to complete the sale.
How long after the short sale can the client purchase another home?
The client’s ability to purchase a new home is dependent upon several factors. We have seen cases where minimal credit damage was caused as a result of the short sale and the client repurchased within six months with little down and with an excellent rate. A lender is most interested in the borrower’s ability to repay the loan.