Frequently Asked Questions by the Seller
What is a Short Sale?
It is the sale of a property short of what is owed on it.
The lender agrees to accept less than what you owe to sell the home.
Why do lenders or banks
accept short sales?
Two reasons: 1) in almost every case they will lose less by
accepting a short sale then they would by taking the property back through
foreclosure and selling it themselves. 2) the sooner they get a non-performing
loan off the books the quicker they can loan money to another customer. It all
boils down to what makes the most financial sense.
Will every lender or bank
allow a short sale?
The answer is no. The majority will, but there are a few
that do not.
What is the criteria that
must be met for a lender to accept a short sale?
The seller must be in provable financial hardship, behind on
their mortgage payments, no available liquid assets, no equity in the property
and a lender with a clearly defined short sale process.
How long do I have to be
in default before I can start the short sale process?
Depends on the lender. Typically the seller must be behind a
minimum of 30 days.
Can the owner of the
property being short sale'd also be the listing agent?
Legally yes, but many lenders will not reduce the commission
as a condition of the short sale so the owner ends up listing is for free.
What is required to
process a short sale?
Each lender has its own requirements and some even have
their own proprietary paperwork. In general most lenders require the following:
hardship letter, personal financial statement, 2 years Federal tax returns, two
recent paycheck stubs, 2 months bank statements for all accounts including
retirement, a listing agreement, an offer, and a HUD-1 settlement statement.
What are the steps of the
short sale process?
There are 6 main steps. 1) Home is marketed 2) Offer is
received 3) Short Sale package is assembled and submitted to the lender 4)
Lender orders an appraisal 5) The final price is negotiated with the seller's
lender(s) 6) Property is sold
How long does a typical
short sale take?
On average it takes 90-120 days from the time the short sale
process is started to the time the lenders provide a written acceptance of a
short sale. Once the written acceptance is received there is another 30 days
for the buyer to close on the property.
Do I need to contact my
lender to let them know I'm doing a short sale?
Typically not. There are a handful of lenders that require
the seller to call in once the short sale package has been received. We will
let you know if that's the case.
What do I tell the lender
when they call me?
In most cases when the lender calls it is from the
Collections dept. and short sales are done in the Loss Mitigation dept. When
they call tell them you are trying to sell your home and working with someone
that is helping you with the short sale. They will likely keep calling you and
it is up to you if you want to accept the call.
A foreclosure sale date
has been scheduled for my property. Can I still do a short sale?
It will depend on the lender, but as long as you are at
least 3 weeks our from the sale date we can get something done. It will require
you to get all of the required seller documentation to us as quickly as
possible.
Will the foreclosure
process stop when we submit a short sale package to the lender?
No, the foreclosure clock will continue to click. Postponements
can be made if necessary to entertain an offer, but only if the offer meets the
investor's requirements and they are certain the buyer will perform.
Do we have to have a
purchase offer to get the short sale process started?
Yes. The lender will not begin their due diligence until
they have a potential buyer.
Does a short sale damage
my credit?
From experience only, we can say the short sale unto itself is
not what damages your credit, it's the requirement of being behind on your
payments that does. For further information, please contact a credit
restoration specialist or a financial advisor.
What's worse, a short
sale, foreclosure or bankruptcy?
From experience only, we can say the following: foreclosure
is the worst. It will be on your credit report for 7 years and bankruptcy will
stay on your credit report for 10 years.
A short sale will be reported on your credit report as "paid in
full - settled for less than the full amount" or "settled debt"
and less harmful to your credit. For further information please contact a
credit restoration specialist or financial advisor.
How long after a
foreclosure or filing bankruptcy can I buy another house?
You will not have to wait the full length of time that each
of these shows on your credit report, but just how long will be determined by
the rest of your financial and credit picture. A credit restoration specialist
or financial advisor should be contacted. They will be able to provide you with
what you can expect in addition to what you can do to shorten the wait time.
How many years after a
successful short sale can I buy a house?
There are new loan programs designed to help people who have
recently had to do a short sale on their homes. You can apply for a home loan
in as little as two years provided you have maintained a good payment history,
kept your debt-to-income ratio within lender guidelines and have verifiable
income.
Will I be required to make
any of the repairs to my home?
No. All short sales are sold As-Is.
Can I rent or lease to own
my home from the person that buys my home?
No. The lender will require that by allowing the privilege
of a short sale you are required to relinquish all use and benefit associate
with the property.
Can I make money on the
sale of my property?
A homeowner cannot receive any financial benefit from the
sale of their home if the lender accepts a short sale payoff. The only
exception to this rule is if the homeowner has an FHA loan. FHA will allow the
homeowner to receive $1000 in a short sale.
Will it cost me anything
to do a short sale?
In most instances no. A short sale is designed to assist the
homeowner by accepting enough of a discount so that all costs of selling the
home are covered. Depending on your specific financial information some
lenders, albeit very rare, may ask that you bring some money to closing.
How much do we charge for
our services to perform the short sale?
We will never ask you for money. We get paid only if we are
successful in completing the short sale.
I'm considering
bankruptcy, how will that affect the short sale process?
If bankruptcy is a consideration, or you have already filed,
notify your agent immediately. The short sale can still be done, but it
definitely slow the process down. Depending on the lender it could completely
stop the short sale process. When bankruptcy is filed an "automatic
stay" is put in place by the courts requiring all creditors to cease their
collections efforts and any foreclosure sale will be postponed. For further
information, please consult your bankruptcy attorney.
Will filing bankruptcy
STOP foreclosure?
Yes, but only temporarily. The lender will eventually be
granted a "relief of stay” from the bankruptcy and the foreclosure will
proceed from the point at which it was when the bankruptcy was filed. For
further information, please consult with your bankruptcy attorney.
What happens if the lender
counters the first offer sent to them in the short sale package?
The Buyer will need to either increase their offer to meet
that number or your agent will need to find another buyer that meets your
lender's requirements.
What do I need to do to
help sell the home?
The same things you would normally do when selling your
home. Keep it in show-able condition, stay in communication, be available to
sign paperwork and keep the utilities on. If you are planning to move out prior
to the home being sold you will be asked to sign a Vacating Homeowner Checklist
that outlines your responsibilities.
What about the new federal
government Bailout plan?
To determine your eligibility, please visit: www.financialstability.gov
Will I need an accountant
or attorney to represent me?
We always recommend that everyone in your situation seek the
advice of an accountant or other tax professional. Consulting legal counsel is
often a wise choice when making these types of decisions and they will tell you
whether continued assistance is necessary.
I am behind on my property
taxes…
Delinquent property taxes are negotiated in to the offer we
present to your lender with the short sale packet. Whether your lender accepts
the short sale or forecloses, they will still have to pay the property taxes
owed the county and/or city.
I have not paid my HOA
dues…
This is handled in the same way as any delinquent property
taxes.
Can I rent the property if
I’m not living in it?
This is a decision best answered by a real estate attorney.
Keep in mind that if you are not paying your mortgage you should not be profiting
from rental payments.
The property is vacant. Do
I have to leave the utilities on?
This is your decision however, the house will show better if
buyers can turn on lights and the house is at a reasonable temperature. If your
decision is to turn the utilities off and it is winter time you will need to
make sure the house has been winterized or you could be held liable for damage
should a water pipe break from freezing.
When should I move out?
Different loan types have requirements regarding occupancy
that could affect your eligibility for a short sale. Please notify your agent
before making the decision to move.
Can I take anything with
me?
Anything you take from the property that is determined by
your agent to be a “fixture” needs to be clearly disclosed to any Buyers
viewing the property.
What happens if I do
nothing?
If you do nothing and are not making your mortgage payments,
your lender will foreclose. You will have a foreclosure on your credit report,
be liable for any deficiency and/or subject to a taxable event.
Does the fact that this is
an investment property, not a primary residence, make any difference?
Yes. Since this is not a primary residence you may not be
eligible for an exemption. In addition, most lenders are not as lenient in
their short sale acceptance guidelines as they are when it is a primary
residence.
Will I receive a 1099 if
my lender takes a discount?
Yes, it is an IRS code. The IRS states that a reduction of
debt is a taxable event. However, the Government has passed the Mortgage Debt
Forgiveness Act and it states that for certain period of time some homeowners
with primary loans on primary residences may be exempt from the tax on the
amount on the 1099. Contact your local tax professional regarding how this
applies to your specific situation.
If I receive a 1099, can I
file as “insolvent” and be exempt from the tax normally owed on the 1099?
There are certain tax codes that enable someone in a
financial hardship to be exempt from any tax liability outside the exemption
already provided by the Mortgage Debt Forgiveness Act. You will need to consult
your tax professional for more information.
Will my lender pursue a
deficiency judgment for the amount they lost from the short sale?
Your lender can pursue a deficiency judgment, but that does
not mean they will. We will always request in negotiations for a full release
of lien and that your lender(s) consider the debt “settled” or “satisfied” and
paid in full. Another option available to the lender is an unsecured promissory
note or ask that you bring some money to closing.
What if my lender requests
a promissory note or money at closing?
Your lender can make such requests, but it is up to you as
to whether you agree to accept that as a condition of the short sale. In many
cases these can be negotiated to a lower amount or for better terms. Keep in
mind that any amount requested by your lender will likely be much less than
they could potentially pursue from you as a deficiency should the property be
foreclosed upon.
