Short Sales

If you have a short sale need, feel free to contact us for a free, no obligation consultation.

1) What is a Short Sale?

A short sale is when the lender or lenders agree to take less than what is currently owed on the mortgage for the home. If the homeowner can provide some sort of hardship the lender will look into accepting fair market value (determined by a BPO) for the home and pay for all costs associated with the sale. The lender would much rather sell the home via short sale than incur all the costs that come with the foreclosure process.

2) When is the best time for me to start the process for my Short Sale?

As soon as you know it will be difficult or impossible to budget payments for your mortgage; you owe more than “fair market value” for your home; or you have little equity in the home which will not cover the costs to sell the home.

3) Why would my lender want to allow a Short Sale to help me?

A short sale can save the lender thousands and thousands of dollars compared to the foreclosure process. When a lender forecloses on a home the lender incurs legal fees, insurance fees, damage to the property while vacant, utility costs, taxes, possible assessments, and losses on money that could have been liquidated many months earlier via short sale.

4) How long does the Short Sale process usually take?

The approval process of a short sale generally takes 30 to 60 days. This can depend on many factors and are unique to every short sale situation, thus we cannot guarantee a specific amount of time.

5) What is a hardship?

A hardship can be one of many circumstances that make it difficult or impossible to fully pay your monthly mortgage payment. It can be a loss of job, lower income, medical problems, divorce/separation, increasing payments because of an adjustable rate mortgage, etc.

6) What is the difference on my Credit between a Foreclosure and a Short Sale?

A foreclosure will show as A Foreclosure or A Debt NOT PAID. A negative mark on your credit of this magnitude can prevent you from purchasing a home for up to 7 years and really hurt your chances on obtaining other loans! A short sale will show as Debt Paid or settled. It is a far better mark and will allow you to obtain credit in the near future. Please consult one of the three major creditors for further explanation.

7) Who benefits from the Short Sale?

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.

8) Why would banks forgive the difference?

To mitigate their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property ‘back’ through foreclosure, a short sale often makes a much wiser business decision for the bank.

9) This sounds too good to be true?

Not really. 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.

10) Can FHA, Conventional or VA loans receive a short sale?

Yes, I have successfully negotiated short sales for each of these loan types.

11) Why does my property have negative equity?

Here are a few common reasons:

  1. Person bought at the height of the market and the market has now declined or paid more than the property was worth.
  2. The area has become less desirable for any number of reasons, so property values have declined.
  3. Person purchased the home with little or no money down and wants to sell within a few years of purchase… and the property value has not increased during that time. Therefore, costs associated with selling the property may create a balance due at closing,
  4. Person refinanced the home (with a high appraisal value) and now has little or no equity.
  5. Person bought in a brand new subdivision or recently developed area that has not been fully developed or has not appreciated (or has depreciated) in value
  6. The market is soft because there is too much builder (new home) inventory or too many existing homes on the market (buyer’s market)

12) What is Negative Equity?

Also known as being “upside down” negative equity is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. For example, if your car is worth $10,000 and you owe $15,000 on it, you would have a negative equity of $5,000. Negative equity can result from a decline in the value of an asset after it is purchased.

Some areas decline in value. In other areas, prices may remain flat so that the properties in that area do not appreciate. If a seller wants to sell within 2-3 years of purchasing their property, they may be in a situation where they have negative equity.

13) What if I owe what my home is worth?

Even if you owe exactly what your home is worth, you may still need to do a short sale in order to pay for the costs of the sale (Realtor fees, Title Policy and other seller closing costs).

14) What if I’m not behind on my payments?

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. They just happen to be in a negative equity position and need the short sale in order to sell their home.

15) 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 me right away.

16) 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 net 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.