FAQ (Frequently Asked Questions)
Short sales are complex real-estate transactions that you might have a lot of questions about. Here are answers to some of the most frequently asked questions.
Does some sort of hardship have to be present for a short sale to occur?
Yes. A short sale is for people suffering financial and personal hardships. It is not simply an escape from an investment someone wished he or she did not make. Lenders are placing increasing focus on whether there is a true hardship.
Do all lenders do short sales?
Most will consider them.
What sort of hardship would a lender consider legitimate?
That will depend upon the mortgage company considering the short sale request. Generally, as long as the hardship is real, payments are delinquent, or the mortgage company believes the loan is likely to become delinquent as a result of the hardship, the short sale request will be processed by the loss mitigation department for consideration.
Here is a list of common hardships that have been accepted by mortgage lenders:
· Family illness or injury
· Illness 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.
Do I Owe Money After I Have Been Foreclosed On?
When the lender or bank forecloses on the property, and sells the property for less than what was owed, then a deficiency exists with the loan. The deficiency is the difference between what the homeowner owed and the amount the property sold for. Yes, it's likely that a lender will seek a deficiency judgement after a foreclosure.
Will the bank come after me for the difference on a short sale?
Possibly. In some cases, we can negotiate with the lender to not seek a deficiency judgment against the homeowner.
Some lenders, as a matter of policy, will not seek a judgment against the homeowner because they feel they have waived their right by accepting a short sale.
Will I have to repay any of the difference between the lender's net and my mortgage balance?
Possibly. The lender could simply write it off. The lender also might ask you to repay that amount at favorable terms over time (i.e. as an unsecured loan), while allowing the sale of the property to go through now. It all depends on the homeowner's situation, assets, credit, and ability to pay. You maintain control over whether to accept the short sale terms offered by the lender through the process.
What About Tax Consequences?
There is another issue as it relates to the deficiency and that is the 1099. The lender will issue a 1099 to the homeowner for the difference, and this amount is reported to the Internal Revenue Service and is treated as income.
In my dealing with lenders, I have found that they generally will not seek a deficiency judgment because of the hardship. But, if they do, that amount is likely to be significantly less than in the case of a foreclosure.
Always seek tax advice from a qualified tax attorney or CPA.
What About My Credit?
Your credit will be impacted negatively by a short sale. The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event your credit status can encounter ... even worse than bankruptcy. In the course of getting your short sale approved you may have missed your mortgage payments, and these will show on your credit.
By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.
Your credit will recover much quicker from the credit dings of a few late mortgage payments, if you keep your other accounts current. Always stay on top of your consumer credit. So, consider allocating your funds to meet basic necessities (food, utilities, household needs, auto expenses and such) first. Beyond paying for necessities plan to pay other bill to keep as many accounts current as possible.
Keep “necessary” accounts current when deciding which credit bills to pay. If you are using a credit card to temporarily pay for necessities, you want to be sure to not jeopardize the availability of that account.
Is a short sale right for me?
No situation is exactly the same. If you feel the need, speak with an attorney about your options. In general, though, if you have the ability to pay your loans, you should do so.
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, and are 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.
Bottom line, your lender wants to work with you.
But my lender told me it wouldn't work with me.
That's because you were dealing with the debt collections arm of the mortgage company. The loss mitigation and workout arms of lending companies deal with cutting losses, not collections.
If I do a short sale, how much will I have to pay to sell my home?
When your lender approves the short sale, all commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the short sale approval.
Remember, lenders approve short sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
If your lender asks you to pay anything, you are always in control of whether to accept what is offered.
How do I get started on a short sale?
It’s easy. If you would like to get pre-qualified for a short sale, call me and set an appointment now. It is as simple as contacting me and I will get to work.
If you later decide you don't want to do a short sale, that is OK, too.
What do National Association of Realtors and Florida Association of Realtors have to say about short sales?
They have said time and time again that these are a viable solution for some homeowners. They've even said these may ultimately help cure the housing slump. Here are some recent articles:
realtytimes.com/rtcpages/20070917_shortsale.htm
www.floridarealtors.org/FLRealtorMagazine/2007/September/0907Rescue.cfm
But I'm Embarrassed
Don't be. If you knew how many people are going through the same situation as you, it would amaze you. The number of pending foreclosures is staggering. People from all economic classes, and all walks of life, are in similar circumstances. Everything you tell me remains confidential, and I will pass no judgments. I talk to people in your situation every single work day. Let's find real solutions. Let me try to help you.
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.
Second, 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.
Do not deed your property to someone without paying off the loan unless you have consulted with a qualified attorney and have been advised to do so.
Deeding the property to the lender (and sometimes the lender won't take it, at all) is an option, but it can have implications nearly as bad as a foreclosure.
I am current on my mortgage, will my lender consider a short sale?
Possibly. 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.
Can I sell my property for any price?
Absolutely NOT. Lenders are looking for specific ratios in comparison to market value, and lowball offers have nearly zero chance of working. If your lender believes it is better off financially to foreclose, it will do so. And it WILL ultimately do so if you do nothing, or give them incomplete short sale packets, or goofy lowball offers.
Why would a mortgage company agree to accept 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.
· Wall Street is Watching: Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. 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. It is expensive to manage real property assets - homes – spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. 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. A successful short sale lets the lender put more money to work.
What about turning to those investors who buy houses?
That might be an option if you have equity. Remember that these investors are looking for a deep-discounted deal. If you don't have equity, or enough equity, they probably won't be interested. Also, some of these investors seek to tie up homes with no intention of closing, but assigning them for a profit to a third party in the two or three months before the closing date. If they can't find someone to take the deal, they cancel the contract with the seller. Wasting two or three months to be back at Square One increases the chances you'll get foreclosed on. You need to make sure that any potential buyer is qualified and sincere.
Do lenders approve all short sale requests?
NO. That is why it is critical to work with an agent that has extensive experience at getting short sales approved. The chances of it working when dealing with an agent who is not trained in this area are slim. No one can truthfully guarantee a short sales effort will work.
From the presentation of the short sale package, to ways to communicate with the loss mitigation departments, I know how to keep the file moving towards approval. I can put the odds in your favor. It's a matter of giving you the best shot in a tough situation. The first step is to get pre-qualified for a short sale.
I have two loans, can I still do a short sale?
Yes. We can work with both lenders (many times the same lender hold the first and the second loans) to put together a transaction. Even if the value of your home is below the balance of the first mortgage, we can normally get the two lenders to cooperate.
In the end, neither lender wants to own another home through foreclosure.
My property is in rough shape and needs work, can I still do a short sale?
Absolutely. In fact, lenders are more motivated to do a short sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work.
Aside from expense of completing the work, lenders are simply not set up to get the work done. They are in the loan business, not the fix-it business.
Can the buyers pay me money for doing the short sale?
NO! If the bank finds out the buyer gave you money later on, you could have the bank coming after you for FRAUD. It is your obligation to tell the lender the truth about your situation, and to follow all laws and regulations. Some lenders, however, are allowing the sellers a small amount back to help with a rental deposit. It's another sign times are changing in lender loss mitigation.
Can you help me if my property is already listed?
I can answer general questions, but you should talk to your real-estate agent about the possibility of doing a short sale. These are complex transactions that take a lot of time and effort on the agent's part, so some agents do not want to deal with them, or simply don't know how. If that's the case, have your agent call me and I'll work out a referral so we can get the process started.
But I want to stay in my house. Can you help me deal with my lender?
Absolutely! I will share what I know, and I will see if I can help you work with your lender to find a solution to keep your home, perhaps even at more favorable loan terms.
Why would you do that?
First and foremost, because it's the right thing to do. I can't tell you how many times I've already heard "Thank you! No one would listen to me." And, someday, you might run across someone looking to buy or sell a home, and you might refer them to me. That's win-win.
If you think you might be a candidate for a short sale, please don't waste anymore time.
Call me NOW! 850-501-2574
