Short Sale FAQ
Q. What is a Short Sale?
A. A Short Sale is the sale of a home when sales proceeds are not sufficient to pay off the existing loan(s) but the lender(s) accepts a discounted payoff to fully satisfy the loan.
At the same time, the existing lender pays for all sales fees. This includes sales costs, commissions, escrow, title and any repair costs. The loan shows as “paid” with a zero balance on your credit and you avoid foreclosure.
Q. How long does the process take?
A. This is totally up to the lender. Some lenders take as little as two weeks, some over six months. The only way to know is to start the process. The key is making sure that your short sale package is complete, and that you follow up weekly with your agent.
Q. Will the bank come after us for the difference?
A. Unless you have great credit, are not delinquent, or have significant assets, most banks will not. A lender usually releases liability of the mortgagee in writing.
Q. Why do I have to provide personal information?
A. All lenders require a complete short sale package, including tax returns, bank statements, pay stubs, etc, to show that there is a genuine hardship or the need to sell.
Q. I heard the IRS will 1099 me for the amount of debt forgiven?
A. The Mortgage Relief Debt Act of 2008 does not permit lenders to issue a 1099 to a borrower for a deficiency balance on a primary residence.
Q. Why should I accept such a low offer on my property?
A. What difference does it make? To sell quickly, you must list the property at or below current market value, not what you wish you could sell for, or what you think the property should be worth.
Q. Why would a lender accept a Short Sale over foreclosure?
A. With an uncertain housing market, it is often in the financial interests of a lender to accept a negotiated settlement rather than incur the costs of a prolonged foreclosure process. And if a lender does repossess a property, they could continue to incur costs for months in order to maintain the property while they try and sell it. A short sale is a practical and cost saving alternative for all parties involved.
Q. Is a Short Sale right for me?
A. If you add up your total monthly expenses, including your mortgage, property tax payments, insurance, car payments, utilities and food and compare that to your take-home income, how much longer can you afford to keep up with your payments? If you have an adjustable rate, and the payment is going up, how long can you afford that? Is it worth prolonging your current financial situation?—especially if home values in your area continue to decline?
If you are faced with economic hardship, a Short Sale can be a financial life-saver. You may need to ask yourself, is it worth it to continue to fall deeper into debt, falling further and further behind with little hope of catching up?
A lender would usually rather negotiate a settlement today with a Short Sale than be forced to incur the expense of a foreclosure later. Consider this: the lender wants to limit their losses in the future just as badly as you do.
Q. Do lenders approve all Short Sales?
A. No. Approval by a lender is not automatic. This is why it is critically important that you work with someone that has extensive experience in Short Sales—someone that knows how to effectively negotiate on your behalf. If not handled properly, a lender could reject your Short Sale offer—risking foreclosure. Our Short Sale agents have years of experience with a proven success record, and are, without question, the best in the industry.
Q. If I have two loans, can I still do a Short Sale?
A. Yes. Your agent will work with both lenders to negotiate a Short Sale transaction. Even if the value of your home is less than the value of the first loan, our experienced staff can normally get both lenders to cooperate.
Q. Will a Short Sale destroy my credit?
A. Yes and no. The short sale may not show up on your credit. In fact, most mortgage trade lines report “Mortgage Paid” after a short sale. Any late payment history will still appear, as will any Notice of Default filings. What won’t report is an actual foreclosure. A promissory note may prevent the lender from reporting the mortgage as a loss. In today’s credit market, a foreclosure may prevent you from obtaining a mortgage for at least 5 years, longer than a bankruptcy.
Q. My property needs a lot of repair work. Can I still do a Short Sale?
A. Yes. A lender is often less likely to want to repossess (foreclose on) a home that needs work—it would make it harder for them to sell it later. Lenders are not in the “home repair” business. They do not want the responsibility. A home in rough shape may serve as an incentive for a lender to do a Short Sale.
Q. Can I simply deed my property to someone else and avoid foreclosure that way?
A. No. Be wary! If you fall behind on your mortgage payments you will quickly find yourself drowning in mail and phone calls from different people promising to “save” you. But deeding your property to someone else without first paying off the loan(s) is almost always a bad idea. Even if you deed the property to someone else you are still responsible for the loan payments. If the loan payments are not made, it is your credit that is affected (regardless of who holds the deed). In other words, you lose control of the property and can still be foreclosed on. What ever you decide, do NOT deed your property to someone without first paying off the loan unless you have consulted with your OWN personal attorney.
Q. Will I get any money from the sale?
A. Not usually. Most lenders will not allow a borrower to receive any money. If the lender thinks you are getting paid from the sale, they will immediately kill the deal.
Q. How much would it cost me to sell my home in a Short Sale?
A. Nothing! All fees and commissions are assumed by your lender—NOT YOU.
Your contract will specifically read: “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.”
Q. How can I get started on a Short Sale?
A. Very easily. To be pre-qualified, just give us a call today and we will review your situation and options. There is no charge and no obligation.
