WHAT ARE SHORT SALES?
A short sale in real estate occurs when the outstanding loans and liens against a property, after closing cost are paid are greater than the proceeds from the sale of a home, and the lender agrees this lower payoff amount. This only occurs when a home seller qualifies for a short sale by proving a hardship, and the lender/lenders agree to this lower amount.
WHAT IS THE ADVANTAGE TO DO A SHORT SALE?
A foreclosure can impact credit scores far more, especially in the long term. In addition, in the event of a foreclosure, in many states the lender will seek a deficiency judgment in the amount you owe. Credit could recover from a short sale in less than two years, where as a foreclosure or bankruptcy can take 7-10 years.
CAN A SELLER GET ANY MONEY FROM A SHORT SALE?
As part of the Making Home Affordable Plan, and specifically the new Home Affordable Foreclosure Alternatives(HAFA) initiative recently announced November 30th, 2009, qualified home owners can get $3,000.00 back from a short sale to use towards relocation expenses.
WHAT ARE THE QUALIFICATIONS FOR A SHORT SALE?
Mainly, that the seller is in some type of financial hardship. This can include: loss of employment or income, divorce or separations, relocation or job transfer major illness and medical expenses. A good rule of thumb is that a short sale is not for those that “want” to sell, but only for those that “have” to sell.
IF I SELL MY HOME SHORT, CAN THE BANK COME AFTER ME FOR THE MONEY?
In a word: yes, it is after the home is sold a short sale that the issue of a deficiency judgment even occurs. This deficiency judgment, a court order, may be an issue if the lender decides to sue for payment of the remaining mortgage. Yet, not all lenders decide to take the homeowners to court. Sometimes it all comes down to whether or not the lender feels they can collect the deficiency judgment and the ultimate cost that will be incurred to collect this judgment.
WHO WILL PAY THE REALTOR COMMISSION?
The lender does. They pay a regular real estate brokerage fee, just like a home seller would be in a regular transaction. Out of money pockets fees are usually zero.
WHAT HAPPENS TO THE MONEY THAT IS FORGIVEN FROM THE LENDER?
The lender will likely send the seller a “1099” for any amount they have forgiven. Due to the Mortgage Debt Relief Act of 2007, the seller is not required to pay taxes on this money if the home is the primary residence prior to 2012.
CAN THE SELLER STAY IN THEIR HOME UNTIL THE SHORT SALE IS COMPLETED?
Yes, the seller will not have to move out until the closing. In fact, even if they are facing foreclosure, the lender can delay the foreclosure proceedings, including sheriff’s sale delays.
WHAT ABOUT THE COMPANIES WHO CALL AND SEND MAIL REGARDING HELPING ME KEEP MY HOME?
SCAMMERS NEVER STOP!!!!
Fraud continues to plague the distressed home market; they claim they specialize in foreclosure rescue.
- TIME IS OF THE ESSENCE
- COLLECT AS MUCH INFORMATION AS POSSIBLE UPFRONT
- MAKE SURE THEY ARE PREPARED FOR NEEDED DOCUMENTS WHEN APPOINTMENT IS SET.
- LISTING APPOINTMENT IS MUCH MORE DETAILED
- EXPECTATIONS ADDRESSED
- LENDER CONTACTED ASAP/SYSTEM SET UP
- OFFER RECEIVED
Buyers and sellers need to be very patient, buyers financing needs to be in order, no contingencies. Lenders require an updated HUD statement per the purchase agreement, along with updated hardship letter, copies of purchase agreement, proof of income and assets, copies of federal income tax returns for past two years, bank statements.
The review can take 60-90 days(maybe). Second mortgage with same lender, maybe longer. Second mortgage with another lender, depends on quickly they think we can close, or it can take 60 more days for them to agree.
Often times the 2nd lender may ask for a signed promissory note agreeing to pay back the amount of the loan not paid off. However the 1st lender may also do so. In some cases, it is required by the investor.
RISK FACED BY SELLERS, BUYERS, AGENTS
Potential for rejection-If the offer is tremendously lower than the fair market value of the home, chances are that the offer will be rejected and months will have been wasted. However, the lender could make a counteroffer which only lengthens the process.
Bad terms-Even when a lender approves a short sale, it could require that the sellers sign a promissory note, in many cases the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that has been negotiated, which everyone might not want to agree to.