Short Sale Questions

Short Sale Answers

A short sale in real estate occurs when the outstanding loans and liens against a property, after closing costs are paid, are greater than the proceeds from the sale of a home, and the lender agrees to accept this lower payoff amount. This occurs only when a home seller qualifies for a short sale through proving a hardship, and the lender agrees to this lower payoff amount. A short sale is an alternative to foreclosure, whereby the lender/bank agrees to accept less than what is owed on the loan to avoid foreclosure. For example, the owner list the house with a realtor, an offer is presented with a purchase price for less than what is owed and the bank accepts the offer. If your home has no equity, you owe more than what it is worth and you want to sell your home, it will need to be through a short sale process.

This will depend on your particular scenario. If you know you want to rid yourself of your home and wish you could just walk away, then a short sale would be appropriate immediately.

A foreclosure can impact your credit far more, especially in the long term. In fact, some banks don't report a short sale. In addition, in the event of a foreclosure, in many states the lender will seek a deficiency judgment in the amount you owe. They could even come after other properties and assets of yours, including vehicles. Your credit could recover from a short sale in less than two years, where a foreclosure can take 7-10 years.

As part of the Making Home Affordable Plan, and the new Home Affordable Foreclosure Alternatives (HAFA) initiative recently announced November 30, 2009, qualified homeowners can get $3,000 back from a short sale to use towards relocation expenses. Some lenders are offering even more.

An attorney will negotiate the short sale transaction. A short sale is processed much like a loan modification. Therefore, the attorney will prepare all documentation and negotiate a deal with the lender/bank. In addition, you need to make certain the lender/bank waive its right to a deficiency judgment against you. A deficiency judgment is when the lender/bank pursue its right to come after you for the difference of what they agreed to allow the home to be sold for and what you owed to them.

We help homeowners by working with your lender to negotiate a lower payoff amount in order to price your home below competition and get it sold. These services are at no cost to homeowners.

Mainly that you are in some type of "financial hardship." This can include: Loss of employment or income, divorce or separation, relocation or job transfer, major illness and medical expenses, or high dollar repairs without the resources to make them, or increased bills or living 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. You typically must prove your inability to pay, however many lenders have become more lenient lately and will make exceptions sometimes for homeowners who are not even in hardship.

That can still be a short sale. Many homeowners in the country have avoided adjusting the price of their home to current market value in a desperate attempt to receive enough money back to pay off their loan balances. If this is you, you are just delaying the inevitable, as home values continue to fall across the country.

No, not in most cases. We will work to get a full release for you at closing. This release will fully forgive any deficiency between the amount you owe, and the proceeds from the sale of the home.

The realtor's commissions are paid at closing by the lender/bank. An attorney may have an initial processing fee and may negotiate his/her fees with the lender/bank. In every short sale, time is of the essence, therefore it is most favorable that the process be handled by an experienced professional. If a short sale is not processed correctly it could take longer to get an approval and eventually you may lose the potential buyer.

Not much for you. We will ask you to gather certain financial information and forms for us to present to your lender. Our processor will handle the negotiations and details with your bank as well as the process involved in selling your house.

Any balance shortfall on your mortgage will likely be written off as a loss by your lender. Because of this, your lenders may also send you a "1099" for any amount forgiven you. Due to the Mortgage Debt Relief Act of 2007 (MDRA), you are not required to pay taxes on this money if you short sell your primary residence prior to 2012, you file for bankruptcy, or you are insolvent. If the property is your homestead, the deficiency is eliminated under HAFA and the tax liability is eliminated under the MDRA. Up to 2 million or 1 million if married and filing separately. If your property is a non-homestead property then the Home Affordable Foreclosure Alternative (HAFA) and the MDRA does not apply. However, a deficiency on a non-homestead can still be eliminated by filing for bankruptcy. Also, on a non-homestead property the tax liability may be eliminated by proving insolvency (IRS Form 982).

Yes. In fact, the bank will be more than happy to work with you on a short sale. It is to the bank's advantage to work out a short sale if you are in a financial hardship. The foreclosure process costs the lender thousands of dollars.

Yes. You will not have to move out until the closing. In fact, if you are facing foreclosure and we are actively working with your bank, we can typically get your lender to delay the foreclosure proceedings and make it possible for you to stay in the home until it is short sold.

Yes. The bank will continue its collection activities. That may meant they will call you or send you letters looking for a payment even if you are currently pursuing a short sale. But, most banks will not foreclosure on your home if you are actively working on the short sale.

If the terms of the short sale are not in your best interest you are not required to sell the property and complete the short sale. Do remember though that a short sale will have the lender forgive you of the debt and is the best option to avoid foreclosure and will have the least negative effect on your credit. If you choose not to do a short sale the bank will not forgive you of the debt and may continue to pursue you for the outstanding loan balance.

Be careful of scam artists or shady individuals if you are in financial hardship or facing foreclosure. These individuals can cause more harm than good. Never sign a quit claim deed, power of attorney or an "option contract" without consulting an attorney and experienced agent. A good rule of thumb to understand is that anybody trying to purchase your home will look out for their own best interests in the transaction, never yours.

While there are many agents that do negotiate and work short sales, most lack the knowledge and experience necessary to properly execute one.  A short sale is not part of the realtor basic training. Even most agents with CDPE (Certified Distressed Property Expert) or other Realtor® designations are inexperienced with them. The result can be disastrous. You need a realtor who is knowledgeable about short sales and gets you a buyer quickly. Most attorneys have a realtor they have worked with. Contact your attorney and a get a referral of a realtor they have worked with before.