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1. What is a short sale?
2. How does the bank decide what price to put on the property?
3. What type of situation is the short sale best for?
4. Does a homeowner benefit from a short sale?
5. I'm an investor, can I short sale my rental property?
6. Does it matter what kind of loan I have?
7. I am in foreclosure. Is a short sale for me?
8. What if my mortgage is an FHA, HUD or VA mortgage?
9. What options other than a short sale might I have?
10. What is "financial hardship" and why is it so important?
11. Who owns the house after a short sale?
12. What do I do about my back property taxes when I do a short sale?
13. Do you handle homes in my area?
14. Do you handle duplexes, apartment buildings, condos, or commercial
property?
15. My home is already listed for sale on the MLS, but isn't selling; can
I still do a
short sale?
16. My home is really nice, why is the short sale offer price so low?
17. Who pays the real estate commissions on a short sale?
18. Are short sales guaranteed to work?
19. How long does a short sale take?
20. Why do I have to sign a Borrower's Authorization?
21. I have heard that I could owe income taxes after a short sale, is this
true?
22. I am behind on my mortgage payments, but not yet in foreclosure. Can I
do a
short sale?
23. My house needs a lot of repair; can I still do a short sale?
24. I have more than 10% equity in my home - can I still do a short sale?
25. Other people are on the deed with me, but they don't want to short
sell. Can I
still do a short sale?
26. I have other liens (i.e. mechanics, IRS, court judgments) on my house;
can I still
do a short sale?
27. I have property I inherited but I can't afford the mortgage. Can I do
a short sale?
28. I have 2 or 3 mortgages on my house. Can I still do a short sale?
1. What is a short sale?
A short sale is the process by which homeowners can sell their home for
less money than they actually owe on the mortgage(s). This is accomplished
by providing proper documentation to the lender(s) to convince them to
reduce the mortgage balance to allow the sale. If the sale is approved,
the mortgage lender(s) will actually take a loss on the mortgage.
If a bank approves the discount of a mortgage, the home can be sold for a
price lower than the amount owed without the seller having to come up with
cash to cover the shortfall. The mortgage is satisfied and any foreclosure
process stops.
2. How does the
bank decide what price to put on the property?
Every bank has a specific method of deciding how much they'll accept on a
short sale.
3. What type of
situation is the short sale best for?
Most short sales are accomplished on properties heading toward
foreclosure. This means the homeowner is at least 3 payments behind, and
the foreclosure process has already begun. Recently however, more
mortgages that are simply behind or "in default" are considered short sale
candidates without actually being in foreclosure.
Next, the homeowner typically has no equity or negative equity in the
home. In other words, the total balance owed to the lender is equal to, or
greater than, the price at which the house can be sold.
Lastly, the homeowner must have some type of financial "hardship" which is
preventing him from paying the mortgage.
4. Does a
homeowner benefit from a short sale?
First and foremost, a short sale relieves the stress of being in
foreclosure and it allows the homeowner to get rid of their big mortgage
payment and move on with their lives. A short sale allows you to stop a
foreclosure proceeding and get a fresh start. In our experience, this is
the primary benefit to the homeowner.
On the credit side, a short sale is arguably the lessor of two evils.
Having some late payments, and a foreclosure filed has already done damage
to your credit.. However, a completed foreclosure generally does more
damage than a short sale agreed to by a lender. Obviously, a bankruptcy
significantly damages your credit score.
5. I'm an
investor, can I short sale my rental property?
Yes, but remember the "hardship" element which must
be present. For investors there may also be some income tax issues
resulting from mortgage relief. Remember to consult your tax advisor.
6. Does it matter
what kind of loan I have?
Possibly. In some instances there is a potential risk of a deficiency
judgment or a lawsuit on a loan contract, as opposed to judicial
foreclosure. Give us a call at 877-885-9373 and we can discuss the specifics of your
situation.
7. I am in
foreclosure. Is a short sale for me?
Each situation is different and must be evaluated individually. The
important factors in relation to a short sale are:
a. Property in
foreclosure or default
b. Personal financial hardship
c. Little or no equity in the property
d. At least 60 days until eviction date
e. The value of the home has declined below the loan amount
If you feel you fit into
these criteria, give us a call and we can discuss your specific
situation.
8. What if my
mortgage is an FHA, HUD or VA mortgage?
Short sales can still generally be accomplished on all of these types of
mortgages, though each one has different criteria.
9. What options
other than a short sale might I have?
a. Cure your
mortgage default (bring your payments current);
b. Attempt a loan modification that adjusts the terms of your existing
loan;
c. Refinance your mortgage with another lender;
d. Try to sell your home through normal channels;
e. Attempt to get your lender to accept a deed in lieu of a foreclosure;
and/or
f. File for bankruptcy.
10. What is
"financial hardship" and why is it so important?
"Financial hardship" is a critical part of the short sale equation. No
matter what you hear about banks "not being in the business of owning real
estate", they DO NOT easily give homeowners a break. They require GOOD
REASON to give a discount for a short a sale.
The only reason a lender will agree to a short sale is if they determine
that a short sale will net them more money than proceeding with the
foreclosure. Understanding the homeowner's financial hardship plays a
major role in the lender's estimation of whether or not it will be paid in
full for the mortgage. Quite simply, lenders will make the borrower pay
the shortfall if there is no hardship.
Many homeowners try to use a short sale as a "get out of jail free" card
to dump a poor investment. Lenders will not allow this, and it is a waste
of time to try. If you are employed and have some assets, but you have
simply lost value in your home and want to sell, you probably cannot short
sale. If you are current on your mortgage, it is very difficult to short
sale. Lenders need to see that you simply cannot pay them before they will
agree to a short sale.
11. Who owns the
house after a short sale?
The purchaser of the house is the owner after a short sale, just the same
as in a normal sale. The mortgage lender is paid off and the previous
homeowner moves to a different home.
12. What do I do
about my back property taxes when I do a short sale?
Just as in a normal home sale, the property taxes are the responsibility
of the homeowner until the date the sale is closed. Then they become the
responsibility of the buyer. If your property taxes have not been paid
this will affect the negotiations between the buyer and the bank, so you
must inform me or any buyer of the taxes owed.
13. Do you handle
homes in my area?
Our focus is in Southern California, however, we will consider listings in other
areas. In addition, we work with other short sale
specialists in California the region and can often refer your case to
another Real Estate Broker if we cannot help you.
14. Do you handle
duplexes, apartment buildings, condos, or commercial property?
We handle residential properties of all types in
virtually all price ranges, but we currently do not handle commercial
properties.
15. My home is
already listed for sale on the MLS, but isn't selling; can I still do a
short sale?
Yes, you can and it is relatively common. Some lenders even require that a
house be listed for sale before approving a short sale in order to show
that a discount is necessary.
16. My home is
really nice, why is the short sale offer price so low?
Sellers often have an emotional attachment to their home and may feel a
short sale offer is too low. It is important to remember a few things.
First, the seller in a short sale can never receive any money in the
transaction. It should therefore be of little concern what price is
offered as long as the short sale is done. The only real exception is when
the seller has tax liability concerns. (If there is tax liability, a lower
sale price means a larger mortgage relief and a greater tax liability.)
Otherwise, the price should not matter to the seller.
The important factor in a short sale is whether the lender will accept the
price offered. Lenders often accept prices for short sales which may be
surprising to normal homeowners or Realtors. Discounts of 30% are no
longer uncommon. This happens for several reasons:
A. Sellers are
often in denial about how bad the market really is for housing and
therefore, how far the value has declined.
B. Lenders don't like the foreclosure process any more than homeowners do
(especially in California). Lenders incur substantial costs during a
foreclosure process that can last more than 12 months. They have attorney
fees, filing fees, publication fees, lost interest on the money that is
tied up, property taxes, insurance, maintenance costs, as well as the
potential for vandalism of a vacant home. This is all BEFORE having to try
to sell the home as a bank-owned (REO) property and pay sales commissions.
A short sale is a way to avoid some or all of these costs. If a lender
calculates his cost of eviction at $50,000 for a house, they will often
take a $40,000 loss on a short sale instead and be better off for having
done so..
17. Who pays the
real estate commissions on a short sale?
The commissions are paid from the funds the buyer places in escrow and
because there is no equity in the house, the lender ultimately is the one
paying the entire sales commission.
18. Are short
sales guaranteed to work?
No. All of the criteria must be met before a bank will even consider a
short sale. Even then it isn't easy to convince a bank that the market
value of the home is lower than what they are owed.
Even if all the paperwork has been correctly completed it can take several
weeks, or even months, only to be denied. If the lender does not approve
the short sale, no transaction occurs. The Purchase Agreement becomes void
and the listing continues.
19. How long does
a short sale take?
A short sale can take 60 to 120 days or longer to complete. This is very
important. The process is complicated and takes a lot of time. So to
exercise the short sale option, you must act quickly. If you wait until
one week before eviction, no one can help you with a short sale. It is
simply impossible. DO NOT WAIT.
20. Why do I have
to sign a Borrower's Authorization?
The Borrower's Authorization gives the lender permission to speak to your
representative about your loan. That's all it does, but it is necessary.
An authorization must be filled out for each mortgage and for each Realtor
or escrow officer authorized to act on your behalf.
21. I have heard
that I could owe income taxes after a short sale, is this true?
Possibly, but it's not that simple. There are a number of factors
involved. For example, are you an investor or is the property your primary
residence. Is the debt on the property "purchase money" or has the home
been refinanced. If you're an investor or if the property was refinanced
are you insolvent? You can see how the matter can become complex in very
short order. You must consult with an attorney or CPA on this issue.
However, without getting too complicated, we can provide our experience
with this problem.
When a lender writes off part of a loan (discounts it) the portion written
off is the equivalent of a cash infusion to the owner. This "mortgage
relief" is then reported as income to you by means of a 1099C form.
Even if you receive a 1099C and declare it as income, there is a good
chance you will owe very little tax. This is because there is an IRS rule
regarding "insolvency" which essentially says if you are insolvent (more
liabilities than assets) at the time of the short sale, you don't have to
count the 1099C as income (instead you declare it, then obtain the
exemption). There is an IRS form to complete to show you are insolvent.
See the Internal Revenue Service website at
www.irs.gov
In December of 2007, President Bush signed a new law into effect providing
that for a specified period of time homeowners who satisfy certain
requirements will not be taxed on mortgage relief. This bill is called,
the "Homeowners Debt Forgiveness Act" and it may or may not apply to your
situation.
Again, please consult a CPA or tax adviser.
22. I am behind on
my mortgage payments, but not yet in foreclosure. Can I do a short sale?
Yes, this is happening with much greater regularity. Sometimes these are
the most attractive short sales for both the buyer and the lender because
the buyer can take advantage of the lender's ability to avoid the vast
majority of the costs of foreclosure.
In these cases, it is more important to have a very clear "hardship" story
to explain to the lender why you are unable to make the payments.
23. My house needs
a lot of repair; can I still do a short sale?
Yes, though it can make the process more difficult because the price must
be lower to compensate for the repairs. The key is to show the bank's
appraiser all the work that needs to be done. Let me know in advance if
this is the case with your home.
24. I have more
than 10% equity in my home - can I still do a short sale?
Probably not. However, you may be a candidate for a regular sale.
25. Other people
are on the deed with me, but they don't want to short sell. Can I still do
a short sale?
No. All parties listed on the deed or mortgage must sign the short sale
purchase agreement. There are no exceptions to this.
26. I have other
liens (i.e. mechanics, IRS, court judgments) on my house; can I still do a
short sale?
Yes, but it gets much more complicated and will take longer. If this is
the case with your home, be sure to COMPLETELY list all liens you have.
Each lien holder must be negotiated with individually. A short sale in
this circumstance will take substantially longer.
27. I have
property I inherited but I can't afford the mortgage. Can I do a short
sale?
Yes. You might also want to read "Preserve Your Prop 13 Base
Year For Your Children and Grandchildren".
28. I have 2 or 3
mortgages on my house. Can I still do a short sale?
Yes, each mortgage or line of credit (HELOC) can be negotiated
individually. It is important to know which mortgage filed the foreclosure
or, if more than one are in foreclosure, which one filed first.
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I
have been trying to sell my house for the past 7 months. After working with 2
Realtors with false promises and a lot of frustration, I decided to finally let
my house go into foreclosure. This was not an easy decision for me to make. A
friend of mine came to me one day and offered some advice his assistance. He
introduced me to Sam; I was very pessimistic when I first met with Sam, due to
my dealings with the previous Realtors. My friend and Sam convinced me to give
them a chance. I signed my listing agreement 8/20/2009 with Sam. Sam kept in
touch at least once a week, if not more, to give me updates as to the status of
my house. I finally received an offer. The sale of my house was not considered
to be your typical purchase. Sam handled the procedure without my involvement in
a quick and professional time frame. I am pleased to say that finally, after all
the heartache and frustration, my house sold 10/5/2009. I would use Sam again
for any future purchase or sales and I would refer him to friends and family.
