1. What Is A Short Sale?
It’s a transaction where two unique events must occur together.
A short sale occurs when your net proceeds from the sale
is insufficient to cover your note balance(s).
The lender(s) agrees to release its mortgage lien(s) and note obligations on the home in exchange for payment less than the full loan balance.
2. Why Would A Lender Agree To A Short Sale?
The discounted payoff of the short sale must be less than the lender’s cost to foreclose.
The lender will agree to a short sale if the seller can prove distress.
3. Why Would A Seller Agree To A Short Sale?
Potential Seller Benefits
4. What Must A Seller Do To Prepare For A Short Sale?
The following is a checklist of what you may need to gather to gain permission from your lender to authorize a Short Sale.
5. What Is The Short Sale Selling Process?
6. What Are The Qualifications For A Short Sale?
If you cannot answer yes to all four questions, you may not qualify for a short sale.
Appraisal validates and substantiates home is worth less than the unpaid balance due on the note to the lender.
Many lenders are will help homeowners even though there are not actually in default. You will need to consult your lender to determine their position on short sales.
You must submit a letter of hardship explaining why you cannot pay the difference due upon sale, including why you have or will stop making the monthly payments.
The lender will want to see a copy of your tax returns and a financial statement. If the lender discovers assets, the lender may grant the short sale but could require seller to pay back all or part of the deficiency.
7. What Does Not Constitute Hardship?
Blowing your paycheck on a car stereo system with surround sound does not qualify as a hardship.
This does not qualify as a hardship.
The lender will not care if you have decided the home is no longer suitable for you or your family.
8. How Is A Short Sale Different From A Normal Sale?
There is no difference. We’ll utilize our extensive marketing program.
There is a big difference. Short sale buyers are price sensitive and driven.
There is a big difference. Appraisal is based upon other short sales comparing apples to apples.
They will know you are in short sale and will inform their buyers. The appraisal is included in MLS Confidential.
Having buyers and agents fully aware of the short sale status increases the likelihood of a fast sale.
This is exactly what we want given your financial situation and the decreasing property value trend now prevalent in the market.
9. What Are The Consequences of a Short Sale?
If the lender agrees to the short sale, the lender may possess the right to issue you a 1099 for the shorted difference due to a provision in the IRS code about debt forgiveness.
You should speak to a real estate lawyer and a tax accountant to determine the amount, if any, of short sale tax consequences.
The lender has the right to pursue a summary Judgment for the deficiency.
The bank was owed $300,000 and sold short for $210,000. The deficiency is $90,000. The lender sues the seller for the deficiency.
Without the help of a good attorney, or loss mitigation company, this is far more likely to happen. Therefore you must act in advance in efforts to prevent this issue from happening on your short sale.
Short sales will show up on credit reports as a pre-foreclosure in redemption status. Depending on your lender, it may or may or have the same impact as compared to a foreclosure. The typical short sale will affect credit up to 2 years, while a foreclosure 5-7 years.
Seek Specific Relief
However most creditors may not make the distinction when reporting unless you seek specific relief. This is why a good attorney, or loss mitigation company, who specializes in the short sale process is well advised.
10. Which Is Better, Foreclosure or Short Sale?
Fannie Mae: August 2008
Due to the increased incidence of preforeclosure [short] sales, Fannie Mae is establishing a 2-year elapsed time period for reestablishing credit following completion of the action.
A foreclosure client must wait 5 to 7 years, maintain at least a 680 credit score in the sixth and seventh year, and pay a minimum 10 percent down on future home purchase.
11. What Are The First Steps To A Short Sale?
As a Realtor I cannot give you legal or financial advice as both fall outside my area of expertise and the scope of my license. It is for this reason I strongly recommend hiring an attorney and a loss mitigation company before you make a final selling decision. The 3 keys to successful short sale are: disclose-disclose-disclose!
You must prepare and submit a Short Sale Approval Application Kit with your lender before you can begin selling as a short sale.