Definition: A Short Sale is the sale of a home when sales proceeds do not fully pay off the existing loan(s) and the lender(s) accepts a discounted payoff to fully satisfy the loan.
There is no easy answer to the question. Emotions play a big part of this decision, but when the negative equity in your home reaches a level that justifies the potential damage to credit or when the home owner is simply unable or unwilling to continue making payments, the decision becomes easier. It is important to have all the facts before making your decision. An experienced REALTOR and/or real estate attorney can help you determine the value of your property and which option best suit your needs so you can make a more informed decision.
Short Sale Questions and Answers:
Who pays the fees in a Short Sale?
The lender may pay some or all of the fees associated with the short sale of the property. However, it is not unusual for either a 1st/2nd lien holder or MI company to require funds or a promissory note from the home owner prior to close. It is important for the homeowner to know their obligations prior to listing the home for short sales.
Can I stay in my home if I am not making my mortgage payments?
Typically, if a home owner stops making payments, after 90 days they will receive a notice of default and then a notice of sale. The notice of sale must give the homeowner90 days notice. So from the time a homeowner stops making payments, the minimum time before the home could be sold at trustee’s sale and the homeowner forced out is 6 months. Many lenders are extending these times in order to slow the number of foreclosures. Additionally, lenders will usually extend the trustee sales dates to accommodate a short sale
What is required from the Property Owner?
The homeowner must provide a listing agreement with a qualified REALTOR, provide the lender with requested documents, and allow access to show the property.
How does a Short Sale work and how do I get started?
Typically this is a difficult process, complicated by the overwhelmed lenders that are hard to reach and slow to make decisions. The lender has to approve any offers, but the decision also lies with the homeowner. An experienced REALTOR can help you get started and simplify this process by taking on much of work with the lender.
Do I need to be delinquent on my Mortgage to short sale my home?
No, in most cases if the homeowner is unable to continue making payments due to hardship such as job loss, income reduction, or illness in the family lender will accept short sale offers for consideration of approval without the loan being in default. Some people are in are in a position to continue to make their mortgage payments and make the financial decision making their payments until the home's sale transaction is closed. According to the new FHA guideline on short sales, those homeowners who keep their payments current during a short sale may qualify to buy a new home through FHA immediately after closing.
Must I have a hardship to qualify for a short sale?
No, Lenders often approve short sales for homeowners that do not have a hardship simply because the alternative is to take the home back in a foreclosure, which would only increase the lenders loss.
What constitutes as a hardship?
- Death of income earner
- Medical expenses
- Military Service
- Loss of Job
- Reduction of Income
Will I still owe the bank after a short sale?
It is commonly misstated that Arizona is a non-recourse state. Although Arizona has strong anti-deficiency statutes, there are circumstances in which a lender could peruse a deficiency judgment against the homeowner. There are statutes to protect homeowners from deficiency liability in a foreclosure that may not apply in a short sale. The upside to a short sale is it will typically reduce the potential tax obligations when a 1099 is filed after the lender takes a loss. This is why it is very important to consult an attorney before signing any documents or even listing the property for a short sale.
Short Sale vs. Foreclosure
1. A foreclosure is typically more damaging to the credit than a short sale or deed-in-lieu.
2. A foreclosure can create more of a tax liability for the home owner than a short sale, since a short sale is likely to result in a higher payout to the lender.
3. Once a foreclosure is complete, the borrower has no bargaining power if the lender decides to peruse a deficiency lawsuit. If a short sale is completed on a property
Short Sale Information:
By now the term "short sale" has made its way into the lexicon of the average home owner. However, for those who are not familiar with this terminology, let us briefly define short sales. In this context, "short" is not defined as "quick". In fact the typical short sale is far from it, taking anywhere from 30-120 days for the bank to approve any offer received. Rather a short sale is defined as a sale that involves the lender discounting or "shorting" the amount of the loan(s) against the home in order to facilitate a sale. Why would a lender agree to take less than what is owed? There are a few reasons:
Legal Concerns - Mortgage lenders have come under legal pressure to work with borrowers to resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
Wall Street is Watching - Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved.
Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets - homes - spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful Short Sale eliminates most of these costs
Reserve Requirement- Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful Short Sale lets the lender put more money to work.
What has been the primary stumbling block to getting a short sale to closing? Time. As mentioned earlier, depending on the lender the typical short sale takes anywhere from 30 days (Wells Fargo, the very best) to 120 days or more (Bank of America, the very worst) to get a bank approval. In fact, the time is often so extensive that buyers typically withdraw prior to the bank response. This leads us to the title of this article about an emerging new short sale trend. This trend is the "pre-approved" short sale. A limited group of lenders have begun to allow some borrowers to get pre-approved for a short sale. agent In this scenario the lender qualifies the seller (borrower) for a short sale and establishes the pricing for that short sale in advance of the real estate offering the home for sale. The primary advantage of this is threefold: first, the price is established prior to soliciting offers (on the traditional short sale the price the lender will accept is not established until after the receipt of an offer); second the speed of response to any offer is measured in days rather than months; third the credit of the borrower is better preserved as these accounts typically show "paid as agreed". Thus the pre-approved short sale removes the primary barriers to a successful short sale.
If you are anticipating a "short sale" or know of someone that is...... or... if you just want to talk about the current situation in Real Estate... do not hesitate to give me a call, I am here to help.
