Short Sales

A Short Sale occurs when the proceeds from the sale of a home do not fully pay off the existing loan(s) and the lender(s) accepts a discounted payoff to fully satisfy the loan. The existing lender usually always pays virtually all sales costs, including commissions, escrow and title fees and repair costs. You get your home sold, the loan(s) paid off and you avoid foreclosure.The down side is that you may be hit with a 1099 tax bill from the lender(s) for the forgiven part of the loan. Click here for some Q&A on debt relief.

What is an approved Short Sale?
An approved Short Sale occurs when the lender(s) have worked the file to completion and have decided the value of the property and approved that price. These are the best short sales to go after if you can.

Is a Short Sale right for me?
Lenders are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship that makes it likely you will be unable to meet your obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through the expensive foreclosure process. Remember your lender is looking to limit any potential loss on their loan to you. By completing a Short Sale, your lender has arrived at a solution that is much better for them and you, than a foreclosure. The Federal Government and Lenders are currently working on programs to help people in your situation. Please contact them immediately to see if you may qualify.

How much will I have to pay to sell my home in a Short Sale?
In most cases you will pay literally no sales costs if your lender approves the Short Sale. The lender pays all commissions, title and escrow fees, and even most repair expenses as part of the Short Sale approval. I include proper verbiage in the contract to protect you during a Short Sale. Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.

How do I get started?
The Short sale process requires proof of financial hardship. You can not have any available funds that could be drawn upon and must show that you have taken every possible step to avoid this. We would prefer to speak with you in person to talk about your options. Our goal is to help you avoid loosing your home. Sometimes we can work things out to help you stay in your home and other times it is better to list and sell it. It all depends on where you are financially and what is the right thing for you to do. If you would like to get pre-qualified for a Short Sale contact us. If you would prefer to discuss it on the phone or set an appointment, call us 888-790-1933. There is no charge to you to get started. It is as simple as contacting us and we will get to work. If you later decide you don’t want to do a short sale, or we find a better option for you, that is okay too.

Can I deed my property to someone else and avoid the hassle?
Deeding your property to someone without paying off the loan is nearly always a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit. Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property. Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.There is another option that allows you to transfer your property by means other than transfer of the Deed! This is through a title-holding trust or “Land Trust”. This trust form is legal throughout the U.S., but rarely has it been used in many states.

What is a legitimate hardship?
Below is a list of “hardships” that are common and frequently accepted by mortgage lenders.

  1. Family illness or injury
  2. Illness or injury in the extended family – particularly if it forces relocation
  3. Job relocation when the property is equity deficient
  4. Job loss or significant income loss
  5. Divorce or split of domestic partners
  6. Adjustment in mortgage payment or unforeseen increase in living expenses

Loss Mitigation Department handles all Short Sales, and to some extent, will decide if the hardship is legitimate. If the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will usually be processed by the Loss Mitigation Department. A strong hardship letter is a big key to getting Loss Mitigation to accept a hardship. The hardship letter sets the tone for the entire file. This is usually best written by you, since your emotion and feelings will be put into it.

Will my lender consider a Short Sale if I am current on my mortgage?
Maybe and it is increasingly likely. Some lenders will accept a Short Sale file for approval on loans that are not delinquent, while others will not accept the file until the loan is delinquent. We can put your Short Sale file together within a couple days and submit it for approval. (Remember, there is no charge for this). That is the best way to determine if your lender will accept a file for approval on a loan that is current.

Why would a mortgage company agree to accept a Short Sale?
Below is a list of reasons why a mortgage company would approve a Short Sale;

  1. Legal Concerns – Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
  2. Investors are 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 quickly.
  3. 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
  4. 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.

Do lenders approve all Short Sales?

The answer is no. From the presentation of the Short Sale package to the lender to working with the lenders Loss Mitigations Department, I know how to keep the file moving towards approval. I have a team of experienced individuals who can help, if needed. The first step is to get pre-qualified for a Short Sale. Call us 888-790-1933 or contact us.

Can I still do a Short Sale if I have a second loan?
Yes. It takes a bit more work, but we will work with both lenders to put together a transaction. We can usually get the lenders to cooperate, even if the balance of the 1st mortgage is greater than the value of your home. Many times the same lender hold the 1st and the 2nd loans, which simplifies the process. In the end, neither lender wants to own another home through foreclosure.

Can I still do a Short Sale if my property is in need of repair?
Yes, and in fact, lenders are usually more motivated. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work. Aside from expense of completing the work, lenders are not in the handyman business, but rather the loan business.

How will a Short Sale affect my credit?
The big key here is that you avoid foreclosure. A foreclosure, by nearly any measure, is worse than bankruptcy and the most damaging event to your credit. If you miss your mortgage payments during the course of getting your short sale approved, these will show on your credit. By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.

Do I need to sell my home if my income problem was temporary?
You may be able to keep your home. You need to convince your mortgage company of two things:

  1. The problem that caused the mortgage payment disruption was beyond your control – illness, injury, temporary disability or forced job change are a few examples
  2. You are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount.

This is usually done by a Forbearance Agreement. I recommend that your lawyer draw this up for you.

What is a Forbearance Agreement?
This is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:

  1. The borrower’s promise to remain current on the mortgage going forward
  2. Some plan for making up the delinquent interest and other charges. It may mean making additional payments to the mortgage company or the delinquent amount could be added to the loan to be paid later.

Will the I.R.S. forgive me?
One very important item that all homeowners contemplating a short sale need to be aware of is the difference in the amount that the lender forgives (and some Lender’s don’t forgive), the IRS does not. The “difference” is what the home sold for and what your actual payoff was. There will be a difference and the IRS considers this as debt relief or income and may issue you the “1099”. Click here for some questions and answers on debt relief.

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