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Judy Chapman, Koenig & Strey (Glenview ∙ Northbrook ∙ Prospect Heights ∙ Surrounding Areas) provides an excellent online seminar/blog on real estate Short Sales below. It answers many of the basic and more detailed questions surrounding this timely topic.
For those that have heard and read about Short Sales, but just didn't understand what they are or what purpose they serve to homeowners in distress ... this post provides the perfect explanation and a road map to navigating Short Sales successfully.
I hope that anyone feeling the distress of the current housing and financial markets will seek out the professional help and guidance that is available in their specific areas.
For those needing the services of a Short Sale professional in Glenview, Northbrook, Prospect Heights, IL and surrounding areas ... please seek out Judy Chapman of Koenig & Strey. Judy can also help you with other residential sales, rentals, and services in that region.
Of course, for questions regarding mortgage financing for real estate purchases, please contact me through my direct number at Chicago Bancorp, 815.277.4036, or website: www.genemundt.com.
Homeowners facing foreclosure have many questions when it comes to Short Sales. They want to know how a Short Sale will affect them. And they want to understand what can go right and what can go wrong. This page should provide answers to the most frequently asked questions about Short Sales.
Question: What’s a short sale?
A Short Sale occurs when your mortgage balance plus the costs associated with selling your house is greater than the sales price you’d be able to get. In a Short Sale, your lender forgives all or part of the shortfall, known as the deficiency. The primary purpose of a Short Sale is to avoid foreclosure. Many homeowners, however, enter into a Short Sale when they must move to another area due to job relocation or family needs. Or if they’re experiencing net losses on rental properties. Or when their home has lost so much value, they see no sense in being strapped to a property that won’t regain its full value for years if not decades.
Question: Who qualifies for a Short Sale?
If you’re upside-down on your mortgage, you can qualify for a Short Sale. When approving a Short Sale, lenders will exam several aspects. Among them are 1) the reason why you can’t continue making monthly payments, 2) your financial position, 3) your assets, and 4) the current market value of your house.
Question: I owe thousands of dollars, but my house will sell for a lot less. Will the bank accept such a huge loss?
The bank doesn’t make its decision on the amount of the loss, or deficiency, but on the current appraised value of the property.
Question: Why do banks agree to take such huge losses?
Banks know that if a property goes into foreclosure, the property’s condition will most likely deteriorate by the time they take possession. Property devaluation results in an even lower sales price than with a Short Sale. Banks also avoid costs related to foreclosure proceedings and additional expenses associated with owning and maintaining properties.
Question: How long does it take to do a Short Sale?
It can take anywhere from a few weeks to six months or longer. Waiting for the bank to make its decision can be emotionally draining. So when you decide to do a Short Sale, make sure you have the patience and fortitude to stay with the process for the long haul.
Question: What are the benefits of doing a Short Sale?
Doing a Short Sale allows you to —
Sell your house and start over
Eliminate or substantially reduce your financial liability
Minimize damage to your credit rating
Purchase another house in 2 years
Protect your employment status, particularly when it comes to jobs involving security clearances or sensitive positions in investments or banking
Look forward with a clear conscience instead of glancing back with worry and regret
Question: When’s the best time to start the Short Sale process?
If you’ve already defaulted on your mortgage, there’s no time to waste. If you can’t keep up with payments for much longer, you don’t have any time to waste, either. If you’ve decided you’ve had enough and have to get on with your life, there’s no time like the present. In other words, there is no best time. Just the best time for you.
Question: What is the process for starting a Short Sale?
Just contact an agent who understands what it takes to get a Short Sale done, as simple as that. To get a head start, send us an e-mail and request a .PDF file of our Short Sale Package. Once you receive it by return e-mail, you can acquaint yourself with the required paperwork and start gathering together financial records. Before going forward, you should speak with an attorney and tax accountant. Once you decide a Short Sale is right for you, give me — Judy Chapman — a call at (847) 859-9197, and we can start the ball rolling.
Question: Who pays for the real estate sales commission?
All closing costs — including the sales commission — are deducted from the sales price of the house with the net proceeds going to your lender.
Question: Is there an upfront fee for taking on a Short Sale listing?
While some real estate brokers charge an upfront retainer fee or require you or the buyer to pay a third-party negotiating firm, we don’t. Our hands-on approach promotes a more consistent management of the process and allows us to communicate more effectively with you.
Question: Are there any other handling costs?
At closing, our title company may charge an additional fee reflecting the extra Short Sale services it provides. This fee will not be chargeable to you but will reduce the net proceeds payable to your lender.
Question: Is it necessary to default on my mortgage?
For most lenders, defaulting on your mortgage is NOT a prerequisite for approving a Short Sale. Even if a bank advises you that defaulting will support your case, make sure that taking this step is right for you. Defaulting on your mortgage will immediately affect your credit rating and will inevitably lead to foreclosure proceedings.
Question: Will doing a Short Sale interfere with a loan modification or bankruptcy?
Yes to both situations. If you wish to stay in your home, contact your bank for a loan modification. If your efforts fail — and you won’t or can’t stay in your house — you can move on to a Short Sale at that time. If you intend to file for bankruptcy, let your attorney determine when going ahead with a Short Sale is best.
Question: Do banks always approve Short Sales?
No, they don’t. Approval of a Short Sale is always dependent on the policies and financial considerations of your lender, your personal financial position, and market conditions. On average, about 90% of Short Sales are approved, but there are no guarantees.
Question: Does it matter if there’s only one mortgage loan involved or several loans?
Second and home equity loans always complicate approval of Short Sales. Mortgage insurance (PMI) attached to the primary loan can also complicate the process.
Question: What about rental properties and tenants?
Carefully consider whether you want to put your house on the market while it’s still occupied by tenants. Not only will you or the subsequent buyer have to abide by the lease, you may find your tenants uncooperative when it comes to showing the property.
Question: What about utilities?
If your house is vacant, you probably want to cut back on expenses. All the same, you should keep your utilities on. Not only will it make the house easier to show and sell, it will also prevent physical damage to your property. It’s also a requirement that utilities are on for home inspections and final walk-throughs.
Question: What about HOA assessments and maintenance fees?
You should continue paying your HOA assessments in a timely manner. Delinquencies can result in accumulated interest, attorney fees, credit damage, lawsuits, and collection efforts. While banks will pay off delinquent HOA fees, they often limit the amount.
Question: Do lenders require borrowers to sign promissory notes or contribute cash at closing?
Sometimes. It usually depends on your financial situation, whether second loans are involved, or if you’re an investor. Just be prepared to negotiate the best deal possible. Also, make sure you have funds to fall back on should your bank demand a settlement in exchange for approving the Short Sale.
Question: Can I sell my home to a relative?
Almost all lenders require that the sale be an arm’s-length transaction. In this respect, they often require an affidavit attesting to the fact that the parties are not family members, business associates, or share a business interest in the property.
Question: Can I sell personal property, such as appliances and furniture, to the buyer?
Since the seller cannot receive cash back at closing, this is not possible.
Question: Do homeowners have to consult with their attorney before entering a Short Sale listing agreement?
Though you’re encouraged to do so, it is not a requirement.
Question: Are there tax ramifications in doing a Short Sale?
After a Short Sale, the lender is obligated to submit a Form 1099-C to recognize the canceled debt as income. The Mortgage Debt Relief Act — which applies to the years 2007 through 2012 — allows taxpayers to exclude income derived from the discharge of debt on their principal residence. Be sure to speak to a tax professional to determine your personal liability.
Question: Are there credit ramifications in doing a Short Sale?
Your lender is required to report a Short Sale as “settled” or “paid for less than full amount” to credit bureaus.
Question: What if the house is owned by a married couple but only one name appears on the loan?
While the lender will ask to review the household income and expenses of both individuals, credit ramifications will only affect the borrower.
Question: Can I to purchase another house after doing a Short Sale?
Homeowners who have sold their house as a Short Sale will be able to purchase another house with a conventional mortgage in 2 years.
Question: How long does it take a bank to foreclose after borrowers have defaulted on their mortgage?
Each lender varies on how quickly it files a default notice. Once the default notice has been served, a borrower will have several months or as much as a year or more to get a Short Sale done. Banks will also postpone a foreclosure if a Short Sale contract is currently being reviewed.
Question: My bank has already filed foreclosure papers. Can I still do a Short Sale?
Absolutely, provided you don’t let too much time elapse before contacting us. Since it can take up to a year to process a Short Sale, and the final judgment on a foreclosure can take about the same time, there’s no time to lose.
Question: Can homeowners profit from a Short Sale?
Lenders will not allow the seller to profit from the Short Sale.
Question: Are there banks that don’t do Short Sales at all?
Unfortunately, some banks don’t have the staff or inclination to do a Short Sale. As soon as you decide a Short Sale is the right path for you, call your bank and find out if they will consider a Short Sale.
Question: What is the step-by-step process of doing a Short Sale?
Real estate agent puts house on market.
Homebuyer submits offer, and homeowner accepts contract.
Borrower completes Short Sale paperwork, which is submitted to the bank’s Loss Mitigation Department.
The department’s processor makes sure all required documents have been properly submitted.
Processor orders a property appraisal, also known as a BPO (Broker’s Price Opinion).
If the BPO is in line with the contract price, file is assigned to a negotiator.
After reexamining the file and making sure everything is up-to-date, the negotiator sends the file to the investor. The investor is the entity that actually holds the mortgage note. Your bank is usually only servicing the note on the investor’s behalf. Commonly the investor is Fannie Mae or Freddie Mac, but may also be a private investor or a group of investors.
The investor examines the file and all the associated factors, and either approves, rejects, or counters the contract price.
Question: Can the lender come back after closing and try to collect on the deficiency?
While you may hear that you’re free and clear once the Short Sale has closed, there are no guarantees. In the past, banks have generally chosen not to pursue judgments. Recently, there have been a few cases where banks have gone after borrowers. No one knows what tomorrow will bring. It’s always best to consult your attorney.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.