Short Sale Frequently Asked Questions by homeowners worried about or in foreclosure

By
Real Estate Agent with Compass DRE #01495237

Here are some common questions that I've been asked a lot in doing short sales.

Q) How can I hire an agent to assist me in a short sale if I don't have any money?

A) Hiring an agent to assist you in a short sale does NOT cost you any money. If a short sale is agreed to by your mortgage lender(s), they pay the commissions and closing costs, not you. There is no money associated with an agent helping you short sale your home. What it does require is an experienced short sale Realtor preferrably who is also a Certified Distressed Property Expert (CDPE) to help you understand and navigate the process, while also negotiating with your lender. DO NOT PAY ANYONE UP FRONT FEES, FOR SHORT SALE LISTINGS OR FOR LOAN MODIFICATIONS.

Q) Is a short sale the only option I have to avoid foreclosure?

A) Absolutely NOT. Depending on your situation, you may be able to stay in your home because there are additional options to short sales and foreclosing. It's important to speak with an experienced short sale Realtor who is preferrably a CDPE that can explain the different options available to you dependant on your specific situation.

Q) Do I have to be late on my mortgage payments to be considered for a short sale?

This used to be required to be considered for a short sale by your mortgage lender. Today, more and more mortgage lenders look primarily for a verifiable hardship, monthly cash flow shortfall (meaning you have more expenses that you pay on a monthly basis vs. how much money comes in per month), or a pending cash shortfall and insolvency. If you meet these requirements and are likely to miss a future mortgage payment, you should act immediately.  

Q) I am already in foreclosure, do I still have time to avoid it and short sale?

A) Absolutely! Even if you are already in foreclosure, an experienced agent may be able to postpone or delay the foreclosure process to help you short sale and avoid foreclosure if you are experiencing a legitimate hardship. This is just another one of the reasons an experienced short sale agent is critical.

Q) Why do I need to hire an agent to help me short sale, and if I do, why do they need to be experienced or certified?

A) An experienced professional is needed now more than ever in this real estate market.  Short sales are complicated and require more work and skill to accomplish. In a traditional sale, the only parties involved are the buyer and seller, with the agents representing them to negotiate price and terms. In a short sale, the parties involved include the lender (multiple lenders if a homeowner has more than one loan), loss mitigation negotiators, buyers, sellers, agents, and investors who may hold the mortgage. It requires a great deal of paperwork to the lender and an understanding of how the mortgage lender looks at short sales from their end. Negotiations take place not only between the buyer and seller, but intense negotiations between the listing agent and your mortgage lender(s) and loss mitigation negotiators occur as well.

Q) If a short sale is so difficult, and involves more work than a traditional sale, why would you want to list short sales?

A) The short answer is to help assist homeowners. In today's market, we are facing a foreclosure and economic crisis, which are closely tied together. The benefit of the trickle effect will be stronger communities, a stronger economy, and a more stable market.

Q) Can I short sale my home if I do not have any financial hardship?

A) No. The lender will not take a loss on a home and let you walk away if you have the means and ability to pay your mortgage. They consider it more of a dissatisfied homeowner than a homeowner needing assistance. Short sales are for homeowners who are having a difficult time paying their mortgage for any variety of reasons, and allow for a means to avoid the devastating effect of a foreclosure.

Q) If my property is in poor condition, or needs repairs, can I still do a short sale?

A) Absolutely! A homeowner can short sale a home in any condition, as long as they possess a legitimate hardship. For a property needing repairs, a homeowner will not have to pay for any repairs in a short sale.

Q) Why should I short sale instead of just walking away and foreclosing?

A) There are in fact many advantages between a short sale and foreclosure. One is the effects is on your credit score. Foreclosures will typically lower your credit score anywhere from 250 to over 300 points and remain on your public record for 10 years or more. In a short sale, only late payments on the mortgage will show and can lower the score as little as 50 points if all other payments are made. The affect on credit can be as brief as 12 to 18 months and there is no specific reporting on credit for short sales. It is will reported as either paid in full or settled. For a more detailed list of consequences click here to view a chart written by the Distressed Property Institute.

Q) Why would my mortgage lender allow a short sale instead of a foreclosure?

A) Mortgage lenders and banks are in the business of loaning money, not owning homes. In most short sale scenarios performed by experienced short sale Realtors, the mortgage lender loses less money in a short sale than a foreclosure. This is another reason a qualified and experienced short sale Realtor should be hired. An inexperienced agent may end up submitting a short sale package to the lender and be rejected because by the mortgage lenders calculations, the foreclosure will lose them less than the proposed short sale, or the homeowner may not qualify for legitimate hardship.

Q) Don't short sales take forever to close with no guarantee of approval?

A) Short sales can on average take longer than normal transactions, but in some instances we have had short sale approvals in as little as 7 days. It is important that if you are considering purchasing a short sale home, that you work with a listing agent with extensive experience and preferrably a CDPE. This helps ensure your agent knows crucial steps to the process, including understanding all the paperwork that is required by the lender, how to put the package together, and most importantly understanding how to negotiate with the loss mitigators at the mortgage company.

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