But I Heard, But I Heard, But I Heard - Short Sale Myths Debunked
It can be very frustrating for a Gainesville homeowner who is facing foreclosure to not find the correct information necessary to assist in making a difficult decision on whether or not to short sale their home. We feel it is important that any decision you make is made by having as much information available to you as possible. I have compiled myths I have heard or read over time to help clear some of the confusion. One thing to keep in mind is that every short sale is different because each lender has their own policies and procedures and each borrower (seller) has their own unique situation.
Myth 1- I must stop making payments before bank will approve a short sale
This is less common than it used to be, however I have worked with sellers whose short sales were denied because they were current on their payments. I have only found this to be an issue with Freddie Mac and in one Gainesville seller’s specific case they had only $80 left each month after all bills were paid and had a loss of income. However, it is not necessary for you to stop making payments for the bank to take you seriously and have a successful short sale. It is important to do a little investigation up front by finding out who the investor is. Many times this is not the same entity as the lender carrying your mortgage. 
It is also important to understand that in fact, failure to make payments will ding your credit report for each month your mortgage payment is missed. It is understandable if you are financially not able to and it is important that you do not stop because a friend, family member or agent has suggested you do so. Please investigate the consequences of this prior to making that decision. What the bank needs to see is a true hardship and reason why you are unable to continue making your monthly payments and /or must sell because of loss of job, relocation, divorce, etc. Short sales are very prevalent and due to current market conditions the banks generally understand why you are requesting to participate in a short sale, whether you missed payments or not.
Myth 2 – I should never accept a payment plan from the bank…they should forgive all my debt.
This is all too common and I hear it quite often. Here is an example of a possible short sale scenario. Let’s say you owe $250,000 on your home, you bought it for $278,000 and it is now worth $150,000. A $100,000 difference in what you owe the bank and what the home is worth. 
A buyer contracts on your home for $150,000 and the bank agrees to the short sale, agrees to waive the deficiency but comes to you and asks for you to come to closing with $5000 or take a unsecured note for $10,000 at 0% interest payable over 15 years at $56 a month. You say no and the home ends up in foreclosure, is resold after being carried by the bank for a year from the foreclosure date to resale. In the interim the home deteriorates slightly from nobody living in it and causes the value to go down by 15% and the sales price is $127,500. The bank incurred taxes of $2800, attorney’s fees of $12,000, Realtor commissions of $7,600, carrying costs of $3300 for utilities for the year and $3500 in miscellaneous expenses. The $100,000 difference in the short sale price to what was owed is now $151,700 that the bank may seek a judgment against you for that amount. This is a big difference between possible out of pocket costs and not to mention how your credit will be affected. Keep in mind if you foreclose and a judgment is sought, your wages may be garnished.
Myth 3 – Pricing the home very low will get an offer quickly
Yes, pricing a home very low may get an offer quickly but at a cost to the seller and the buyer. Banks do their homework and though you can get a great price on a short sale they will not just give the home away. Most buyers are still of the mindset that they should not pay over asking price. An experienced agent will price the home in accordance to what the bank would most likely approve the short sale for. In some instances, the agent may price the home on the higher end of the current market value and maintain a marketing report to help prove their case as to why the bank should take the offer. This detailed report will provide the pricing history where offers were not entertained until the home was listed at a lower price. Most deals fall apart because of low ball offers, lack of communication between all parties and changing seller circumstances. The disadvantage to sellers is that the time is ticking if they are facing foreclosure. To waste their time on an unrealistic offer could cost them the home all together. For buyers it is a waste of their time and they will need to start the search all over again. Make sure to offer close to or at FAIR MARKET VALUE.
Myth 4- The bank will not pay the commission for my Real Estate Agent and/ or the costs of listing the property with a real estate agent will be passed on to me
A real estate agent’s professional fee is taken out of the banks proceeds at close of escrow. The bank will dictate how much the agent(s) will receive. Most banks will not pay an agent’s commission if they are representing themselves as the buyer. Now I do have an issue with this since technically in Florida the Agent is paid by the Broker and not paid directly from the bank. This means the bank is denying paying the brokerage firm. Just a small pet peeve of mine and screams trouble down the road.
Myth 5 – I cannot short sale with 2 mortgages
When the short sale process started many people could not short sale because they had a second mortgage. After the first wave of foreclosures lien holders in second position realized that if they did not participate in the short sale they would receive $0. Now instead of foreclosing on a property, they have started to accept pennies on the dollar…which is better than getting nothing. One mistake I have seen made in the short sale process is not initiating the short sale for both loans. Some agents wait on the first to get approved before starting the second and this just causes additional time and delays. It is much smarter to work them both and work them backwards. What I mean by this is if you know up-front what the second will take it makes it easier to negotiate the first.
Myth 6 – A Short Sale is embarrassing…a black cloud will be hovering over our house.
There is nothing different in the way a Gainesville homeowner should prepare to sell their home as they would any other time. A Short Sale has become so common place in today’s market that the stigma has been reduced. Short Sales happen to people with good jobs making good money. It simply is a situation where you must sell and do not have the means to make up the difference. You should never feel or be made to feel embarrassed about the situation. It is much better than a foreclosure and you have the ability to buy a home again in 2-3 years depending upon your credit.
Myth 7 – Any agent can list a short sale.
Not just any agent can do a short sale. Many agents that do not truly understand how to complete a short sale may cause harm to the seller. The fact of the matter is that most agents do not have a system or plan in place to list a short sale. We assist our sellers with a specific pre-listing system for short sales and a tailored marketing plan that assists in the short sale being accepted. We have also established partnerships with attorneys, loss mitigation and title companies to provide the service that is appropriate for you. This thorough system gives the banks what they want to see in a home sale. Not every short sale will be a success and for anyone to tell you otherwise they are mistaken. Trust in the team that is experienced and has the ability to provide you with good counsel and reputable resources.
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