Short Sales- Most Commonly Aksed Questions

Most Common Questions Asked by Buyers and a Sellers:

What is a Short Sale?
A short sale is when your lender agrees to take less money than is owed to them due to a hardship on the part of the seller. The agent you've chosen to work with is highly trained and specialized in this process. This process is similar to the one in which you went through when you obtained a mortgage on the property. You probably met with a lender's representative and had to provide them lots of documentation that supported the fact that you could qualify for the mortgage. Now, we're doing it in reverse.

Will I Owe Money After I Have Been Foreclosed On?
When the lender or bank forecloses on the property and they eventually sell the property for less than what was owed, then a deficiency exists with the loan. The deficiency is the difference between what the homeowner owed and the amount the property sold for.

Will the bank come after me for the difference?
There is an issue as it relates to the deficiency and the infamous 1099. When you complete a short sale the lender will report that loss to the IRS.  If this is your primary residence the IRS cant tax you on the deficiency anymore please see the link for more information.  http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html
It is obviously in the best interest of the homeowner to be proactive and deal with the foreclosure NOW. At least there is a chance that we can negotiate a deal for you.

Example of a Request from the Lender to the Seller asking the Seller to Sign a Promissory Note on a Non-Homesteaded Property - Below is What the Lawyer said to the Seller:

Bank United approved your short sale; however they are asking that you sign a $60,000 promissory note.  I tried to get them to waive the note however they are insistent on the note being signed. 

Therefore, at this time you have 2 choices: 

1) Go forward with the short sale and sign the promissory note for $60,000.  In this case you will have the legal exposure to the $60,000.  Obviously it will be an unsecured note and if you fail to pay it they would have to sue you in order to try to collect it against assets that they can find.

2)  Let the property go into foreclosure.  Under this option the bank will hire attorneys and file a lawsuit for foreclosure.  However, under this option, you will be exposed to the possibility of what is known as a deficiency Judgment.  What that means is that after the house is sold by the bank, or through foreclosure, you will be exposed to the difference between the selling price and what is owed the bank pursuant to the original promissory note you signed when you took out the loan with Bank United.  In addition you will also be responsible for the attorney fees and court costs incurred in the foreclosure, together with the accrued interest that continues to run on a daily basis.  In addition to that, there is a very good chance the bank sells the property for less than the $222,000 Contract price you have with the short sale.  Therefore, under option 2, your exposure could be more than the $60,000 in option 1.  By example, you borrowed $292,000 from Bank United.  The Bank will add to the loan any attorney fees and court costs incurred in the foreclosure and the additional interest accruing on a daily basis.   Now if the property sells for $200,000 or less, your exposure would be about $100,000+/-. 

Both options are not good, but you may want to consider option 1 to lessen your total exposure.                                                               

What about My Credit?
The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event a credit status can encounter - worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and 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.  Your credit will recover much quicker from the credit dings of a few late mortgage payments, if you keep your other accounts current. Always stay on top of your consumer credit. So, consider allocating your funds to meet basic necessities (food, utilities, household needs, auto expenses and such) first. Beyond paying for necessities plan to pay other bill to keep as many accounts current as possible.  Keep "necessary" Accounts Current when deciding which credit bills to pay. If you are using a credit card to temporarily pay for necessities, you want to be sure to not jeopardize the availability of that account.  A short sale may be just one part of a larger effort to get through a tough period. I want to help make it possible for your credit to recover quickly.  YOU need to avoid foreclosure - and that's where I can assist you.

Why Use a Transaction Coordinator?
Because Real Estate Agents should spend their valuable time assisting sellers, not "on hold" with the Lenders.  Transaction Coordinators have direct access to many lending institutions and can expedite the process.

Is a short sale right for me?
Mortgage 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, and are 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 foreclosure.  As you consider the option of pursuing a short sale, remember your lender is looking to limit any potential loss on your loan. By completing a short sale, your lender has arrived at a solution that is, for them, much better than a foreclosure.
What sort of hardship would my lender consider legitimate?  To some extent, that will depend upon the mortgage company considering the short sale request. Generally, as long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the short sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.  I am current on my mortgage; will my lender consider a short sale?  From my experience, only mortgages that are in default (late or missed payments) are being accepted.  Why would a mortgage company agree to accept a short sale?
There are actually several reasons why a mortgage company would approve a short sale payoff, including the following:

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.
· 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 quickly.
· 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.

I have two loans; can I still do a short sale?
Yes.

My property is in rough shape and needs work; can I still do a short sale?
Absolutely. In fact, lenders are more motivated to do a short sale on a property that needs work than on a property that doesn't. 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 simply not set up to get the work done. They are in the loan business, not the fix it business.

*Important Note- A Short Sale will NOT be considered if you have any liquid assets such as equity in ANY other properties or any cash in the bank- Also Important if you have a FHA/VA Loan, are in Bankruptcy, or have PMI Insurance you might NOT be able to complete a Short Sale

 *If there are any liens on your property you must inform your real estate consultant before the property is listed.  If you do decide to list your property as a short sale it's VERY important that you let your real estate agent know any letters that you receive from a lender or anyone else pertaining to the property.

How Does Short Sales Affect My Credit?