Selling a Short Sale

While Short Sales were virtually unheard of only a few years ago, now the majority of banks and lenders are negotiating and closing these deals. They allow a homeowner with a legitimate hardship to sell their property for less than the balance of their mortgages and avoid foreclosure.  

The issue is that the banks want the right type of deal with exactly the right paperwork and most agents are completely unaware of what the banks want.  This is why a lot of short sales are not accepted or take so long to close causing the buyers to lose interest. Having an experienced Realtor who has extensive experience on Short Sales is critical for a successful short sale . . .so be sure to Pick the Berry best!  

What is a Short Sale?

A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.

But to be technical, here's a more official definition:

For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances:

• Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
• Monthly Income Shortfall – In other words: "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
• Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

Are You Facing A Financial Hardship? 

There are four Temporary Loan Relief Alternatives:

1. Forbearance is an agreement to temporarily let you pay less than the full amount of

your mortgage payment, or pay nothing at all, during the forbearance period. Mortgage companies may consider forbearance when you can show that funds from a bonus, tax refund, or other source will let you bring the mortgage current at a specific time in the future.

2. A reinstatement occurs when you pay your mortgage company the total amount you are behind, in a lump sum, by a specific date. This is often combined with forbearance.

3. A repayment plan is an agreement that gives you a fixed amount of time to repay the amount you are behind by combining a portion of what is past due with your regular monthly payment. At the end of the repayment period you have gradually paid back the amount of your mortgage that was delinquent.

4. A loan modification is a written agreement between you and your mortgage company that permanently changes one or more of the original terms of your note to make the payments more affordable. Common loan modifications include

• Adding missed payments to the existing loan balance
• Making an adjustable-rate mortgage into a fixed-rate mortgage
• Extending the number of years you have to repay

There are four Permanent Loan Relief Alternatives:

1. Assumption permits a buyer who qualifies with the existing lender to take over your mortgage debt and pay the mortgage payments, even if the mortgage is non-assumable. As a result, you may be able to sell your property and avoid foreclosure.

2. Short Sale If you can sell your house but the sale proceeds are less than the total amount you owe on your mortgage, your mortgage company may agree to a short payoff and then write off the portion of your mortgage that exceeds the net proceeds from the sale.

3. Deed-In-Lieu of Foreclosure your mortgage company may agree to a deed-in-lieu of foreclosure if you agree to voluntarily transfer title of your property to your mortgage company in exchange for cancelation of your mortgage debt. In most cases, you must attempt to sell your home for its fair market value for at least 90 days before a mortgage company will consider this option. This option may be unavailable if there are other liens on your home, such as judgments from other creditors, second mortgages, or tax liens.

4. Foreclosure A legal process in which a lender takes the title or forces the sale of a property as a result of the borrower’s failure to comply with the terms and conditions of the mortgage.

We believe that a Short Sale is the last option that a homeowner has BEFORE foreclosure. 

Preserving and protecting homeownership and homeowner equity is always the first priority. 

Frequently asked questions 

1. Can my real estate agent explain the short sale process to me? 

Answer: When you Pick Berry, you get a qualified short-sale real estate specialist. I can clearly and logically help evaluate your situation, explain in detail the short-sale process, and create a strategy.

2. How do I know if my property will qualify for a Short Sale?

Answer: When you Pick Berry, you get a specialist who knows the specific guidelines and understands the short sale process so that your property can be accurately evaluated to address your specific situation.

3. Does my real estate agent know what information I will need to provide to the lending institution?

Answer: When you Pick Berry, you get a specialist who asks the right questions and provides you with the appropriate paperwork to begin the process of creating a short sale package for the lending institution to review your current financial situation.

4. Does my real estate agent know what “hardship” categories qualify me as a short-sale candidate with the lending institution?

Answer: There are very specific categories that lenders consider as “qualified hardships.” When you Pick Berry, she will be able to review your situation and inform you of the different types of hardships that most lenders consider “acceptable.”

5. Does my real estate agent know how to create an effective short-sale strategy?

Answer: A short sale will only be accepted by the lending institution if both your property and you meet the lending institution’s guidelines. When you Pick Berry, her knowledge and expertise in the field will ensure that you have all of the necessary elements documented to qualify for and complete a short sale.

6. Does my real estate agent have prior experience and specialize in working with home owners and lending institutions to create a short-sale transaction?

Answer: This type of transaction has become a real estate niche and currently holds a high percentage of ALL home sales in the area. When you Pick Berry, you receive an Agent with specialized knowledge and someone who understands the systems required to be successful. She deals with banks, loan servicers and asset managers on a daily basis. You can be sure that you’ve selected a firm with previous experience and expertise.

7. Does my real estate agent know how to market my home, since timing is essential?

Answer: When you Pick Berry, she has specialized tools for selling your home, including the MLS (Multiple Listing Service), customized websites, open houses, market flyers and brochures, etc. Again, because timing is so crucial, she knows about advanced technological services and know how to apply them to the sale of your home.

8. Does my real estate agent know how to price my home?

Answer: When you Pick Berry, you get a Specialist who understands the current market conditions and how the market is affecting home sale prices. She will be able to back up our assertions with solid proof by obtaining a comparative market analysis to include three items: the listing and selling prices of homes in your area, a description of comparable homes, and the length of time the homes have been on the market. This gathered information will give you confidence that your home’s proposed market value is set at an accurate pricing range.

9. Does your real estate agent have a pricing/marketing campaign for 14, 30, and 45days?

Answer: If your home isn’t seeing much interest by prospective buyers after 14 days, I will promptly be able to provide you with a list of things being done on a regular basis to generate activity. I will provide you with a "Weekly Status Gram" communication vs. you having to continually request updates and make suggestions as to how to sell your home. When you Pick Berry, you get a Specialist that has the professionalism and expertise in the short sale market.

10.  What Is A Short Sale?

A short sale occurs when the net proceeds from the sale of a home are not enough to cover the sellers’ mortgage obligations and closing costs, such as property taxes, transfer taxes, and the real estate agent’s commission. A short sale is an alternative to foreclosure which may benefit both lender and borrower alike. The lender is getting paid back much of the money which it lent to the borrower as well as getting rid of the property. The borrower is getting out of their mortgage without having to go through foreclosure proceedings or expend any more money towards the home. Typically, the lender pays practically all sales costs, including repairs, escrow and title fees and realtor commissions.

11. How Do I Know If A Short Sale On My Property Is Right For Me?

Because of the current market conditions, mortgage lenders are more willing to work with borrowers faced with afinancial hardship by agreeing to the short sale process. If you are faced with a hardship and are unable to meet your financial obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through the foreclosure process.

12.  If I Do A Short Sale, What Do I Have To Pay To Sell My Home?

In most cases, you will pay literally no sales costs if your lender approves the Short Sale. The agent commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the Short Sale approval. In most cases, the amount the lender reduces the sellers’ payoff is considered to be “forgiveness of debt.” This amount is normally taxable. Only a tax professional can make this determination, but expect to receive a 1099 on the amount forgiven by the lender as income for you to be taxed on for the year in which you closed the property.

13.  How Do I Get Started On The Short Sale Process

There are very specific categories that lenders consider “qualified hardships.” A short sale can only take place if both your property and you qualify. You will need to make sure you are working with an experienced short-sale transaction management team so that you will increase the odds of having your lender accept the proposed short sale with your first request. Not all lenders will accept a short sale. Experienced negotiation is the key.

14.  What “Hardship” Is Acceptable For A Lender?

Below you will find a list of “hardships” that are frequently accepted by mortgage lenders:

1. Job relocation

2. Unemployment

3. Significant income loss

4. Divorce

5. Separation

6. Excessive medical bills

7. Death of spouse

8. Death of a family member

9. Business failure

10. Damage to property

11. Incarceration

12. Military service

13. Adjustment in mortgage payment or unforeseen increase in living expenses

Most mortgage companies or lenders require the hardship letter pursuant to a short sale. In the hardship letter, it is important to present the facts clearly, and above all else, be honest. The hardship letter must be able to prove the situation that caused you to fall behind on your payments and the excuse for falling behind must be legitimate and provable. A hardship is defined real and the mortgage company believes the loan is likely to become delinquent.

15.  Do My Mortgage Payments Need To Delinquent?

Most lenders will turn down your request for a short sale if the seller is currently making the payments. The only time they will consider it a short sale, is when the seller’s payments are delinquent. This presents a particularly difficult dilemma for the seller. Sellers who keep their payments current are protecting their credit rating, but the lenders require delinquency to do a short sale transaction.

16.  I Have Two Loans; Can I Still Do A Short Sale Transaction? 

Yes. We will have to work with both lenders to put together a Short Sale transaction packet. Most sellers in this situation are usually successful at getting the two lenders to cooperate because neither lender wants to own another home through foreclosure.

17.  I Am Concerned About My Credit-How Will A Short Sale Effect My Credit?

Late payments leading up to a Short Sale will negatively impact your credit. Much depends on how the lender reports the Short Sale to credit rating agencies such as Experian. However, if your bank accepts a Short Sale and does not negatively report, the short sale will not in itself negatively impact your credit score. For sellers, the key advantage to selling in a short sale is avoiding foreclosure. A short sale does less damage to a person's credit report than a foreclosure. It’s also less detrimental than a “deed in lieu” (of foreclosure), in which a borrower gives the lender the keys to the house and stops paying the loan.

Seller Homework 

List of Required Documentation For A Short Sale

In order to complete a Short Sale request, your lender will typically ask you to complete a Hardship Package that will need the following included in it:

1. A Hardship Letter explaining cause of current financial situation.
2. Financial information (Monthly Financial Statement).
3. Last 2 years federal tax returns.
4. W-2’s
5. Last two months’ pay stubs.
6. Last two months’ bank statements.
7. If there is more than one mortgage or line of credit connected to this house, they will need
8. Information on all the mortgages.
9. If you are in Chapter 7 or Chapter 13 Bankruptcy Proceedings, a letter from the Federal Bankruptcy Trustee allowing the sale of the property is Mandatory. If you are discharged under Chapter 7 liquidation proceedings, a copy of the Discharge letter is mandatory

Legal & Tax Advice

Sellers are advised to obtain legal advice regarding the advisability and terms of any short sale agreement with creditor(s) and professional tax advice regarding the tax implications of any such sale.

This process will result in the loss of your home.

CLICK HERE for additional information on Short sales

This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals such as myself.

If you have questions or feel you may qualify for a short sale, please contact me for a free consultation. Understanding your options now could mean all the difference in the world.