Short Sale Questions

Update: We originally posted this article on September 30, 2008 but we’re getting so many questions we decided to kick back to the top for our readers.

As it seems the bailout in some form or another is imminent, one thing is for certain. Banks are going to be more motivated than ever to mitigate their losses and to dump as many non-performing assets off of their books as possible. This means liquidating REO properties and also settling as many defaulted loans via the Short Sale method as possible.

So I thought it might be important to have somewhat of a quick FAQ refresher on Short Sales.

What is a Short Sale? Simply stated, a short sale occurs when a lender agrees to accept less than what is owed on the mortgage in order to facilitate the sale of the property to another buyer thereby ending the foreclosure process.

Will The Bank Go After The Seller For The Shortfall difference? The bank is attempting to mitigate their losses. What that means is they are trying to make the best out of a bad situation and to recover as much money as they can even though they are going to incur a loss. If you have funds available, of course they are going to seek to collect. However if you can show true hardship, the lender is not going to come after you after the Short Sale as they will be releasing you and satisfying the mortgage.

Don’t listen to hogwash from inexperienced Realtors who have no idea what they are talking about. A short sale is a short “payoff” of your loan. If the bank agrees to a short sale then they are agreeing to paying off your loan. It’s done! Nothing else to collect upon.

Why Do I Have To Provide Personal Financial Information? Well, you applied for a loan and said you could afford it. Now you are saying you can’t. What happened? The information that you provide will allow for a overview of your situation and determine if you actually qualify for a short sale.You just don’t get approved for a short sale because you made a bad investment or your home value plummeted. That’s not the purpose of a short sale. All lenders require a complete short sale package, including tax returns, bank statements, pay stubs, etc, to show that there is a genuine hardship or the need to sell.

I Heard The IRS will 1099 me for the Amount Of Debt Forgiven. The Mortgage Relief Debt Act of 2008 does not permit lenders to issue a 1099 to a borrower for a deficiency balance on a primary residence.Investors, and second homeowners you may be subject to a 1099 but the IRS has other ways for you to avoid taxation issues. Ask your lawyer or accountant about IRS Form 982.

Will A Short Sale Destroy My Credit? No, not paying your mortgage took care of that. However a short sale is not as bad as the dreaded “F” of a foreclosure.. The short sale may not show up on your credit at all. In fact, most mortgage trade lines report “Mortgage Paid” after a short sale. Any late payment history will still appear, as will any Notice of Default filings. What won’t report is an actual foreclosure. A promissory note may prevent the lender from reporting the mortgage as a loss. In today’s credit market, a foreclosure may prevent you from obtaining a mortgage for at least 5 years or more, even longer than a bankruptcy.

How Long Will This Take? That’s the million dollar question! It varies from lender to lender and deal to deal. We have closed some deals in as little as three weeks and some have taken as many as eight months. It all depends. What does move the process along faster is working with an experienced and knowledgeable short sale specialist who has relationships with lenders and can complete a professional package for submission to the lender and subsequently enter into aggressive negotiations on your behalf.

Why Should I accept Such a Low Offer On My Property? Does it matter? This is where some Realtors just don’t get it. What difference does it make to you as the Seller? This is not meant to be harsh but you’re going to lose your home either way. Either to the bank or to another buyer. To sell quickly, you must list the property at or below current market value, not what you wish you could sell for, or what you think the property should be worth.

Do I have To Pay An Agent? You can’t or rather it’s not advisable for you to be personally involved in a short sale. There is no special licensing required by anyone to work on a short sale. Real estate agents, Investors, specialized foreclosure firms, attorneys and we have even heard of Pastors working on short sales. It really does not matter who executes the short sale on your behalf but I would think you would want someone who is obviously experienced and for security I would want someone who is a professional governed by a licensing law . Additionally, the idea of a short sale is to actually SELL the property so it will need to be put on the market in some manner whether by an agent or for sale by owner.

Will This Cost Me Anything? Absolutely not! And if anyone asks you for money, fire them on the spot. Also, make sure that you write into any document that you sign hiring someone that you will “not be responsible for payment of any fees or payments and the request for payment of any fees or payments for your services or any services related to my transaction shall serve to immediately void and terminate any agreement that we have in previously executed”. That’s shark repellent!

Will I Get Any Money From The Sale? Sorry you won’t. Most, if not all banks require that the Seller receive no proceeds as the result of the short sale transaction. Not usually. Most lenders will not allow a borrower to receive any money. If the lender thinks you are getting paid from the sale, they will immediately kill the deal.

If you have any questions about a short sale or if you are in foreclosure and need help or advice on your options regarding a short sale, please feel free to give me a call at 954-709-7461, or you can send me an email at robins@robinashley.com. You can also contact me by utilizing the form below.

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