Short Sales

What Are Short Sales and How Can They Help You Get Out of the Financial Devastation and Obligation of Your Home?

If the market value of your home is less then what you currently owe your lender, you may be eligible to qualify for a “short sale.” A short sale may be attained by negotiating with your current lender for an acceptable sale on your property to a third party for less than what you currently owe on your mortgage balance.

Listen to Holly’s brief video explaining short sales.

Short sales have become more of a necessity in today’s market and a much better alternative to foreclosure or even bankruptcy. Lenders are more receptive to accept short sales for a variety of reasons.  It’s a win-win situation for all parties involved.

The seller wins by obtaining a general release of the home and often with a complete personal release.  Your property is saved from foreclosure, thus lessening the damage on your credit rating. (Foreclosure may adversely affect your credit up to seven years.) Moving on in your life without the embarrassment of public notice of eviction and foreclosure, plus maintaining your self-esteem, is obviously beneficial.

The lender wins by avoiding timely and additional expenses a foreclosure process would create and possible carrying charges.

The buyer wins by purchasing a home at an excellent market value.

Lastly, your neighbors benefit with a short sale versus a foreclosure on the block which creates further adverse results in market values.

1.    What is a short sale? A form of agreement between the owner of the home and your existing lender, “pre-foreclosure,” allowing the home to be sold for less then what is owed to your lender. Your lender would accept less then the loan amount in order to avoid a foreclosure proceeding. The short sale would result in a substantial discount price for the buyer.

2.    How do you know if you are eligible for a short sale? There are a few factors required in determining the decision to qualify for a short sale. One is the nature of your hardship; the financial status of your debts versus your assets and your loan to value, or in today’s market better described as your “remaining value to your loan amount.”

3.    What documents will you need to proceed in a short sale? The documents will vary slightly depending on the lender. Most commonly requested are:

• a hardship letter, outlining the nature of your circumstances (I highly recommend a licensed realtor with experience dealing with lending institutions marketing your home plus a proven successful track record on short sales)

• an authorization letter allowing the professional representing you

• an active multiple listing agreement

• a signed valid sales contract

• preliminary HUD1 settlement statement

• financial statement on the owner/seller (including such items as paycheck stubs, bank statements, monthly budget)

4.    Will your credit rating be affected by a short sale? The individual lender may vary in the reporting on the credit. Often what is on the report is “paid.” However, the lender may record “settled for less then originally owed” or similar.  Still, it is much more advantageous to have a short sale referenced than to have a foreclosure posted. In addition, a short sale is less damaging and quicker to cure on your FICO scoring.

5.    Will you receive any proceeds from a short sale? The seller is not going to make a profit from a short sale. Inevitably the profits and/or benefits were received throughout the time you resided in your home. The marketing expenses paid to a licensed real estate broker and legal costs of an attorney representing you during the process are paid through the settlement costs with the lender. Generally, there are no out- of- pocket costs for the seller for these fees.

6.    Will the lender require an appraisal on a short sale? Most lenders require a full appraisal or a BPO (Broker Price Opinion) to determine an assessment of the value in today’s market. This evaluation will assist with the lender’s decision to accept or reject the shortsSale. (This is another area in which it is extremely important to have an experienced agent representing you in negotiating with your lender for a short sale resulting with more favorable outcomes.)

7.    Are there tax implications in a short sale? Similar to the credit reporting, circumstances are individual to the lender. As a short sale represents a loss for the lender, the lender may report the amount of loss debt forgiveness to the seller. Previously, if a formal tax form 1099 was filed, a seller most likely would be responsible for paying taxes on the amount of debt forgiveness. I would recommend speaking with a tax accountant who is professionally trained in this field.

8.    Can you do a short sale yourself? I sincerely recommend a licensed realtor with the background and experience in short sales. Often when doing this yourself, the stress and emotions make it more difficult to reach the right departments for your loan, negotiate a favorable outcome, and lastly the time and patience to achieve the appropriate results.

9.    Can you use any attorney to represent you with a short sale? Make absolutely certain the attorney representing you practices in real estate law primarily and has diligently been involved in the process of a short sale and real estate closings in general.

10.     Why would a lender allow a short sale? Putting it simply, a short sale benefits all parties involved. The seller gets out from under the financial obligation the seller can no longer afford. The lender saves on a costly foreclosure and the additional marketing expenses once the property becomes “bank owned,” and the buyer purchases the home at an attractive price.

Should you be facing the unfortunate hardship of potentially losing your home, a short sale is a method to help you get out from under if you qualify.  Feel free to call me at any time to discuss your options confidentially along with a free consultation to evaluate your situation.

You owe it to yourself to move on to a less stressed lifestyle and begin anew with a salvaged credit score. If you have any questions, call me at 908-303-0478. 

• Share This

Tweet This