Our commonly asked Short Sale questions, answered

What is the Short Sale process? 

• Gather all the lender required documentation. Some banks require that their unique forms be used as well. Please contact us so we may provide you with your banks specific forms. This stage shouldn’t take longer than a few days.
• Once you have all your paperwork completed, stage two is simply contacting us to schedule an appointment to visit you at your home, pick up the paperwork gathered in step one, and prepare to place your home on the market.
• The third stage involves professionally marketing your home and producing a ready, willing, and able buyer. This stage can take as little as a few days or as long as a month or two (this depends upon the strategy that works best for your desired outcome). We closely
  track the activity of your sale and make the necessary pricing adjustments to attract a buyer.
• The fourth stage is the actual presentation of the offer to your bank. This is where our expertise and experience in negotiating Short Sales with lenders begins. The negotiation and approval process can take anywhere from 30 to 6 months. Dozens of phone calls, emails, and faxes are required between the lenders and our team (on average 60-90). If we are dealing with a single lender rather than
  multiple lenders, it is easier (although not necessarily faster) to obtain the approval. Some lenders require us to be familiar with their proprietary online systems for documentation and negotiations.
• The fifth and last stage to the Short Sale process is the period of time between the bank approval and the buyer closing on the home. Although the Short Sale addendum states the close will occur 30 days after bank approval, be aware that most lenders typically push for a 2-3 week close. We encourage all parties to accommodate the bank on this issue.

How long does it take to do a short sale?
A- There are several stages to the Short Sale process which
can be lengthy. The process with the smaller local/regional lenders can be much faster, but a short sale can take up to 6 months from start to finish...or be completed in 60 days.

When should I move out of my home?
A- This is very important - stay in the home if at all possible. Even if you are not paying your mortgage – it is better to stay in the home. Some of the lender incentive programs require that the property be owner-occupied. If you remain in the property until close of escrow you have a better chance to qualify for lender relocation benefits. Also, properties that are occupied have less vandalism. And finally, this is an opportunity for the homeowner to save money to prepare for their eventual move.

How do I begin a short sale?
A- First, we recommend you get legal counsel and tax advice regarding the issues inherent with doing a short sale.  Next, fully complete all of the required paperwork and gather all necessary documents. We will take it from there.

What if I don t have any money to pay realtor commissions?
A-In a Short Sale transaction you, as the seller, do not have to pay the Realtor commissions OR the closing costs. The bank covers these costs. Please note: there is a possible exception - the banks may not pay for all unpaid HOA fees.

Is there any upfront fee for my short sale?
A- No. Some real estate agents or companies may charge an upfront processing or retainer fee from the seller before beginning a short sale. We are one of the few that do not.

Do I have to continue paying my HOA fees?
A- We strongly recommend that you do. Not staying current on your HOA fees can result in a host of associated issues and problems and may inhibit the closing of a short sale.

Why do banks agree to a Short Sale?
A-Generally banks have found that it is more cost effective to do a Short Sale rather than foreclose on a home. Banks are not interested in owning real estate. While banks do take a loss on a Short Sale, foreclosing on a home can cost the bank 10%-20% more.

Are there any tax ramifications to a Short Sale?
A- When you complete a short sale, you may receive a 1099-C which stands for Cancellation of debt . On a foreclosure you will receive a   1099-A, which stands for Abandonment of secured property . The Mortgage Debt Relief Act of 2007 (Which is set to expire at the end of this year) generally allows taxpayers to exclude income from the discharge of debt (1099C or 1099A) on their principal residence for their original mortgage amount plus any significant improvements. This provision applies to debt forgiven in calendar years 2007through 2012. For more information go directly to the IRS website at www.IRS.gov and do a keyword search of Mortgage Debt Relief Act to view
their FAQ on the subject. Investors need to be aware that this Act covers principal residences only. For investors or home owners not covered by the Mortgage Debt Relief Act, there is the possible option of insolvency . As always, we recommend that you seek professional tax advice before any decision to begin a short sale or before foreclosure.

Are there any credit ramifications to a Short Sale?
A - This question is difficult to answer as a variety of factors compose a credit score. Here is what we can tell you, a major part of the credit score damage that we have seen is as a result of the late mortgage payments. Once you get 90+ days delinquent (and it is reported to the credit bureaus) your credit score will take a major hit.Credit experts will agree that neither a Short Sale nor a Foreclosure is favorable to
your credit or credit score, however, the impact of a Foreclosure is much worse.

I am behind on my payments. How long until the bank forecloses?
A-It varies greatly. When you get the initial Lis Pendens from your lender, you should immediately contact a good foreclosure defense attorney to see if he can afford you additional time in the foreclosure process. . We often have been able postpone the foreclosure sale if we have an accepted short sale contract.

When should I start the short sale process?
A The sooner the better. Once you can no longer pay the monthly mortgage amount or see that you soon will not be able to and if you do not wish to pursue any other lender remedies (loan modification, etc.) begin immediately. The more quickly you act, the better the odds for a successful short sale.

I am thinking of filing bankruptcy or doing a loan modification in addition to trying to short sale my home. Is that a problem?
A- Yes as either of these will halt the banks processing of short sale. In our experience, banks will not continue with short sale negotiations if a modification has been requested or a bankruptcy has been filed.

Do all short sales get approved?
A-We don’t guarantee that we can successfully complete every short sale. Anyone who promises that is misleading you. Sometimes the banks will have unreasonable demands and you, the seller, will choose not to accept them. Every loan has potentially three entities that must approve the short sale: the servicer, the investor, and the mortgage insurance company. Any one of them can dictate terms that may kill a short sale. However, if your short sale can be done - we will get it done.

Can the lender ask me to sign a note or pay cash to settle the debt?
A- Yes. They can ask, but asking does not compel the owner to agree. But, in some cases it may be better to
settle the debt than to gamble on being pursued for a deficiency judgment. And we always advise our clients to have counsel review any Approval Letter from the bank.

Can I sell my home to a relative?
A – No. Lenders will ask all parties to sign an Affidavit of Arm s Length Transaction . This generally states that the parties cannot be a
family member, business associate, or share a business interest.

The above just scratches the surface of what we cover when we work with a short sale client. If you’d like to explore your options related to a short sale…please call my direct line at 561.602.1258

Thanks for reading…Steve Jackson