What is a Short Sale?
A short sale is when one sells a piece of real estate, and the proceeds from that sale come up short of the outstanding balance owed on the property. It commonly occurs when the home owner can no longer pay the mortgage payment and the lender agrees to sell the property short in order to mitigate their loss, versus taking the home to foreclosure. When the lender agrees to the short sale, this does not mean the borrower is released from all obligations to pay the deficiency. It is always good to consult with both a Real Estate Attorney, as well as a certified CPA, or real estate tax attorney, that specialize in real estate taxes.
Who qualifies for a Short Sale?
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 that makes it likely you will be 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.
Bottom line, your lender wants to work with you.
Why do banks agree to complete the Short Sale?
Banks never, ever… want to foreclose on your property. We could explain this, but it would take 65 pages and 9+ hrs… Banks lose on avg 28-36% more on a foreclosure VS. Short Sale.
Along with this, when a Short Sale is closed, here are a few benefits:
- Stimulates the economy with different parties being paid for services rendered.
- Reduces potential tax liabilities for homeowners over foreclosure.
- Most importantly, banks have regulations that limit the amount of money they can lend when the have nonperforming assets or a foreclosed home on their books. A Short Sale releases that and they can get back to lending!
Does the Short Sale cost me anything?
This is a very important, and often confusing… In most Short Sales, your lender will authorize in their Short Sale approval the payment of Real Estate Commissions that are “customary” in the area. This is one of our most asked questions… most of our clients “think” they have to pay the commission that their listing agent, as well as the buyer’s agent would earn when the Short Sale closes. Fortunately for you and our clients, that is not the case. On all of our Short Sales we’ve negotiated, our sellers never have had to pay the Realtor’s commissions. In some cases, there may be HOA or tax related costs that may be requested of the homeowner. We work to minimize those or cancel them out completely.
If I do a Short Sale, how long until I can buy another house?
Fannie Mae on conventional loans up to $417,000 has finally addressed the issue of buying after a short sale. The following guidelines are effective after July 1, 2010, and ARE ever changing, so please consult with a loan professional for updates and current market details:
- Two year wait with 20% down
- Four year wait with 10% down (and mortgage insurance company approval).
If there are extenuating circumstances defined as nonrecurring events that are beyond the borrower’s control such as a death, or act of God, or serious illness (divorce or a change in employment does not count), the following is the guideline also effective July 1, 2010:
- Two year wait with a minimum of 10% down
The extenuating circumstance will need to be documented. A few years ago, back when you could do low credit score borrowers, one of our clients was late on her house payment due to a tornado destroying it. (No, it wasn’t a mobile home) She provided before and after pictures. As a result of her careful documentation she was approved for her loan.
Desktop underwriting requires tweaking to mirror the updated short sale requirements. What does that mean to you? As of today, the automated underwriting systems may spit out a positive decision if the credit scores are high enough. An unknowing loan officer may think the loan is approved. Your client could get all the way to underwriting, only to find out the borrower does not meet the current guidelines.
Also, credit will need to be re-established. Fannie is still working on the exact requirements. But a good guess would be the following:
- Credit scores above 680
- No late payments or collections
- Three lines of current, established credit
What is Deed in Lieu of Foreclosure?
A deed in lieu is a part of your mortgage that you, the borrower, give up all interest in the real property to the lender to satisfy a loan that has defaulted or to prevent foreclosure proceedings.
A deed in lieu is just one option that you may have, please call or email us today to discuss all of them.
Can I do a Short Sale with a FHA, HUD or VA Mortgage?
Yes, our experience shows that we can Short Sale a home that has any of the above mentioned loan types. Each type of loan, as well as each bank, have different criteria and systems in place for accepting a Short Sale.
How long does my lender take to foreclose after I miss my first payment?
Generally speaking in the state of Arizona, most lenders file notice of defaults within 90 days of missing your first payment. We have seen lenders not file for over a year and some as little as 30 days. Since we don’t know when it will be, we can tell you that when they do file it, we are on the 90 day timeline. We need to get it extended and/or approved to close as a Short Sale. We’ve had huge success getting Short Sales extended on multiple occasions and sometimes indefinitely.
Can I be sued by my lender?
We recommend all our clients consult with a Real Estate Attorney. We can send you a few choices, just let us know. Attorneys can be informed and develop strategies around this prior to starting the Short Sale process. As with tax liabilities, financial deficiency/liabilities come with exclusions as well. A good Real Estate Attorney will identify if they apply to you and if they are beneficial to pursue.
What is the Mortgage Debt Relief Act of 2007?
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
Just because it exists, does not mean everyone qualifies. Consult your CPA or ask us for a referral.
Do you work with all banks and/or investors?
Yes, we have determined that it is the best interest of our clients to work with all banks and/or investors. We have learned that although some lenders/investors are more efficient than others, our team is committed to making all transactions work, regardless of the bank. Our mindset sets us apart from the rest.
I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
Consult your CPA or real estate tax attorney for information about this.
Why hire us?
- First and foremost… Our mindset is CRUCIAL… We practice a thing we like to call… ‘The Outback‘. In a nutshell…Solutions at all costs…
- Our technology and systems we’ve implemented allows us to be connect to your file at all times.
- We impose our will… in a professional manner… with the lenders. Our fiduciary duty is with you… not the lender.
- This is our FULLTIME job… we are dedicated to helping you through these tough times.
- We have a seamless process… For more on this, please ask us when you contact us. We can explain our process and estimated time frames on the short sale.
- We have a large network of out-of-state buyers and investors.
- We only take Short Sale listings we feel have a good shot at closing… Not just to get our sign in the yard.
- We handle the negotiations internally, we DO NOT outsource to a 3rd party negotiator. This gives us more control of the file.
- Finally… We know our stuff… we are not bragging, we are just confident in what we do