Short Sale Frequently Asked Questions

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What is a short sale?
A short sale is when a homeowner agrees to sell the home for less than what they owe on it.  This can only occur when a homeowner qualifies for a short sale through proving a hardship, and the lender agrees to this lower payoff amount.

Why is it to my advantage to do a short sale?
A foreclosure or bankruptcy can impact your credit far more especially in the long term, in fact, some banks don’t report a short sale. In addition, in the event of a foreclosure, in many states, the lender will seek a deficiency judgment in the amount you owe. They could even come after other properties and assets of yours, including vehicles. Your credit could recover from a short sale in less than two years, whereas a foreclosure or bankruptcy can take 7 to 10 years.

Can I get any money back from a short sale?
Typically the homeowner does not receive any funds at closing from the sale of their home when performing a short sale. Though sometimes a lender will allow funds to be distributed to a seller to use towards relocation expenses!

How can a Realtor help me?
Realtors can help homeowners by working with your lender to negotiate a lower payoff amount in order to price your home below the competition and get it sold. Our agents will also aggressively market your home to attract buyers and oversee the entire sale process of your home. These services are at no cost to homeowners.

What are the qualifications for a Short Sale?
Mainly that you are in some type of “financial hardship”.  Financial hardships can include, loss of employment or income, divorce or separation, relocation or job transfer, major illness and medical expenses, or high dollar repairs without the resources to make them, or increased bills, or living expenses. A good rule of thumb is that a short sale is not for those that “want” to sell, but only for those that “have” to sell. You must prove your inability to pay.

What if my home is worth more than my loans, but I could not pay the closing costs?
That can still be a short sale. Many homeowners in the country have avoided adjusting the price of their home to current market value in a desperate attempt to receive enough money back to pay off their loan balances. If this is you, you are just delaying the inevitable, as home values may continue to fall across the country.

If I sell my home short, can the bank come back after me for the money?
NOT in most cases. We will work to get a full release for you at closing. This release will fully forgive any deficiency between the amount you owe, and the proceeds from the sale of the home. You should consult an accountant regarding tax ramifications, especially if it is an investment property.

Who will pay the Realtor commission?
Your lender does. They pay a regular Real Estate Brokerage fee, just like a home seller would in a traditional transaction, and just like they would if they foreclosed on your home. Again, you pay $0 out of pocket, period.

Who will pay the closing costs?
Your lender will pay all closing costs that typically are paid by the Seller. Due to the hardship situation you will not be expected to cover any of the closing costs.

How much work will this take?
Not much for you. We will ask you to gather certain financial information and forms for us to present to your lender. Our agents will handle the negotiations and details with your bank as well as the process involved in selling your house.

What is the expected time frame to complete a short sale?
Depending on who your lender is and how many loans are on the property, short sales can take anywhere from three months to a year to complete. That is why it is important to work with a Realtor who is competent and experienced in these transactions.

What happens to the money that is forgiven from my lender?
Any balance shortfall on your mortgage will likely be written off as a loss by your lender.  Because of this, your lenders may also send you a “1099 form” for any amount forgiven to you. Consult your accountant with any other questions regarding this.

If I am going through foreclosure, can I do a short sale?
YES. In fact, the bank will should more than happy to work with you on a short sale. It is to the banks and your advantage to work out a short sale if you are in financial hardship.  The foreclosure process costs the lender an average of $58,000!

Will the bank continue its collection activities?
Yes, the bank will continue its collection activities. That may mean they will call you or send you letters looking for payment even if you are pursuing a short sale. But, most banks will not foreclose on your home if you are actively working on the short sale.

Can I stay in my house until the short sale is completed?
YES. You will not have to move out until the closing. In fact, if you are facing foreclosure and we are actively working with your bank, we can typically get your lender to delay the foreclosure proceedings and make it possible for you to stay in the home for an extended period of time.

What if the terms of the short sale the bank gives me are unfavorable?
If the terms of the short sale are not in your best interest you are not required to sell the property and complete the short sale. Do remember though, that a short sale will have the lender forgive you of the debt and is the best option to avoid foreclosure or bankruptcy and will have the least negative effect on your credit. If you choose not to do a short sale the bank will NOT forgive you of the debt and may continue to pursue you for the outstanding loan balance.

 Are there any dangers to be aware of when working a Short Sale?
Be careful of “scam artists” or shady individuals if you are in financial hardship or facing foreclosure! These sharks can cause more harm than good. Never sign a quitclaim deed, power of attorney, or a $10 option to purchase your home without consulting an attorney. A good rule of thumb is to understand that anybody trying to purchase your home will look out for their own best interests in the transaction, NOT yours. Realtors work on your behalf and are licensed and regulated by their respective states and must adhere to a strict code of ethics and laws.

 

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ethangregory