A Short Sale is the sale of Real Property where sales proceeds do not fully cover the pay off balance on the existing loan or loans on a property. The lender or bank will agree to accept less than the full balance that is due on the property and usually ‘forgives’ all or a large portion of the difference.
In addition, the existing lender normally pays all of the sales costs associated with the sale, including commissions, escrow and title fees. The benefit to you is that you get your home sold, your loans paid off and you avoid foreclosure.
is a Short Sale Negotiated with a Mortage Bank:
Short Sales are one of the most difficult and complicated
residential transactions. Compared to a normal sale,
these transactions require additional paperwork,
intricate negotiations with the mortgage banker(s),
and careful preparation of the process and purchase
offer. A Short Sale package typically includes: a
purchase offer contract, buyers loan qualifications,
a realistic and detailed analysis of the fair market
value of the home, current local real estate market
conditions, seller financial information, seller
hardship letter and more.
Basically, the Short Sale real estate professional must demonstrate
to the mortgage bank(s) that the home is upside down, the
purchase offer is fair and just, and the homeowner has a
financial hardship worthy of a short sale. This financial
hardship can be due to job layoffs, illnesses, divorce, or
even the unexpected large increase in mortgage payments
due to interest rate resets.
What's Causing the high volume of Short Sales in the Santa Barbara Real Estate Market ?
Today, the upside down Mortgages in California are due mostly to the risky, highly leveraged loans that were extensively used over the past 7 years to purchase homes with little or nothing down. Worse yet, many of these loans were adjustable rate loans, or negative amortization loans in which the loan balance gets higher every month.
In addition, southern California home prices have decreased by as much as 35% to 45% in some areas. These factors are causing many home owners to consider a Short Sale to solve their financial crisis. The result is, there are 1,000's upon 1,000's of southern California homeowners who are upside down on their mortgage loan by then of thousands of dollars, and can no longer afford their mortgage payment.
The New Federal Government HAFA Short Sale Program.
The US Treasury Department has released the guidelines for the new federal Home Affordable Foreclosure Alternatives program (HAFA). The HAFA program is designed to streamline the short sale process and offers financial incentives to both homeowners and mortgage banks to encourage this type of resolution versus foreclosure.
The purpose of the HAFA program is to help reduce the rate of foreclosures, for short sales have been shown to reduce the financial loss to the banks. Short sale properties are rarely left vacant and neglected, thus reducing the chance of vandalism and deterioration that often becomes foreclosure properties. Some of the key features and benefits of HAFA:
1- Pre-determined cash incentives to both the Homeowners and Mortgage Bank servicer.
2- Listing Agent and Homeowner to receive pre-approved short sale pricing guidelines and terms prior to listing the property for sale.
3- Mortgage Banks are required to release the Homeowner from current and future mortgage debt liability.
4- The Short Sale must be an “Arms Length” transaction, meaning no relative can be a buyer, nor can an investor buyer offer to sell the home back to original homeowner.
5- The US Treasury department is to share the cost of paying off the 2nd Mortgage holder to release claims, by matching $1 for every $2 paid by the 1st Mortgage Bank.
6- Mortgage Banks cannot seek a deficiency judgment or require homeowner to sign a promissory note for any unpaid balance.
7- Mortgage Banks are required to pay for all fees and costs, that are normally a cost of the Seller in a standard real estate sale.
8- Mortgage Banks are required to render a preliminary decision to short sale within 15 days after receiving a fully completed document package from the Homeowner
||How will the Short Sale affect my credit?
Short Sales are still a relatively new concept. Banks have the option of submitting the short sale to the credit bureau as "Paid in Full" or "Settled for less than full balance". As far as your credit score is concerned, there is no evidence whatsoever to support that a short sale will lower your credit score. Some have the idea that this is like a bankruptcy or a foreclosure. That's far from the truth! In a short sale, the lender is simply allowing you to pay less than you owe!
If you are currently behind on your mortgage or facing foreclosure, the short sale will actually help your credit! How? Because once you are approved for the short sale, all collection activity will STOP and you will avoid foreclosure!
||Who benefits from the Short Sale?
Short sales are a win-win situation. Lenders, Mortgagees and Realtors all benefit from the successful short sale. Mortgagors get the majority of their money back, Mortgagees get the relief they need and are able to sell their property and avoid foreclosure, and Realtors can facilitate the transaction and receive compensation from the sale of the property.
||Why would banks forgive the difference?
To mitigate their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property back through foreclosure, a short sale often makes a much wiser business decision for the bank.
||This sounds too good to be true!?
Not really. Things that are too good to be true usually don’t make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is, Mortgage companies and banks are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.
||Why does my property have negative equity?
Here are a few common reasons:
1. You bought at the height of the market and the market has now declined or you paid more than the property was worth.
2. The area has become less desirable for any number of reasons, so property values have declined.
3. You purchased the home with little or no money down and wants to sell within a few years of purchase and the property value has not increased during that time. Therefore, costs associated with selling the property may create a balance due at closing,
4. You refinanced the home because of a high appraisal value and now the home has little or no equity.
5. You bought in a brand new subdivision or recently developed area that has not been fully developed or has not appreciated (or has depreciated) in value
||Is a Short Sale right for me?
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.
||What if I owe what my home is worth?
Even if you owe exactly what your home is worth, you may still need to do a short sale in order to pay for the costs of the sale (Realtor fees, Title Policy, Escrow Fees, Termite Fees, City Inspections and other seller closing costs).
||Why not just let my lender foreclose?
NO! Even when the Bank does sell the property through foreclosure... this does NOT remove your obligation to repay the remaining balance! It is not wiped away!!!
What is the first thing banks do when they foreclose on a property? Hand it over to a real estate agent to get rid of it quick! The foreclosure process is a legal process. It involves attorneys and it costs MONEY. Once they get the property back via foreclosure they must often sell it for MUCH LESS than market value and pay Realtor commissions and all customary closing costs. Doesn’t it make more sense for them to take at or a little below fair market value before foreclosing?
||What if I'm not behind on my payments?
Short sales work – even if you’ve never missed a payment!
Yes, I know… short sales have gotten a stigma of being only available for folks who are in foreclosure. But I have successfully negotiated short sales for people who have never missed a mortgage payment! They just happen to be in a negative equity position and need the short sale in order to sell their home.
||How long does it take?
Short sale approval can take 60 days or longer.
||What if my home is already in foreclosure?
Your foreclosure sale will usually be suspended during the short sale process. That's why it's imperative that you contact us right away!!!
||Will my lender send me a 1099 on the debt forgiven?
Always consult with your tax professional for tax advice.
In 2007 the U.S. Congress passed the Mortgage Debt Forgiveness Relief Act and it is in effect until 2012. As a result of that act, borrowers no longer pay taxes on the debt forgiven on their primary residence. So if the property is your primary residence, then no, you should not receive a 1099 for the debt forgiven or have to pay any taxes on the forgiven debt.
For investment property, the lender does have the right to report to the IRS the amount they have ‘forgiven’ in a Short Sale transaction, the amount of the resulting tax will be far less than the debt forgiven.
For more information go here: http://www.irs.gov/individuals/article/0,,id=179414,00.html
||How much will the short sale cost me?
Absolutely nothing. When your property sells, our commissions are paid by the lender. If your property does not successfully sell, then we do not get paid. Once we begin working on your short sale file,
||What kind of marketing will you do on my property?
The exact same marketing as if it was a regular sale. We believe that in order to make money you must invest money. We will employ an extensive marketing plan, however, on short sales more than any other sale, we have found that traditional marketing mediums (flyers, web sites, professional photography, virtual tours, open houses, showing feedback surveys, etc) are not the most effective at generating offers on short sale listings. Despite this, will still will treat your sale exactly as we would any other.
What generates success on our short sale listings is over 90% dependent on the property’s PRICE. We typically review the pricing and make adjustments every week or so until an offer is generated.
||Do you think I should just do a loan modification instead of a Short Sale?
If you desire to keep your home and can afford to make the monthly payments, then YES you should keep it! In order to qualify for a loan modification, you will need to demonstrate to the bank that you are generating more income than your current monthly expenses.
Is this the case? If so, you will need to call your lender and let them know you want to do a loan modification, and see if they will qualify you for their loan mod program. If you aren’t approved, we can then move forward with a short sale. We can’t work the short sale at the same time you are working with your bank on a loan mod.
||Can I lease out my house while we’re waiting on the short sale?
We don’t recommend that you lease your home while waiting on the short sale to be finalized. Lenders will not be sympathetic to sellers who are collecting rent payments and not making their mortgage payment. Also, homes with tenants are subject to legal rules (tenant rights) and much more difficult to show and to sell.
||How will you decide on the list price of my home?
Initially we will set the price based on extensive market analysis. Once we have an offer we will submit that to the bank. Once we convince the bank to agree to do a short sale on your home, they will hire their own independent appraiser who will come out and view your home, and set a valuation, based on its condition.
In order to get the process going quickly, we will need to send you our short sale package and get all of the necessary information we need back from you first.
||Who will let me know what I need to do to the home to get it ready for sale?
We won’t be recommending that you do anything to the home that will cost you money. The truth is, since you won’t be netting anything from the sale, the last thing you probably want to do is spend more money on a home you no longer can afford. For that reason, we will be selling your home as-is. Our only suggestion is to clear out as much clutter as you can. Other than that you’re OK. The lender will price your home according to its condition.
||If I do a Short Sale, how much will I have to pay to sell my home?
Nothing. It’s true, in most cases you will pay literally no sales costs if your lender approves the Short Sale. All commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the Short Sale approval. We will include the *following clause in the contract. "Seller’s agreement to sell is subject to approval by existing lender of a Short Sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow." Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
||How do I get started on a Short Sale?
The process is very simple If you would like to get pre qualified for a Short Sale, simply call or email us to schedule an appointment. There is no charge to you to get started. It is as simple as contacting us and we will get to work. Feel free to email us at email@example.com or call at 805-689-0532.
||What sort of hardship would my lender consider legitimate?
To some extent, that will depend upon the mortgage company considering the Short Sale request. Generally, so long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file. Below you will find a list of “hardships” that are common and frequently accepted by mortgage lenders.
• Family illness or injury
• Illness or injury in the extended family – particularly if it forces relocation
• Job relocation when the property is equity deficient
• Job loss or significant income loss
• Divorce or split of domestic partners
• Adjustment in mortgage payment or unforeseen increase in living expenses