Short Sales Explained
If you are considering selling your home but you owe more on your home than its market value, you may want to consider a “short sale.” My broker, Linton Hall, Realtors has specialists in short sales and they have prepared the following basic information.
What is a “short sale”?
A short sale is the process through which your mortgage company agrees to settle for less than what is owed to them. They do this as an alternative to the expensive and time consuming process of foreclosure. Each mortgage company has their own set of processes through which they decide whether or not to accept a short sale, and while there are many similarities, each has its own requirements for approval. As a third party mediator, we have a distinct advantage in negotiating with your mortgage company.
What are the advantages of a short sale?
– Sell Your Home Quickly and Easily For Top Market Value
– Pay No Commissions Or Closing Costs
– Avoid Foreclosure And Bankruptcy
– Protect Your Credit
– Potentially Walk Away With No Debt And No Tax Consequences
Does your house qualify for a short sale?
If your equity has disappeared, if your interest rate has readjusted higher, or if you cannot afford the payments, then your house stands a good chance of being eligible for a short sale.
Will you owe the bank any money afterwards?
Many short sale clients pay nothing to sell their home, and walk away owing nothing to their lender(s).
How is our credit affected?
A short sale does create a negative impact on your credit. However, it has less impact on your scoring compared to a bankruptcy or foreclosure. It is treated by your lender as a settlement of a debt, as opposed to a foreclosure or a bankruptcy.
You will not have the stain of a foreclosure or a bankruptcy on your credit, and instead of having to wait up to 7 years to buy another home, you might be able to get a new loan on a house as soon as 24 months after the short sale. Timing is different for each circumstance and person; this is the earliest you might be able to get a new mortgage. Some people will have to wait longer.
Do I need to be behind on my payments to do a short sale?
No. This is a common misconception. You do not need to be behind on your payments or have been late on a payment to do a short sale, although the lenders are more motivated to do the short sale if you are not making payments.
Why not work with my regular real estate agent who assisted me with my home purchase?
Short sales are a different animal than a regular real estate transaction and require an experienced specialist.
You get one shot to do a successful short sale. If your agent is inexperienced at short sales, makes mistakes, gives up, slacks off, drops the ball, or simply does not know how to negotiate with the banks, you will wind up being foreclosed on by your lender. The majority of agents have never even closed one short sale in their entire career. Can you afford to be their guinea pig?
What about hiring an attorney to assist with the short sale?
Although we would never discourage you from seeking the advice of an attorney, you should be wary of the many attorneys who have recently jumped into the short sale loan modification business recently and claim to be short sale experts.
Their websites attempted to scare people into thinking that they would be crazy to attempt a short sale without the assistance of an attorney; that Realtors are not qualified to negotiate short sales and that Virginia Association of Realtors forms are somehow not adequate in protecting a seller’s rights. This is ironic, because the Board of Realtors hired attorneys to assist with the language of our forms.
Our team of specialists are especially sensitive to this sales pitch because we hear the horror stories on a daily basis from people who are now facing foreclosure because the law firm they hired (and paid upfront) was unable to sell their home, and unable to negotiate a short sale approval.
A short sale is a real estate transaction that requires an approval from the lender. Period. It is not some complicated legal process that requires paying a retainer to an attorney.
In all of the short sales that our specialists have negotiated, we have never had a client walk away without a FULL RELEASE from their lender, nor have we ever had anyone sign a promissory note.
Bottom line, most people can see the irony in an attorney’s website that repeatedly stresses that, conveniently enough, you must have an attorney to do a short sale.
How much does it cost to hire a short sale specialist?
Here’s the good news. Generally speaking, your mortgage company will actually pay our fees (real estate brokerage fees) to assist you with your short sale. Nearly 99% of our clients have had no out of pocketexpenses. The lender pays all closing costs, escrow fees, commissions etc. The lender may also pay any outstanding property taxes.
There are no upfront fees. This is basically a free service to you that you would be wise to investigate if your home is worth less than is owed on it. Sound too good to be true? We guarantee that there are no gimmicks.
Who else is short selling their property?
Hundreds of thousands of short sales will take place over the next several years throughout the U.S. Today, there are literally thousands of short sale owners taking advantage of this unique opportunity and are currently marketing their properties as short sales throughout the Washington D.C. metro area.
Why shouldn’t you let your property go into foreclosure?
The primary advantage to doing a short sale versus letting your home go into foreclosure is that in a short sale the debt is settled and you may no longer owe the bank any money. If your home goes to foreclosure, you may still be liable for the deficiency in the event that the bank files a judicial foreclosure.
In addition, if your home goes into foreclosure, your credit will be ruined. Your credit score will likely take a hit by as much as 300-400 points (or more) and you will be hounded by your lender.
Even worse, you will have difficulty getting credit cards, auto loans or even renting a home or apartment for the next 7 years.
Your home will be repossessed by the bank, and then the bank will sell your home, either at auction, or more likely through a real estate agent, with a large sign out front that says Bank Foreclosure.
Your lender may go after you to repay any deficiency from the sale after your home has been foreclosed on.
How will I know that I am being released from the debt?
It will be stated clearly on the bank’s short sale approval. Your lender will state in plain English (though in different verbiage depending on the lender) that they are releasing the lien, accepting a short payoff to satisfy the lien, reporting the sale as a settled debt to the reporting agencies, issuing a full satisfaction of the mortgage, not pursuing a deficiency judgment, or some other variation that states they are settling the debt for less than what they were owed.
Further, your bank will issue a 1099-C to you, the borrower, after the short sale, confirming that the debt has been written off and is settled. Your lender cannot write off the debt, issue you a 1099-C then go after the deficiency.
What if I have a first and a second loan on my property with two different lenders (or the same lender)?
Most people that we do short sales for have a first and a second loan, often with two different lenders. For the short sale to reach a successful close of escrow, both lenders have to approve the short sale and agree to settle the debt.
It is important to note that both lenders have a vested interest in doing this. The lender with the first loan does not want to foreclose, and therefore is willing to give some money to the second in order to get them to agree to the short sale.
The second lender will get nothing if the first lender forecloses, so with the attitude that something is better than nothing, they will agree to a portion of what they are owed to avoid getting nothing.
Which banks / lenders participate in short sales?
Almost all of them, including: Countrywide, Chase, Wells Fargo, Bank of America, Downey Savings, CITI, Chevy Chase, Washington Mutual, Wachovia, FifthFirst, World Savings, EMC, First Franklin, Flagstar, GMAC, Greenpoint, Homecomings, Home Eq, HSBC, Irwin, National City, Novastar, Option One, Ocwen, Aurora, Deutsche Bank, and many more. (If you don’t see your lender, contact us.)
What is the next step?
Call me, Peggy Lasater, at one of the numbers below. I can answer your questions about short sales in Active Adult Communities and put you in direct contact with a Linton Hall, Realtors short sale specialist.
Timing is critical. The sooner you start the process, the more options you will have. The worst thing you can do is procrastinate.