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Short Sale Q&A
These are the most frequently asked questions and answers involving the Short Sale process. If you don't see the question you need answered... Contact Us!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 (commission) from the sale of the property.
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 (commission) 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.
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.
What is Negative Equity?
Also known as being "upside down" negative equity is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. For example, if your car is worth $10,000 and you owe $15,000 on it, you would have a negative equity of $5,000. Negative equity can result from a decline in the value of an asset after it is purchased.
Some areas decline in value. In other areas, prices may remain flat so that the properties in that area do not appreciate. If a seller wants to sell within 2-3 years of purchasing their property, they may be in a situation where they have negative equity.
Why does my property have negative equity?
Here are a few common reasons:
1. Person bought at the height of the market and the market has now declined or 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. Person 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. Person refinanced the home (with a high appraisal value) and now has little or no equity.
5. Person 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.
6. The market is soft because there is too much builder (new home) inventory or too many existing homes on the market (buyer’s market).
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 and other seller closing costs).
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 and other seller closing costs).
Why not just let my lender foreclose?
NO! 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?
NO! 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?
And, even when they do sell it through foreclosure... this does NOT remove your obligation to repay the remaining balance! It is not wiped away!!!
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 dozens of short sales for folks 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.
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 dozens of short sales for folks 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.
What are the Benefits of a Short Sale?
When a Short Sale is achieved, there will not be a foreclosure. Many experts believe that a foreclosure is much worse than a bankruptcy.
When a Short Sale is achieved, there will not be a foreclosure. Many experts believe that a foreclosure is much worse than a bankruptcy.
· Protect your credit. Foreclosure damages credit up to 7 years and bankruptcy up to 10 years.
· Our Short Sale Service is FREE to you; the lender covers all the costs involved.
· Controlling future costs. If your property is sold at an auction, you may owe deficiencies and other expenses to the lender. Under most short sales we negotiate, the homeowner will be relieved of this possible future headache.
Can investment properties be short sold?
Most definitely. Any type of property can be sold through a short sale.
Most definitely. Any type of property can be sold through a short sale.
Reduced Income or Unemployment.
Inability to work due to health reasons.
Separation or Divorce.
Medical Bills.
Business Failure.
Death of a Spouse.
Adjustment in mortgage payment or unforeseen increase in your monthly expenses.
Any other circumstance that cripples your ability to repay your mortgage.
Does It Matter Who Does a Short Sale?
Very much so. Traditional Realtors only get about 15% of short sales approved. We work with the largest and most successful short sale processor in the county. Their success rate is over 95%.
Very much so. Traditional Realtors only get about 15% of short sales approved. We work with the largest and most successful short sale processor in the county. Their success rate is over 95%.
What Happens If I Don’t Do a Short Sale or my Short Sale is Unsuccessful?
The result is the same: A Foreclosure. Our goal is for you to avoid foreclosure, which will affect your credit more than a short sale. Generally a foreclosure is one of the most damaging occurrences in a credit history. Most likely you will miss mortgage payments through the course of a short sale and this will show on your credit history. But at the end of the day, when your short sale is completed, your credit report will show that your mortgage has been completely “satisfied” and typically your credit score should almost immediately rise by 65 points.
The result is the same: A Foreclosure. Our goal is for you to avoid foreclosure, which will affect your credit more than a short sale. Generally a foreclosure is one of the most damaging occurrences in a credit history. Most likely you will miss mortgage payments through the course of a short sale and this will show on your credit history. But at the end of the day, when your short sale is completed, your credit report will show that your mortgage has been completely “satisfied” and typically your credit score should almost immediately rise by 65 points.
How long does it take?
Short sale approval can take as little as 3 weeks up until 6 months, depending on the banks involved.
Short sale approval can take as little as 3 weeks up until 6 months, depending on the banks involved.
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 me right away!!!
Your foreclosure sale will usually be suspended during the short sale process. That's why it's imperative that you contact me right away!!!
Will my lender send me a 1099 on the debt forgiven?
While 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 example, we had one client who did get a 1099 for $30,000 forgiven. This resulted in additional taxes of $1,300 for that year. The resulting tax is far superior to paying the difference of the debt. Also, if the property is in foreclosure, the foreclosure would have a much more devastating affect on you than the amount of the 1099. It has been our experience that the lenders on 90% of the short sales we process do not pursue filing a 1099 – but there is not a guarantee they won’t.
While 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 example, we had one client who did get a 1099 for $30,000 forgiven. This resulted in additional taxes of $1,300 for that year. The resulting tax is far superior to paying the difference of the debt. Also, if the property is in foreclosure, the foreclosure would have a much more devastating affect on you than the amount of the 1099. It has been our experience that the lenders on 90% of the short sales we process do not pursue filing a 1099 – but there is not a guarantee they won’t.
How much will the short sale cost me?
We strive to complete the entire short sale process without having the seller bring any money to closing. There are certain expenses that the lender might not pay, such as unpaid Home Owners Association dues, certain escrow fees, and some minor closing costs. In most cases, these items can be negotiated.
Effective, 15 July 2011 - Governor Jerry Brown signed into law SB 458 prohibiting banks, servicers and lenders from pursuing home owners of 1-4 units who choose to short sell their homes. “The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.” Beth L. Peerce California, Association of Realtors President.
We strive to complete the entire short sale process without having the seller bring any money to closing. There are certain expenses that the lender might not pay, such as unpaid Home Owners Association dues, certain escrow fees, and some minor closing costs. In most cases, these items can be negotiated.
Can the Seller receive any proceeds from the sale of their home?
NO, but… under the Making Homes Affordable Plan, President Obama and the US Treasury Department created the HAFA Program (Home Affordable Foreclosure Alternatives Program) to establish short sale and deed-in-lieu of foreclosure policies, procedures and forms to provide alternatives other than foreclosure for the homeowner. Because of this program, as a homeowner you are entitled up to $3000 cash.
Effective, 15 July 2011 - Governor Jerry Brown signed into law SB 458 prohibiting banks, servicers and lenders from pursuing home owners of 1-4 units who choose to short sell their homes. “The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.” Beth L. Peerce California, Association of Realtors President.
Based on Mars ruling section 322.2(a)(1) You may stop doing business with us at any time. You may accept or reject the offer of the mortgage assistance we obtain from your lender. If you reject the offer, you do not have to pay us. If you accept the offer, you do not have to pay us, the mortgage holder does. Even if you accept the offer, your lender may not approve it. Connect Realty is not associated with the government and our service is not approved by the government or your lender. So, knowing what you now know… if you think a real estate short sale makes the most sense for you and you’d like to take the next step in the process, Doesn’t it make sense to get started right away?
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916-786-SOLD (7653)
