Frequently Asked Questions - Short Sales
- What is a Short Sale?
- Is a Short Sale right for me?
- If I do a Short Sale, how much will I have to pay to sell my home?
- How do I get started on a Short Sale?
- Can I simply deed my property to someone else and avoid the hassle?
- What sort of hardship would my lender consider legitimate?
- I am current on my mortgage, will my lender consider a Short Sale?
- Why would a mortgage company agree to accept a Short Sale?
- Do lenders approve all Short Sales?
- I have two loans, can I still do a Short Sale?
- My property is in rough shape and needs work, can I still do a Short Sale?
- I am concerned about my credit, how will a Short Sale affect my credit?
- My income problem was temporary. Do I need to sell my home?
- What is a Forbearance Agreement?
What is a Short Sale?
A Short Sale is the sale of a home when the sale price is not enough to fully pay all the existing loans and closing costs. In this case, the lender(s) agree and accept a discounted amount to fully payoff the loans.
The best part, the existing lender pays virtually all sales costs, including commissions, escrow and title fees and repair costs. You get your home sold, the loan(s) paid off and you avoid foreclosure.
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 doing a Short Sale, your lender has arrived at a solution that is much better for them than a foreclosure. It is also good for the borrower because the property is sold and avoids foreclosure. It is a win-win for both lenders and borrowers.
Bottom line, your lender wants to work with you.
If I do a Short Sale, how much will I have to pay to sell my home?
Nothing. Its 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.
"Sellers 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?
Its easy. If you would like to get started for a Short Sale, just call me.
If you would prefer to discuss it on the phone, or set an appointment call me. There is no charge to you to get started. It is as simple as contacting me and I will get to work. If you later decide you don't want to do a short sale, that is okay too.
Can I simply deed my property to someone else and avoid the hassle?
Deeding your property to someone without paying off the loan is nearly always a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit.
Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property.
Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.
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.
- Sickness, accident or injury of borrowers
- Illness or injury in the extended family
- Job relocation when the property is equity deficient
- Insufficient income or reduced income due to job loss
- Divorce or split of domestic partners
- Adjustment in mortgage interest and increase in monthly payment
- Unforeseen increase in living expenses
I am current on my mortgage, will my lender consider a Short Sale
The answer is, maybe. Some lenders will accept a Short Sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent. We can put your Short Sale file together within a couple days and submit it for approval. (Remember, there is no charge for this). That is the best way to determine if your lender will accept a file for approval on a loan that is current.
Why would a mortgage company agree to accept a Short Sale?
There are actually several reasons why a mortgage company would approve a Short Sale payoff, including the following;
- Legal Concerns Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
- Foreclosure involves a waste of time and a lot of expense to the lender. Simply, the lender will recover more of their money doing a short sale.
- Wall Street is Watching Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved quickly.
Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets - homes spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful Short Sale eliminates most of these costs.
Reserve Requirement- Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful Short Sale lets the lender put more money to work
Do lenders approve all Short Sales?
In a word, no. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved.
From the presentation of the Short Sale package to the lender to working with the lenders Loss Mitigations Department, I know how to keep the file moving towards approval.
The first step is to get pre-qualified for a Short Sale. There is no charge for this, and its easy.
I have two loans, can I still do a Short Sale?
Yes. We can work with both lenders (many times the same lender hold the 1st and the 2nd loans) to put together a Short Sale transaction. Even if the value of your home is below the balance of the 1st mortgage, we can normally get the two lenders to cooperate.
In the end, neither lender wants to own another home through foreclosure.
My property is in rough shape and needs work, can I still do a Short Sale?
Absolutely. In fact, lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesnt. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work.
Aside from expense of completing the work, lenders are simply not set up to get the work done. Lenders are in the business of lending money, not the fix- it business.
I am concerned about my credit, how will a Short Sale affect my credit?
The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event your credit status can encounter - worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit.
By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.
My income problem was temporary. Do I need to sell my home?
You may be able to keep your home. You need to convince your mortgage company of two things:
The problem that caused the mortgage payment disruption was beyond your control illness, injury, temporary disability or forced job change are a few examples:
You are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount.
I can help. Ask a copy of my Free Guide:
Getting lender approval on a Forbearance or Loan Modification Agreement
What is a Forbearance Agreement?
A Forbearance Agreement is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:
The borrowers promise to remain current on the mortgage going forward Some plan for making up the delinquent interest and other charges. It may mean making additional payments to the mortgage company or the delinquent amount could be added to the loan to be paid later.