What is a Short Sale?
A Short Sale is the sale of a home when sales proceeds do not fully pay off the existing loan(s) and lender(s) accepts a discounted payoff to fully satisfy the loan.
The existing lender typically 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, chances are that 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.
If I do a Short Sale, how much will I have to pay to sell my home?
It may be nothing. In most cases borrowers pay no sales costs if the lender approves the Short Sale. All commissions, title and escrow fees, and even most repair expenses may be paid by the lender as part of the Short Sale approval.
"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?
If you would prefer to discuss it on the phone, or set an appointment call 916-335-9631. There is no charge to get started.
Can I simply deed my property to someone else and avoid the hassle?
Deeding your property to someone without paying off the loan is a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments are not timely made, or if the lender ultimately forecloses, your credit may be affected.
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, we found that 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 is 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
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. One way to find out whether your lender will accept a short sale file for approval on a loan that is current is by submitting a short sale file to your lender.
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.
- 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, we know how to keep the file moving towards approval.
I have two loans, can I still do a Short Sale?
We can work with both lenders (many times the same lender holds the 1st and the 2nd loans) to put together a Short Sale transaction. Even if the value of the 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, we found that lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. 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. They are in the loan business, not the fix- it business.
I am concerned about my credit, how will a Short Sale affect my credit?
In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit. But once the short sale is approved by your lender, you can avoid foreclosure.
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 main 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; and you are now solidly in a position to stay current on your mortgage payments and to make some progress towards making up the delinquent amount.
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 borrower’s promise to remain current on the mortgage going forward and 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
Homeowners Urged - Sell Short, Refinance, But Try Not to Lose Your Home
By Jerry W. Jackson
RISMEDIA, January 16, 2009-(MCT)-Every day, more people slip into the foreclosure whirlpool and spiral downward toward the day they may have to leave their home. What should you do if you are on the verge of getting a foreclosure notice?
First and foremost, industry specialists say, you should resist the natural human tendency to freeze up. Face the issue head on and prepare for days and weeks of making phone calls and corresponding with people who may be able to help.
“Don’t assume it’s too late to act,” said Ralph Roberts, a consumer advocate in Michigan and co-author of Foreclosure Self-Defense for Dummies. “As long as you are residing in the home, you probably have some opportunity to keep your home.”
Roberts, a Realtor who lost his home to foreclosure back in the 1970s, said people facing foreclosure have more avenues to pursue than they might realize-certainly more than the typical “pay up or move out” that many people think is their only choice.
Potential solutions include:
- Negotiating a modification of the loan.
- Refinancing the loan.
- Listing the home through an agent for a possible “short sale.”
- Selling the home to an investor on your own.
- Declaring bankruptcy.
Short sales-in which the lender agrees to take less than is owed on the home, writing off some or all of the loss to avoid the expense of a foreclosure-typically are handled by real estate agents, which at least takes some of the pressure off of a harried homeowner. Many professional real estate agents are working more short sales these days and have buyers lined up looking for bargains, though the process can be slow and frustrating.
“The banks are just not moving fast enough. They are sitting on these, and it’s outrageous. Something’s got to be done about that” at the national level, said Ernst Urbainczyk, a veteran agent with Keller Williams Heritage Realty in Lake Mary, Fla. Lenders may also reject short-sale offers, sometimes leaving the seller with little or no time to prevent the foreclosure.
Matthew Englett of Kaufman Englett & Lynd, an Altamonte Springs, Fla., law firm that specializes in foreclosure defense, real estate litigation and bankruptcy, said there are usually several different defenses a borrower can take to dispute a foreclosure, including “wrongful or misleading conduct on behalf of the lender or its agents.”
As the case moves forward, the law firm negotiates with the lender to try to get it to modify the mortgage with a lower interest rate and loan amount.
“In many cases, that would mean the principal would have to be reduced,” Englett said. The law firm charges a flat fee ranging from $1,750 to $2,500 for its foreclosure-defense cases.
© 2009, The Orlando Sentinel (Fla.).
Distributed by McClatchy-Tribune Information Services.