A short sale allows a homeowner to sell their property for less than the amount owed to their lender(s).
When the market value of the property is less than the amount owed on the property, the homeowner would be considered upside-down
or underwater. When a homeowner short sells their home, the proceeds from the sale are used to pay-off the costs associated
with the sale, including unpaid and prorated taxes and fees, closing costs, and real estate commissions along with a portion of the
outstanding amount of the mortgage, referred to as net proceeds. The lender(s) agree to accept the net proceeds from the sale,
which will be the amount leftover after all expenses from the sale have been paid. Under certain short sale programs, the lender(s)
will even offer an amount of relocation assistance to the homeowner to complete a short sale. This alternative allows a homeowner
to avoid foreclosure.
What will happen to my credit score if I short sale?
A homeowner that completes a short sale can expect that their
credit will suffer to some extent. Typically if the homeowner hasnt been making mortgage payments, they will be reported to
credit agencies for the late payments. Once a short sale is completed, the mortgage loan may be reported to the credit bureaus
as Paid as Agreed however, in most cases it may also be reported as Settled for less than the amount owed. The severity
of the negative impact on ones credit will depend on how far behind a homeowner becomes on their mortgage payments. The credit
report may also reflect as a Pre-foreclosure. Many lenders consider 90 days past due to be a foreclosure whether or not the
bank actually sells the property at trustee sale or takes it back as an REO. It is important for a homeowner to understand its
lenders policies on how they will report a short sale on the homeowners credit report. Even with the negative impact on credit,
a short sale will typically not have as great a negative impact as a foreclosure or bankruptcy.
If I complete a short sale, when will
I be able to qualify to purchase another home?
Fannie Mae and Conventional loans up to $417,000 have addressed the issue of buying
after Short Sale. The following guidelines are effective after July 1, 2010:
With a 20% down payment,
Two year waiting period
With a 10% down payment, Four year waiting period (and Mortgage Insurance approval)
may be some exceptions to the above if the short sale was from an extenuating circumstance, such as illness, death, etc.
What are the
costs involved for me to short sale my home?
We do not charge any upfront fees to process and negotiate your short sale. Real
estate commissions are typically paid by the homeowners lender as an allowable expense from the sales proceeds. They are deducted
as a selling cost on the closing statement (HUD-1) and are subtracted from sales proceeds as a closing cost reducing net proceeds
to the lender(s). In addition, the lender will also allow certain closing costs, taxes and other fees to be paid from the proceeds.
In many cases, however, the lender will not pay HOA fees, past dues, fines, transfer, or disclosure fees. These can sometimes
be in excess of hundreds of dollars, therefore we do ask you to try very hard to keep the HOA dues current. Typically, we will
make every attempt to negotiate that the buyer will pay for transfer and disclosure fees. Sometimes the lender may even agree
to provide a credit towards some of the buyers closing costs.
Will I receive any proceeds from the short sale?
The lender will typically
receive all net proceeds from the sale after closing costs and commissions are paid. The seller will receive no funds from the
proceeds of the sale unless the lender provides some financial relocation costs to assist the homeowner in their transition.
friend or a family member purchase the property from me in the short sale?
Short sale transactions most typically must be an arms
length transaction. Most lender(s) will require all parties to sign an Affidavit of Arms Length Transaction prior to closing
the sale. This must be signed by all parties to the transaction, including sellers, buyers, and their respective real estate
agents. This document states that none of the parties are related by marriage, family, business, friendship, etc. They
must also attest that they have not withheld information or committed fraud or misrepresentation in the transaction to the lender(s).
information must I provide to the lender(s) to decide whether they will accept a short sale?
The sellers short sale submission package
will include the following:
Third Party Authorization allowing real estate agent to work with lender on
W-2 forms from employers (or a letter explaining the seller is unemployed).
Two months most recent bank statements (these must be kept current and sent to lender).
Last 30 days of
paystubs from employers (these must be kept current and sent to lender).
Last two years of income tax returns,
all pages, and all schedules (signed and dated by seller).
Any additional financial documentation outlining
income and debt obligations.
A personal financial statement of household income, expenses, assets, and liabilities.
Hardship Letter** explaining sellers current situation and reason they need to sell the home.
there may be additional specific documents required by the lender.
** The sellers hardship letter should explain the current circumstances
that make it impossible for the homeowner to continue to make mortgage payments and their inability to pay the full amount of the
loan. The seller must be able to demonstrate a true financial hardship to the lender(s). Please note that sometimes a
sellers hardship may be beyond just the numbers. This may also include emotional distress related to the inability to meet
obligations, family circumstances including divorce, medical issues, or death of a family member.
A lender may be unwilling to grant
approval of a short sale to a seller with substantial assets or income and financial ability to pay the outstanding debt.
Each short sale is unique and lenders will look at each case to determine if they are willing to move forward to approve a short sale.
In some circumstances where the seller does have income and substantial assets, they lender may require the seller to sign a
promissory note or to provide a cash contribution for some amount to agree to approve the short sale.
What are the options outside
of doing a short sale?
Because of programs proposed by Fannie Mae and Freddie Mac to assist sub-prime borrowers, many lenders are encouraged
to work with homeowners to offer loan modification options prior to a short sale. Many lenders now require a seller to answer
certain questions to determine if they can qualify for a loan modification if they want to remain in the home. This option can
extend the term for the loan, add on delinquent payments to loan principal, and/or reduce the current interest rate to make the loan
more affordable for the homeowner. Other options may include a repayment plan to bring the loan current through a series of
increased monthly payments. Some lenders offer a Deed-in-Lieu (DIL) option whereas the homeowner voluntarily transfers the ownership
of the property (the title and all property associated with it) to the owner of the mortgage in exchange for a release from the mortgage
loan and payments.