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Normal steps to start the short sale process

• The homeowner needs to be in distress
• The short sale option needs to be discussed with the homeowner
• The homeowner must sign an authorization release form with the real estate agent
• The homeowner also must sign a sales contract
• Contact the loss mitigation department (bank or lender of loan(s))

What type of property is qualified for a short sale?

• Banks consider short sales for a variety of reasons
• Any home, any size, any style or condition can be considered for a short sale

Fax an offer to the bank

• Include a cover letter with the offer explaining why the offer is less than full price (include comprables, comps)
• A closing statement on how much the bank will net after all fees have been paid
• The homeowners hardship letter
• An estimate on the cost of repairs for the home

What happens to the seller’s credit?

• Try to get the bank to accept the full payment without pursuit of any deficiency judgment.
• Homeowners should speak to their accountant for advice

Are there other options?

• Many lenders are willing to offer loan modification programs after Fannie Mae and Freddie Mac have introduced additional programs.  The options include, extending the loan life, adding delinquent payments to the principal and/or reducing the interest rate.
• The ideal candidate for short sales is still making loan payments and has a good credit rating.
• It may be possible to refinance an adjustable (ARM) rate loan with the Federal Housing Authority (FHA).

What are the seller’s options if the bank or lender rejects the short sale?

• There are a number of reasons a bank will reject a short sale.  Look for another buyer.
• A short sale may be rejected if the loan is less than a year old.  The loan servicer may require that the loan is bought back by the original lender.

What are some financial liabilities that sellers will incur due to a short sale?

• Many lenders may ask the seller to sign a promissory note to all or part of the difference to the short sale.  In these cases, the note gives the lender the right to sue the seller and attach other assets if the note is not paid when due.

Are there tax liability with short sales?

• Check with a tax expert.  The IRS requires the lender to submit a Form 1099 stating the forgiven amount.  Sellers who meet the IRS definition of insolvency (bankrupty or debts exceeding assets), may not have to pay taxes on forgiven amounts.
• The U.S. House of Representatives introduced the Mortgage Cancellation Tax Relief Act which eliminated taxes on forgiven debt on principal residence through either short sale or foreclosure.

Are For Sale By Owners qualified Short Sales?

• They are another source to cut back on costs, but it is very useful to use the assistance of a real estate agent who is experienced in short sales.

Tags: deficiency judgment, fannie mae and freddie mac, loan modification, loss mitigation department, real estate agent, short sale faq, short sale questions