Short Sale Home » Seller » Short Sale Q&A for Sellers

Selling a property as a short sale can get quite complicating.

1. What is a short sale? A short sale is a process in which a homeowner sells their property for less than what is owed on the outstanding mortgage(s).  This process requires a lot of specific documentation that is gathered early and presented to lenders to convince them to discount the mortgage balance to allow the sale.  If the sale is approved the lender(s), they will take a loss, and will allow the homeowner to get out from under the mortgage.  This process will also stop foreclosure.
2. What are the steps the banks decide on the sale price? Each bank will have a different criteria to review and decide the selling price.
3. Which types of situations benefit most from using a short sale? Short sales are also known as pre-foreclosures.  Typically a homeowner in default at least 3 months or more past due on their mortgage payment.  A homeowner that is past due must demonstrate hardship involving their finances which caused the delinquency.  The hardships will vary, but proof must be rendered before the hardship will be considered.
4. How does a homeowner benefit from a short sale? The homeowner will no longer have a burdensome monthly mortgage payment.  Once the short sale is approved, the foreclosure process stops and can remove anxiety to the homeowner.  From a credit report stance, a short sale will be listed as a “paid settled” account, along with the late payments from the past due mortgage.  The blemishes are supposed to be less bad than a full blown foreclosure on your credit report, which will remain on your public report for up to 10 years.
5. Are short sales offered to investors? Yes, they are but a hardship must be demonstrated.  As an investor, you may have other considerations or implications to consider.  Make sure to seek advice regarding tax consequences from your tax adviser or CPA.
6. Are certain loan types considered over other with short sales? Maybe.  Although, there may be other implications, which can pose a risk such as a deficiency judgment, or lawsuit or mortgage contract, which differ from a judicial foreclosure.
7. I have a FHA, VA or other government back loan, does it matter? Every loan type has different characteristics banks look at – thus a short sale may be possible.
8. Why is financial hardship important? The lender will not agree to sell the home for less, unless there is a good reason. Lenders want to lose the least amount of money considering a foreclosure and lenders can expect to lose up to 40% of the amount of the mortgage if they go through the foreclosure process.  Thus, it makes sense to have someone willing to buy the home for less than it is owed – they will gain more than through a foreclosure sale.  If you are current on  your mortgage payment, it is nearly impossible to short sale your home.  Lenders need to see that you cannot pay your mortgage before they agree to allowing you to do a short sale.
9. When the short sale is completed, who owns the home? Just like a regular home sale, the buyer will own the “short sale” home.  The loans are paid and satisfied, the previous owner moves out and the new owner moves in.
10. How does a short sale affect past due property taxes? Property taxes are the responsibility of the homeowner up until the close of the escrow.  If your property taxes have not been paid, this fact will affect the negotiation of the short sales since the lender will have to pay those off to transfer title.
    
11. With a short sale, who is responsible for the sales commission? The commission is typically paid by the funds but since there is no equity, the lender ends up paying the entire real estate sales commission.
12. Are there guarantees a short sale will work? No, there are no guarantees in a short sale.  Banks and lenders need to be convinced that the property value is proper and all the requested paperwork is submitted in perfect order.  It may weeks or months before the lender gives a reply to only deny the request of short sale.  When that is done, the purchase contract is no longer valid and the short sale listing continues on the market.
13. How long does it take for a short sale to complete? A short sale can take a few weeks to a few months to complete.
14. I have multiple loans on my home, including my first and two 2nd, can I do a short sale? Yes, each mortgage or home equity loan or line of credit can be negotiated individually.

Tags: foreclosures, mortgage balance, mortgage payment