Q. What is a short sale?
A. A short sale is when your Lien Holder(s) agree to accept less than you owe in order for you to sell your home. They agree to a discount of the mortgage debt owed.
Q. Why do lenders or banks accept discounts?
A. A Lender or bank takes a discount or agrees a short sale because it saves them money. It gets bad debt off their books so they can reinvest that money by giving out another loan to a customer. On average a Lender loses between $30,000 to $80,000 on each property that they take back as a foreclosure.
Q. Will every lender or bank allow a short sale?
A. The answer is no. The majority of the lenders do short sales however; there are a select few that do not do short sales.
Q. Who qualifies for a short sale?
A. Most everyone who is facing a true financial hardship qualifies for a short sale. However, each Lender and Loan Type has a different set of requirements specific to them. The general requirements for a seller to qualify for a short sale are: A provable financial hardship, behind on payments or facing imminent default, No equity in the property being shorted, no liquid assets, and a lender or loan type with a clearly defined short sale process.
Q. Will Lenders or Banks do short sales if the mortgage is current?
A. The short answer is a resounding “yes”. The lender will consider a short sale even if the borrower is current, the question is how will that impact the final terms of the short sale.
A very important and early disclosure is warranted here. Short sale Realtors and buyers should never counsel sellers to stop making their payments. That is a decision sellers need to make wholly on their own or upon consultation with a lawyer.
If the borrower has the financial strength to make the payments, the lender will be more likely to require the borrowers to stay obligated on the shortage.
If the borrower anticipates being unable to sustain the payments in the future, they should clearly state that in their hardship letter.
I have never encountered a lender denying a short sale because the loan was still current. This is contrary to blogs and articles that state that lenders won’t consider a short sale unless the borrower is in arrears.
Once you notify the lender that your client has to sell but can’t sell for enough to cover the loan payoff, they will open up a file in their loss mitigation department to evaluate the short sale. After they receive the seller’s financials and hardship letter, they will send an appraiser. The appraiser will report back to the lender his/her opinion of value and the lender will then decide at what price to let the house go rather than drag themselves through a costly full foreclosure.
If the seller’s financials are strong, the lender may release the mortgage from the house and require the borrower to stay obligated on some or all of the shortage.
If the seller’s financials cannot support future payments, the lender will usually forgive the shortage. Some lenders automatically demand the seller to stay obligated on the shortage. If the seller does not have the ability to pay, the Realtor should vigorously appeal the lender’s demand.
Whether the lender requires the borrower to stay obligated or forgives the shortage, both cases are still defined as short sales. The lender may take months to issue their final terms. The Realtor needs to be acutely aware of the final terms, as sometimes they are hidden by the lender with vague language. The sellers need to be given control of the final decision if the short sale terms are acceptable to them.
With that said there are: Reasons to Stop Making Your Mortgage Payments During a Short Sale
Some sellers are dealing with extreme financial hardship and don't have the option of deciding whether to continue making mortgage payments. Other sellers deliberately stop paying.
* More Motivation for Banks to Accept Short Sales
Although as we stated earlier it is not necessary to be in default before a bank will consider a short sale, the files that get priority are those in default.
* Lenders Might Not Obligate Repayment
You can't squeeze blood out of a beet, although I know banks that have tried. Typically, if a borrower is facing a true hardship and has no assets nor means of making a mortgage payment, the lender is unlikely to try to force the borrower to pay back any of it. It does not mean a lender is not entitled to a deficiency judgment, if circumstances warrant.
* Acquire Funds to Move
It stands to reason that if you're not paying the bank, money that would ordinarily be allocated toward that expense may instead be used to pay first, last and a security deposit on a rental.
Q. How long do I need to be in default before I can start a short sale?
A. This depends on the Lender. Some Lenders require a property to be 90 days in default before they will entertain a short sale offer; other Lenders will entertain a short sale even if it is not in default.
Q. Can the owner of the property also be the listing agent?
A. Good Question! There is absolutely nothing wrong with that set up. However, the owner or spouse of a short sale can not profit from its sale. So, you can not earn and keep any commissions for the sale.
Q. What is required to process a short sale?
A. Every Lender or Bank has its own set of required information and some may even have a set of
paperwork specific to them. But, in general, most banks require at least the following:
* A handwritten hardship letter or hardship affidavit
* Financial statements
* 2 years tax returns
* 2 months bank statements
* 2 months pay-stubs
Throughout the process additional paperwork may be requested. So, be sure to keep everything handy.
Q. What is the process?
A. The steps of the process are always changing with new government and bank guidelines. We'd be happy to talk with by phone or appointment to give you the most current information. There is no charge for this service and we are happy to help.
Q. Can 2nd Mortgages or junior liens be discounted?
A. Yes, absolutely. In fact, if the first mortgage is being asked to accept a discount, they will require that all other lien holders discount as well in order to give short sale acceptance.
Selling your property as a short sale is getting easier as time goes by. New rules, expected to go into effect in January 2010, will further streamline the process. Fundamentally there are two different actions going on with a short sale. The first is the listing, marketing and selling of the home, condo or land. The second is negotiations between the homeowner and their lender designed to have the lender agree to take the proceeds from the home as payoff of the loan. Throughout our site we have lots of information about the process. There is no obligation to us if you just want to call and we answer your questions. We believe our first job to people is to provide quality, honest information that can help folks make good decisions. To be honest, short sales are not for everyone. Some people simply won't qualify and sometimes short sales are not the best option.
Financial Relief Solutions -877-717-6759
