Brian Arendes, Realtor, CDPE, SFR, CNS,
Navigating Short Sales: What to Do When the Sale
Price Leaves You Short
thinking of selling your home, and you expect that the total amount you owe on
your mortgage will be greater than the selling price of your home, you may be
facing a short sale. A short sale is one where the net proceeds from the sale
won't cover your total mortgage obligation and closing costs, and you don't
have other sources of money to cover the deficiency. A short sale is different
from a foreclosure, which is when your lender takes title of your home through
a lengthy legal process and then sells it.
1. Consider loan
If you are thinking of selling your home because of financial difficulties and
you anticipate a short sale, first contact your lender to see if it has any
programs to help you stay in your home. Your lender may agree to a modification
your loan at a lower interest rate
a different payment plan to help you get caught up
a forbearance period if your situation is temporary
a loan modification still isnâ€™t enough to relieve your financial problems, a
short sale could be your best option if
property is worth less than the total mortgage you owe on it.
have a financial hardship, such as a job loss or major medical bills.
have contacted your lender and it is willing to entertain a short sale.
2. Hire a qualified
The first step to a short sale is to hire a qualified real estate professional*
and a real estate attorney who specialize in short sales. Interview at least
three candidates for each and look for prior short-sale experience. Short sales
have proliferated only in the last few years, so it may be hard to find
practitioners who have closed a lot of short sales. You want to work with those
who demonstrate a thorough working knowledge of the short-sale process and who
won't try to take advantage of your situation or pressure you to do something
that isn't in your best interest.
qualified real estate professional can:
you with a comparative market analysis (CMA) or broker price opinion (BPO).
you set an appropriate listing price for your home, market the home, and get it
special language in the MLS that indicates your home is a short sale and that
lender approval is needed (all MLSs permit, and some now require, that the
short-sale status be disclosed to potential buyers).
the process of working with your lender or lenders.
the contract with the buyers.
you put together the short-sale package to send to your lender (or lenders, if
you have more than one mortgage) for approval. You canâ€™t sell your home without
your lender and any other lien holders agreeing to the sale and releasing the
lien so that the buyers can get clear title.
3. Begin gathering
documentation before any offers come in. Your lender will give you a list of
documents it requires to consider a short sale. The short-sale â€œpackageâ€ that
accompanies any offer typically must include
hardship letter detailing your financial situation and why you need the short
copy of the purchase contract and listing agreement
of your income and assets
of your federal income tax returns for the past two years
4. Prepare buyers for
a lengthy waiting period. Even if you're well organized and have all the documents
in place, be prepared for a long process. Waiting for your lenderâ€™s review of
the short-sale package can take several weeks to months. Some experts say:
you have only one mortgage, the review can take about two months.
a first and second mortgage with the same lender, the review can take about
two or more mortgages with different lenders, it can take four months or
the bank does respond, it can approve the short sale, make a counteroffer, or
deny the short sale. The last two actions can lengthen the process or put you
back at square one. (Your real estate attorney and real estate professional,
with your authorization, can work your lenderâ€™s loss mitigation department on
your behalf to prepare the proper documentation and speed the process along.)
5. Don't expect a
short sale to solve your financial problems. Even if your lender does approve the
short sale, it may not be the end of all your financial woes. Here are some
things to keep in mind:
may be asked by your lender to sign a promissory note agreeing to pay back the
amount of your loan not paid off by the short sale. If your financial hardship
is permanent and you canâ€™t pay back the balance, talk with your real estate
attorney about your options.
amount of your mortgage that is forgiven by your lender is typically considered
income, and you may have to pay taxes on that amount. Under a temporary measure
passed in 2007, the Mortgage
Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can
exclude debt forgiveness on their federal tax returns from income for loans
discharged in calendar years 2007 through 2012. Be sure to consult your real
estate attorney and your accountant to see whether you qualify.
a portion of your debt forgiven may have an adverse effect on your credit
score. However, a short sale will impact your credit score less than foreclosure
Note: This article provides general information
only. Information is not provided as advice for a specific matter. Laws vary
from state to state. For advice on a specific matter, consult your attorney or