How do I know if a Short-Sale is right for me?

Asked by Jeff Cohn, Omaha, NE Thu Oct 28, 2010

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Tammy Hayes’ answer
Tammy Hayes, Agent, Port Charlotte, FL
Thu Oct 28, 2010
WHY IS A SHORT SALE BETTER THAN A FORECLOSURE?

Short sales are just about everywhere...it seems like you can't get away from them. Many sellers, loan officers and Realtors say they know a lot about short sales, but don't know how the short sale process works or even why a short sale is a better alternative to a foreclosure.

A short sale will enable the seller to purchase a home about 2 years after a short sale completion while a foreclosure will make you wait 5 years. In addition, short sales are better for the lender and it will keep the house occupied, with water and electricity still on and also keep the lawn mowed. Plus the bank will lose less money through a short sale.

PROS
No Foreclosure - foreclosures can be a hard and stressful process for a family.

Being Proactive - facing a foreclosure head on will help give you some control over the process.

Start Newer, Faster - minimizing damage to your credit can help you and your family get back on your feet faster.

May not owe anything after the short sale - you can try asking the bank to cancel your debt altogether. It does happen, but not all the time. Primary residences are usually treated more favorably by the lenders.

CONS
There is still damage to your credit - when a short sale is done, it is still documented on your credit but won't have the same impact as a foreclosure for most creditors.

Tax Consequences - there may be tax consequences if the bank forgives the debit and will issue a 1099 to the IRS for the amount of debt forgiven.

Bank could demand payment for their loss - the bank doesn't have to forgive the debt. They are able to ask you to pay them back for the difference on the sale and what is owed, but you will need to agree to this.

There are no guarantees in a short sale - whether the bank will approve the sale or forgive your debt, but short sales offer a better alternative to minimize the downside of facing a foreclosure.

Disclaimer -There can be legal and tax consequences. You may want to consult with an attorney or tax specialist before attempting a short sale. A real estate agent cannot give you legal or tax advice.



DO YOU QUALIFY? - Can you answer Yes to all 4 Questions?

1. The Homes' Market Value Has Dropped. Hard comparable sales must substantiate that the home is worth less than the unpaid balance.

2. The mortgage is in or near default status.

3. The seller has fallen on hard times. The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the payments.

4. The seller has no assets. The lender will want to see a financial statement and recent tax returns.

WHAT TO EXPECT?

1. The lender will want to see your entire financial picture.

2. The bank may want you to sign a promissory note for the deficiency between the amount owed and the amount your home is sold for.

3. As the seller, you cannot receive any proceeds from the sale. None. Period. Your Realtor and title company may have to work for reduced fees.

4. The banks are overwhelmed with short sales and many times a decision can take up to 60 days or longer.

5. The property may be foreclosed on during the short sale process. Be sure to use an experienced short sale company who should be able to get the foreclosure postponed.

6. Do not expect to receive information on a regular basis, as there may be weeks that go by without news from your lender.

7. The bank will want to get a BPO (Broker Price Opinion) and/or an appraisal of your house.

8. Be patient. This is the best policy. Try to avoid being stressed out over something that you are not able to control.
0 votes
Don Tepper, Agent, Burke, VA
Thu Oct 28, 2010
Jeez. Sounds like short sales are the best thing since sliced bread:

"Good news."

"Great alternative."

How about: "A final resort that will result in you losing your home, damaging your credit, and still exposes you to the risk of foreclosure"?

In some cases, yes, it's the right decision. And it's preferable to a foreclosure. It's the right decision if you absolutely can't afford the mortgage payment (as demonstrated by some clear hardship) and you owe more on the house than it's worth.

It's the wrong decision if you can afford the mortgage payment, but just are uneasy about owing more than the house is worth. It's the wrong decision if you plan on buying another house within the next few years. It's the wrong decision if you think it's a clear alternative to foreclosure: Foreclosure and short sales are handled differently by lenders. Thus, you can be well on your way to a successful short sale and then find you're being foreclosed on. And while many short sales do take only 3-6 months, others take 9-15 months or more. Don't believe me? Look at other postings here on Trulia.

Hope that helps.
0 votes
Don and Vale…, Agent, Omaha, NE
Thu Oct 28, 2010
I'm a Certified Distressed Property Expert, and hold a Short Sale Forclosure Resourse Cetification with 36 yrs experience.

Now to answer your question...
To qualify for a Short Sale you typically must have encountered a financial hardship. For example: you or your wife lost your job, a serious health issue, divorce, or any unforseen issue that may have impacted your ability to make your payments. However, you must also be upside down on your mortgage, and the market value supports your need for a Short Sale. You should contact your mortgage company, and request a Short Sale Packet, and a REALTOR (Preferrably Me). Be prepared to wait 3-6 months for approval from your bank, after you obtain an offer on your home. You must understand this is a possible long process, and you should hire an experienced agent with Short Sales.
0 votes
Ron Palmerton, , Omaha, NE
Thu Oct 28, 2010
A short-sale is a great alternative to foreclosure or deed in lieu of foreclosure. This can help the homeowner's credit. It can and often does help the lender by avoiding time and costs associated with the foreclosure process. However, you must have your lender's approval to pursue this as a viable option. Your best bet is to contact a real estate lawyer and the entity that holds your mortgage and ask them if they will entertain a short-sale option and what the next steps will be. A realtor will treat your home's sale much like any other sale. When it comes to gaining approval on offers, your lender will have the final say as to offers presented.
0 votes
Jeff Cohn, Agent, Omaha, NE
Thu Oct 28, 2010
Many sellers homes have depreciated since they've purchased them. In these instances, a seller could be required to bring money to closing. For those individuals that don't have money to bring to closing, staying in the home or going in to foreclosure seems like the only option. I have good news for you, how about a Short Sale! This is when the bank takes on all of the debt you would have otherwised incurred at closing. Typically, banks will allow customers to file for a Short-Sale if the customer has stopped making payments on their loan, is not willing to restructure the loan and does not have the money to bring to closing in the event the house has depreciated in value and gets an offer on it. This process can take months to finalize, but will help keep the home owners credit loss to a minimum versus going the foreclosure route. Be sure to find a Realtor in your area that has sold at least 10 Short Sales and claims to be a Short Sale expert. The rules and regs surrounding short-sales change each and every day and it's important that the Realtor you select knows what they are doing!
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