Navigating Short Sales: Who, When, and What to Do
If you're 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. A short sale is different from a foreclosure, which is when your lender takes back the title of your home through a lengthy legal process and then sells it.
1. Consider Loan Modification First. 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 such as: (HAMP)
• Refinancing your loan at a lower interest rate • Providing a different payment plan to help you get caught up •
Providing a forbearance period if your situation is temporary
When a loan modification still isn’t enough to relieve your financial problems, or if your loan isn’t more than 31% of you income, a short sale could be your best option.
• Your property is worth less than the total mortgage you owe on it. • You have a financial hardship, such as a job loss, relocation or major medical bills, divorce, etc.
2. Hire A REALTOR. The first step to a short sale is to hire a qualified real estate professional and a
real estate attorney. Short sales have proliferated only in the last few years, 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. If you don’t already have an agent/broker already selected that would be your first step. A qualified real estate professional can:
• Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
• Help you set an appropriate listing price for your home, market the home, and get it sold.
• Put 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).
• Negotiate the contract with the buyers and walk you through the process.
3. Begin Gathering Documentation BEFORE Any Offers Come In.
Your agent/broker or attorney will give you a list of documents your lender will require to consider a short sale. The short-sale “package”
that accompanies any offer typically must include:
• A hardship letter detailing your financial situation and why you need the short sale
• A copy of the purchase contract and listing agreement
• Proof of your income and assets to show you can NOT afford the monthly payments (Full disclosure is a must)
• Copies of your federal income tax returns for the past two years, etc. etc.
· They have 6 years to audit you, and if you do or make more that you initially tell the lien holders you could be facing serious charges, like loan fraud.
4. Prepare Yourself For What May Be A Lengthy Waiting Period. Even if you're well organized and have provided all the necessary documents, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to several months. When the bank does respond, it can:
• Approve the short sale, or
• Make a counteroffer asking, 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/or real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.
5. Be Aware Of The Associated Financial Issues. Even if your lender does approve the short sale, it may not be the end of all your financial challenges. Here are some things to keep in mind:
• You may be asked for cash to settle your account by your lender or to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If we can put you into the HAFA program this will not happen and all debt it forgiven. (that is another article http://shortsaleaz-elaine.blogspot.com/2010/06/hafa-in-nutshell.html) If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about the best approach before you begin the process.
• Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay income 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 as not everyone does….or what other options are available to you.
• Having 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 and bankruptcy. This issue is something your real estate attorney and or your Real Estate Professional can negotiate with your lender about during the process of securing the approval for the short sale.
Elaine Beery
RE/MAX Achievers
480-570-1912 Direct
800-525-9471 Tolll Free
480-248-2826 Fax
www.Shortsales-Elaine.blogspot.com
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