The Short Sale
What is a Short Sale?
Simply described, a short sale is the process by which a homeowner can sell a house for less money than he/she actually owes on the mortgage(s). There is much more to it than that, and it should not be trusted to any one other than a licensed Realtor with experience.
Why would a bank or mortgage lender want to do a short sale?
Banks do not want to own real estate, they want to lend money and collect interest. When a bank takes a property back via foreclosure, it is a long process that costs the bank tens of thousands of dollars more than a short sale at market value and often results in holding the property in their inventory as what is called a “non-performing asset” for extended periods of time.
What is needed to qualify for a short sale?
Each situation is different and must be evaluated individually, but the basic criteria are as follows:
- You are behind on payments or about to fall behind
- You have little or no equity in your home, these days that is more common than not.
- You are experiencing financial hardship making you unable to make your payments., i.e. job loss, illness, reduction in income, etc.
If all of these statements are true, you are likely a good candidate for a short sale.
How much does it cost me for you to do a short sale on my house – There is NO cost to you
Will my sale be approved if my home is to low?
A Short Sale is dictated from the current market value, not what you owe or what type of loan you have; it is always based on value. The payoff lender(s) will conduct a value report (BPO) on your home when you submit your request to sell. They are going to base the value off of the comparable sales in the area just like a normal appraisal. Lenders have no interest in servicing a loan on a home when someone requests a Short Sale if you are more than 20% over fair market. This means if you purchased your home for $500,000 and now its worth $400,000 or less, the lender will not want to consider having to foreclose and try to sell the home. It does not make sense to a lender to absorb the deficiency if they have to pay even more to sell the home than they would if they simply approve your request to sell. Most lenders will only deviate 10-15% of market.
I am behind on my mortgage payments, but not yet in foreclosure. Can I do a short sale?
Yes, we can start anytime. The key is within the current market, your financial situation such as your current monetary liabilities, employment, etc. You DO NOT have to be behind on your payments to request a Short Sale you need to be able to show the inability to maintain your payments. If you simply just don’t want to make your payments anymore and are not in financial distress you may need to reconsider your options as your request will most likely be denied.
My house needs a lot of repair – can you still do a short sale?
The condition of the home has little to no effect on the sale at all. The major issues such as a health and safety, or previous claims may be an issue. You are still responsible to disclose any and all pertinent facts in regard to the property including all past issues. These may be as small as a minor leak, so think twice if you are considering turning a blind eye. Your property history is easily attainable through many public forums to any perspective buyer, so please maintain accurate detailed records.
How do I as a homeowner benefit from a short sale?
First and foremost, it relieves the stress of being in foreclosure and being contacted repeatedly by the mortgage company. A short Sale allows you to be clear of your mortgage payment and move on with your life. A Short Sale typically stays (delays) any foreclosure activity that may be in process. A Short Sale also reports to the credit bureaus as having been “Satisfied and Settled” which is paramount in reestablishing your good credit. Typically we are seeing clients FICO scores recover substantially within the first 6 months after the close of escrow. The other major benefit is within any delinquencies that may be attached to the property such a an HOA lien or delinquent property taxes. In order for the payoff lender to reconvey the property any and all liens on the Title report must be cleared (paid) before that may happen.
Will a short sale save my credit?
The short answer is yes and no, a short sale can save you from the worst credit disasters. By defaulting on mortgage payments and/or having a foreclosure filed against your property, you have already done damage to your credit. Your credit score has declined and those negatives will stay on your credit report for some time. However, it will get much worse if you allow the foreclosure to continue and do not try to short sale the property. The FICO impact between a foreclosure and a Bankruptcy are negligible, so if you think just walking away isn’t that bad, think twice.
How long does a short sale take?
The first step is in getting your home listed. The goal in this is to show the payoff lender(s) that you are choosing to sell your home and not foreclose. Our primary goal is to get an offer as soon as possible allowing us to submit a full package to the payoff lender(s). A file will not be sent to the appropriate department for review unless the offer, the listing agreement, escrow figures and the buyer’s loan approval have been sent in together. As you can imagine, banks these days are buried, so accuracy and knowledge of how the process works is a must in today’s market. Typically we are seeing files take 4-5 months to be approved. Some lenders are taking as long as one full year to complete the process and then there are still no guarantee’s they will approve it.
Are short sales guaranteed to work?
As you know in life there are no guarantees. Today lenders are seeing an unprecedented amount of deficiency sales and loan modification requests. The requests are being handled, more so triaged in a worst case scenario. If you purchased your home in the height of the market (January 2005 – June 2007) you will automatically qualify for certain assistance programs that the government has mandated. These programs have been aligned to “efficiently” process your request identifying your loan as a potentially “toxic asset”. If your mortgage fits in this box, then you have a leg up on many other sellers these days. With all of the Government programs that are in place to help you it still does not guarantee that your request will be reviewed and approved. The most important thing is to first identify your loan, more so when it was originated and if it is Purchase Money. If you are selling after a refinance transaction there are different rules and circumstances that apply, possibly a Capital Gain issue with the IRS.
Are you curious as to what happens during a Foreclosure, or if you are in Foreclosure, what you can expect to happen next. Below is a quick timeline applicable for non-judicial California Foreclosure proceedings under a Deed of Trust, which covers 99% or more of all Foreclosures in California.