Short Sales - FAQ's
Homeowner F.A.Q.'s
Why would my Lender want to allow a Short Sale to help me?
The reason is simple; a short sale often has a better return on investment to the lender than a foreclosure. The average savings a lender sees from a short sale property compared with a foreclosure property is approximately $14,000. Not only does the lender receive this savings, they are also paid on the loan 6 months earlier than in the foreclosure process. This allows them to collect and cash-out earlier than they might in a foreclosure. Plus, lenders spend a great deal of money with attorneys to complete the foreclosure process. Lenders created the short sale process as a foreclosure alternative for those reasons. The incentives to perform a short sale on your property are in place to motivate you to participate. Be sure to consult financial and legal counsel regarding the consequences of a short Sale.
When should I start my Short Sale?
It is best to begin a short sale when you realize you can no longer afford the mortgage, so that your property can be marketed properly and you can receive a high offer. The earlier you start, the higher your likelihood of success.
How long does it take to complete a short sale once we fill out the paperwork?
Typical transactions are completed within three months. If you have a foreclosure sale date approaching we will attempt to complete it sooner. We have often found buyers quickly and have used our relationship with the banks to postpone your foreclosure sale.
What is a Deed in Lieu?
A Deed in Lieu is when the property is deeded back to the lender with the approval of the borrower prior to foreclosure. This process may still leave a negative impact on the borrower's credit. Be sure to consult financial and legal counsel regarding the consequences of a Short Sale offer.
Why should a lien holder accept less than the outstanding debt?
After the lender does an appraisal on the property and discovers that the value is less than the payoff, the lender will decide if it is worth further legal actions and cost. A business decision is made by the financial institution to either continue foreclosure action or accept the short sale offer.
What is a HUD 1 Closing Statement?
A form used at closing that gives an account of the funds received and paid at closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.
What is a Deed?
The legal document conveying title to real property.
What is a Deed of Trust?
A deed of trust is an instrument used in many states in place of a mortgage. Property is transferred to a Trustee by
the Borrower (Trustor), in favor of the Lender (Beneficiary) and re-conveyed upon payment in full.
What is Depreciation?
A loss of value in a real property brought about by age, physical deterioration, functional or economic obsolescence.
What is Loss Mitigation?
Loss Mitigation is a process or the department within a financial institution that helps to minimize the institutions losses. The lender may try to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.
What is a Loan Modification?
A mortgage modification is a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and may reduce the monthly payments.
What is a Forbearance Plan?
A forbearance plan is a loss mitigation option where the lender may revise a payment plan for the borrower that could include a temporary reduction or suspension of monthly loan payments and add those payments as due at the end of the loan term.
What is a Short Sale?
A short sale is release of the lien on a real property for payment of less than is owed. The release of lien does not necessarily release the loan obligation, it simply releases the collateral.
What is an Offer on a property?
An offer is an indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
How long is a Short Sale process?
Depending on the mortgage company(s) and the state in which the home is located, a short sale process could take between 2-5 months.
What is the difference between a Satisfaction of a Lien vs. a Release?
A satisfaction is a total release from the debt owed. A release is when the lender releases the lien from the property to allow the home to be sold. The borrower may still be required to repay the balance of the debt.
How do a foreclosure and a short sale show up on my credit?
Foreclosures show up as FORECLOSURE, and can stay on your record for seven years. The foreclosure will show up on your credit report and is usually a required disclosure you must make on most credit and job applications. A short sale may be listed as SETTLED DEBT, and can be much less harmful to your credit. Please consult a credit company for more information.
What liability do I have when doing a short sale?
In a short sale, it is possible the bank could issue a 1099 to you for the difference in what you sell your property for and what you owed. This means the IRS could consider the difference as income and you could be taxed on that income. The bank might also ask you to pay a portion of the difference back in the form of an unsecured note, which is similar to an I.O.U. Although we request the bank consider the debt settled it is a negotiation and there is no guarantee. Be sure to consult financial and legal counsel regarding the consequences of a short Sale.
In a foreclosure, the property is sold at an auction, which typically causes the difference of the total amount you owe and the foreclosure sale price to be much greater. This means you could have a higher potential tax liability. Additionally, the bank may pursue a Deficiency Judgment. Although there are no guarantees, a successful short sale might eliminate a deficiency judgment, minimize your tax liability, and keep the foreclosure off your credit. Be sure to consult financial and legal counsel regarding the consequences of a short Sale. For more information on deficiency judgments and the tax liability you may face based on your current situation please consult your attorney/tax advisor.
What is a Deficiency Judgment?
A Deficiency Judgment can arise when the bank sells the property at any amount less than the total amount owing of the debt plus fees. A deficiency judgment can arise if the bank sells the house for less than the mortgage debt. The lender then holds you responsible for the unpaid portion of the loan. For instance, if you owe $100,000 to the mortgage servicer and they see proceeds after the auction of $55,000, the remaining difference of $45,000 may be reduced to a judgment against you. This will also appear on your credit report along with the foreclosure. The lender may take further legal action such as garnishing wages to pursue payment based on the laws of your state. Some states have restrictions and regulations on deficiency judgments. Some lenders will choose the deficiency judgment while others may pursue a path to write off the loan. If they choose to write off the loan, the lender may issue a 1099 form which you may have to pay taxes on for the calendar year. For more information on deficiency judgments and the tax liability consult your attorney/tax advisor.
Does your real estate agent ever take title to my property?
No.
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