What is a Short Sale?

It is an intent by you to sell your home for less than you owe the investor who carries your note.

What Justifies a Short Sale?

“Hardship” Something that changed from the time you purchased the home to present that prohibits you from making your mortgage payment. This is considered a hardship.

What Constitutes A Hardship?

Job Loss, Injury, Divorce, Pay Decrease, Relocation and so on. Something that took away your income (not debt you added on after the purchase like massive credit card bills, that would be self inflicted) but something that effected your ability to make the payment.

What Are The Benefits Of A Short Sale?

In laymen’s terms, selling your home as a Short Sale allows you to recover faster. By that I mean that you may be able to purchase another home in another given time and place if you sell your home with a satisfied settlement with the investor and the bank and keep a good credit rating and have savings. Most cases the lenders are now allowing those that sold a Short Sale home 2 years ago to purchase another home with conventional 20% down financing after 2 years or 3.5% FHA financing after 3 years.

What Is The Ultimate Goal of A Short Sale?

The ultimate goal is to get the investor and bank to agree to settle or sell for less than the amount you owe, clear you of any deficiency (the difference between what you owe vs what you sold your home for) and report to the credit repositories that your note was settled for less than what you owe and no Judgements or Liens will be claimed or placed upon you after such agreement. This verbiage and reporting helps get your credit back on line. You should always keep the Terms of Agreement letter handy because if you do plan on purchasing a home in the future the lender will need that to show your bank or investor that settled with you has no future claim to deficiency or debt.

How Long Does It Take To Short Sale My Home?

Short Sales can vary widely in the time line. From the day you receive and accept an offer from a buyer to the time they actually agree to the sale it can take months. The shortest time I have successfully negotiated a Short Sale listing (where I represented a seller) has been about 3 months. The longest time has been over 12 months. Different banks vary on how quickly they respond. Also, different asset managers and staff who look over the details of your sale can vary in their response time because not all people are the same in their level of urgency.

What Is An Asset Manager?

An Asset Manager is the fellow that has to review and approve the Short Sale. He will be reviewing several things. He will review your hardship letter of explanation as to why you can not make your payment, the opinion of valuation or appraised value of your home, your bank statements, tax returns, Assets, Paystubs and so on. Ultimately, they have the last say as to whether to allow you to Short Sell or not.

What Will I Need To Provide?

As the above paragraph has already indicated, you will need a hardship letter, last two pay stubs, last two years tax returns both personal and corporate (if it applies), last two months bank statements, bank amendments signed that the bank requires, a copy of the listing agrement and the purchase contract and all addenda.

Can A Family Member Or Friend Purchase My home?

The banks are usually very specific about this. Most of the time I see that the banks outline an “arms length” rule meaning you can’t sell your home to someone you know. Sometimes banks will not allow a “trust” purchaser because of the potential of this. They also look very suspiciously at cash purchasers and will always need the buyers proof of funds showing only their names on the statement provided.

What Do You Mean, Investor? I Thought I was Working With My Bank?

Often times people get confused between the two, the bank and the investor. It breaks down like this. The Bank who you mail your payment to is the “servicer” of your mortgage payment. They represent the “investor” who provided the funds for you to purchase your home. The bank is simply the instrument that creates the opportunity for you to work with that investor. So when you are trying to short sale your home, you are contacting your bank that services your loan and they in turn will contact the investor to inform them of your intent to short sale your property.

Do I Still Need To Take Care Of My Home And Should I Stay In It?

I have heard this a million times. Here’s the potential problems with moving out. If you move from the home and the Asset manager sends someone out (which they often do if you are late on 2 or more payments) to view the home and there is no one present, furniture has been removed and the home appears not to be taken care of, I have seen them change the locks on the door and close it up. If you have the home listed for sale with a realtor post in the ground then they will usually contact the realtor to check the status. If you think about this from a buyers perspective, remember that letting the home degrade from a lack of maintenance or shutting off utilities and draining pools and so forth can effect how the home was presented to the buyer. If they saw it when everything was working and come back to see it in poor shape they may elect to cancel the purchase and this will not be a good thing because you then have to start all over and try to find another buyer. that new buyer could write an offer for less because of the homes condition which will further complicate the agreement of sale. My recommendation is to stay in the home, maintain it and keep the utilities active. Besides, you will not be paying any mortgage payments so why move unless you are forced to?

Should I Continue To Pay My HOA Dues?

Absolutely!!! If you let your HOA payments get behind you will create a LOT of problems. First, the HOA or property management company could place a lien on your home that will need to be paid off. They could also add on attorney fees for filing the lien. The number one thing to know about not paying your HOA fees is that 99% of the time the bank will NOT AGREE TO PAY THOSE IN ARREARS FEES! I have negotiated in arrears HOA dues successfully to be paid by the bank but it usually entails the seller carrying back an unsecured note for an amount equal to those cumulative fees.

I Have A Second Mortgage Or Home Equity Loan On My Home, Can I Still Short Sell My Home?

Yes, you can, but it’s more difficult. Sometimes your 2nd mortgage can be with the same bank and this leads some people to think that it is easier to negotiate but they are wrong. 2nd mortgages are held in a completely different department and they have to be negotiated separately just as if it was a different bank. If you r 2nd mortgage was help with a different bank then yes, it can be difficult. I have seen banks that are at arms with each other and 2nd mortgage lenders will not agree to settle for less monies than what is owed or want so much from the primary lender that it makes it impossible to close, even though they will receive nothing unless it’s sold as a Short Sale. If you have a home equity line of credit then you should try and do everything possible to Short Sale the home and pay them off. Home Equity loans  if not used for the purchase of the home originally or not used to make improvements to the home may open up a door that wil allow them to pursue you for the amount you if you can both sell your home as a short sale and it it foreclosed on. Be very careful with this because it can come back to bite you if you are not looking at the agreement letter closely enough from the 2nd mortgage or home equity lender. Sometimes they will have reserve clause that allows them to pursue you after the sale by reporting the deficiency as a charge off and reporting that to your creditors.

What If I Have Mortgage Insurance?

Most of the time if we can settle with the Asset manager for a reasonable net figure the mortgage insurance company will settle. Sometimes though I have seen them require a higher amount to settle and that in turn comes back to you as an unsecured note or they will ask you to bring money to the closing table to pay towards this.

So, What Do I Need To Do To Sell My Home As A Short Sale?

You’ll need to list your home with a Realtor experienced in presenting and negotiating Short Sales. Not all Realtors do this the same. My worst experience helping a buyer purchase a Short Sale involved a Realtor who was not negotiating the file herself, but relying on someone she employed to help negotiate that sale for her. The experience was frustrating to say the least! The best experience was working with Listing Realtors who handle the entire process from start to finish because there is constant communication and updates keeping everyone informed. This is how I list and sell Short Sales. It’s about a higher level of service not a higher volume of business. It makes for a very pleasant (at least as pleasant as it can be) experience. the better the experience, the easier it is to move on.

Should I Have My Attorney Review The Terms Of Agreement?

Why not?! It cant hurt and I would advise that if you have any questions as to what you are signing that you have a real estate attorney help you better understand what you are signing and the consequences if you do or don’t.

Will I Owe Taxes If I Sell?

That will depend on your current tax situation. There will be a 1099 delivered to you at the end of the year from the bank that will show the deficiency amount on it which you will be responsible for and this should be reviewed by your accountant or book keeper to see if you will owe tax on that amount.

 

One last note to all of you…

 

Remember That All Banks Are Different

Banks and their staff have no specific time line except that most are over worked and underpaid. You level and your Realtors level of urgency basically will mean nothing to them. They are primarily be concerned with the net number, not whether you are running out of time before an auction of your home occurs, god forbid that should ever happen to you. With a good Short Sale negotiator helping you you have a good chance of that not happening. Oh, and along those lines, typically about 80% of short sales result in a successful close. My closing ration is about 90-95%

 

I hope you find the following outlines and basic description useful. Remember that this is only intended to give you the very basic details and that everyones circumstance can vary. So take it with an eyes wide open view because things can change overnight.

 

All The Best,

 

 

 

Stew Keene – Certified Short Sale Negotiator