What is a short sale?
A short sale is when the lender allows a property to be sold for an amount less than what is owed on the mortgage.
Why do a short sale?
A short sale can create a win-win situation for all parties involved.
- The seller is able to get out of a financially bad situation.
- The lender can liquidate the home before it goes into costly foreclosure
- The buyer gets a good deal on a home that has been at least moderately maintained at or below market value.
- The agent can sell a home that would have otherwise been a lost cause.
Are there other options?
YES
- REFINANCE- this a great option if you are able to qualify and get an affordable payment. Usually for people who have not been late or still have equity in their home with good credit history.
- LOAN MODIFICATION- This can be a good option providing you can stick with the modification plan.
- FOREBEARANCE- Similar to loan modification, this only stalls the foreclosure process briefly in hopes that the owner can catch up on the payments. This is usually prolonging the inevitable.
- DEED IN LIEU- Sometimes the lender will give favorable terms, but if the home has no equity they will usually want an agreement to pay back a portion of the deficiency. This becomes no different than a foreclosure for the lender if a deed in lieu is accepted.
- CASH FOR KEYS- This option is generally reserved for owners that have already had the sheriff's auction. The lender offers a cash amount for the owner to move out quickly, which lets the lender take possession and sell the home at current market value.
- SHORT SALE- Always the best alternative. If a short sale is 100% successful, everyone walks away a winner.
Are the banks willing to accept short sales?
ABSOLUTELY! And why not? If the home goes into foreclosure, the lender has spent thousands on the process with no guarantee that the home will even be in a saleable condition when the process is complete.
What qualifies for a short sale?
Every situation is different; however, there are a few tried and true factors that can qualify someone for the short sale program:
- JOB LOSS- the number one reason that people stop making their mortgage payments.
- ARM LOAN- These loans were not originally meant for Joe homebuyer and now we are all dealing with the repercussions of this bad lending habit.
- MEDICAL- If someone has become ill and/or is overloaded with medical bills, a short sale can lift some of the weight from their financial stress.
- DIVORCE- This will cause a hardship almost every time.
- JOB RELOCATION- Sometimes you just have no choice but to follow the work or not have a job. Needing to make two house payments or a payment and rent can certainly cause problems.
- MOST HARDSHIPS- There are many other reasons that people have that cause them to abandon their mortgage payments. We and the lenders look at these on a case-by-case basis.
Can 2nd homes be sold short?
YES. These situations need to be looked at closely, but if there is hardship involved then it is likely that a short sale is possible.
What about 2nd mortgages?
The 2nd mortgage company will usually accept a short sale as long as they are getting something out of the deal. They know that if they do not make a deal and the home gets foreclosed, they may never get anything.
How long does it take?
A short sale usually takes between 1-3 months from start to finish; however, some can be much quicker and others longer.
How much time is devoted to negotiating a short sale?
We usually spend about 27 hours per deal; however some are as low as 10 hours and others as much as 60. The big variable is how cooperative the bank is. Phone time alone can exceed 50 hours with troublesome lenders and stubborn seconds.
How will this affect my clients' credit?
A successful short sale will show up on their credit report as a settled debt. This will affect their credit somewhat, but it allows for rebuilding. Someone with excellent credit going in to a short sale may actually qualify for a new mortgage only a few months after completion.
Will I owe the bank any money?
A successful short sale will absolve you of the deficiency debt.
How about tax ramifications?
On December 20, 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act, essentially absolving the average homeowner from paying income tax on a foreclosed or short sold home. ALWAYS contact an accountant or attorney to verify that you meet the criteria to be forgiven of this tax liability.
What happens after the sheriff's auction?
Every state has different laws regarding what happens after the sheriff's auction. Usually the home is put into a redemption period which allows the homeowner to "redeem" the loan. Typically, the only way to do this is to sell the house. If there is no equity, then it must be done with the bank's permission, i.e., a short sale.
Can I still do a short sale after the auction?
YES. The problem with this situation is that after the auction, the lender has already spent a considerable mount of money on foreclosing, making them less likely to accept a short sale agreement. There is a 50% success rate in redemption if done properly.
Is the bank keeping tabs on the home?
Yes, when the loan gets 2-3 months behind, they assign it to an REO agent (local real estate agent) who then keeps tabs on the home until it is foreclosed and taken over by the bank.
What happens if the bank takes possession after foreclosure?
When the bank takes over the property the REO agent assigned to the property lists the property for sale. The properties are sold for under market value in order to get them off of the books. After the home is sold, a deficiency judgment is granted for the balance on the loan at sale date less the amount that the home sold for in foreclosure, plus all costs, penalties and fees. This is billed to the foreclosed homeowner. That person's credit is then ruined by a foreclosure being added to their credit report, making it near impossible to get another home loan.
Why hire Short Sale Pathways?
Selling homes through short sales is a tricky process. Every detail must be planned right from the beginning and no room for error can be allowed. Every deal is different and we work with you hand-in-hand to get the home sold as quickly and efficiently as possible. One step missed or bungled can and will add a month or more to an already lengthy process. This can make the difference between losing a buyer, losing to foreclosure, and getting to the closing table. Short sales are what we do and we do it well.
Can I do short sales on my own?
You will usually need a real estate agent to mitigate a short sale for you. Call your lender, as they all have different criteria regarding short sales.
When is the best time to begin the short sale process?
As soon as you believe that you can no longer make mortgage payments, it's time to get the ball rolling.
What does it cost me?
NOTHING!
That's right folks--we charge the lender for our services. How, you ask? Consider the tens of thousands of dollars that we are saving the lender on foreclosures. They have no problem paying us to mitigate their losses for them. Every time we sell a home short we just saved that lender a minimum of $10,000. Estimates show that the average foreclosed home costs the lender an extra $35,000 in holding costs which include maintenance, legal fees, taxes, declining values, repairs, payroll, and more.
A short sale helps protect the future of real estate by giving a second chance at homeownership.
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