Buying a short sale

Short Sale Questions

Short Sales Explained

A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved. In a short sale, the bank/lender usually pays the real estate commissions.  However, it is becoming more common for the bank/lender to request a seller contribution in order to close a short sale transaction.

Here is a more official definition of a short sale:

  • A homeowner is 'short' when the amount owed on his/her property is higher than current market value.
  • A short sale occurs when a negotiation is entered into with the homeowner's mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then 'sold short' of the total value of the mortgage.

 For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances:

  • Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
    • Loss of income (loss of job, wage cuts, new job that pays less)
    • Increased expenses (mortgage payment increases, property tax increase, family emergency, new baby, other unforeseen expenses)
    • Medical Problems ( medical bills, medical condition resulting in decreased income, mental health issues)
    • Death in the family
    • Divorce ( division of marital income, forced sale, loss of income, increased expenses)
    • Job transfer (forced move or sale)
  • Monthly Income Shortfall – In other words: "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
  • Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

This seems simple enough, but it is a complicated process that takes the expertise of experienced short sale professionals.  If you have questions or feel you may qualify for a short sale, please contact me at (707)769-4278 for a free consultation.

Understanding your options now could mean all the difference in the world.

Above Info provided from my site at cdpe.com.

Why would a lender allow a short sale of my property?

A short sale saves the lender many of the costs associated with the foreclosure process - attorney fee's, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In Sonoma County it costs a lender on average $75,000 to sell a property that has been foreclosed upon.  Lenders are not in the real estate business, they’re in the lending business.  For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved.  Distressed properties sit on the lenders books, eat up their loan loss reserves and keep them from doing what they want to do… lend money!  As banks continue to take back billions of dollars in real estate each month they are becoming increasingly motivated to help homeowners get short sales deals done before foreclosure auction.  My job as your real estate broker is to convince the lender that they will fare better by accepting less money now.

How much will it cost me to do a short sale?

In most cases you will pay no sales costs if your lender approves the short sale. All commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the short sale approval. A lender may however ask for some sort of seller contribution.

Will my lender require a hardship to agree to allow a short sale of my property?

Yes, the lender will ask for financial information about the borrower. The borrower must prove that he is unable to afford the current mortgage payments and that he has no other source of income or assets to repay the loan. The borrower will need to submit a “hardship letter”, explaining why he is in the financial situation he is in.  Don’t lie, just tell the lender exactly what the situation is and that your hardship is due to illness, injury, job relocation, job loss, divorce, adjustment in mortgage payment or unforeseen increases in living expenses that no longer allow you to make your mortgage payment.

Will my lender consider a short sale if I’m current on my mortgage?

Perhaps.  Some lenders require that you are at least 30 days late on your mortgage, others don’t.   

Is a short sale an option if I have more than one loan?

Yes.  We can apply to multiple lenders for approval (often the 1st and 2nd loans are held by the same lender).  There will be more negotiation involved to satisfy all parties, but it can be—and certainly is—done.  Even if the value of your home is below the balance of the 1st mortgage, we can usually get the two lenders to cooperate.  The last thing either of these lenders wants is another home through foreclosure.

How will a short sale affect my credit?

By all accounts, a short sale should be less damaging to your credit than a foreclosure or a bankruptcy.  A short sale lets other creditors know that you were responsible in that you worked out an acceptable plan with the mortgage holder and didn’t just walk away leaving the problem of foreclosing and selling the property in the hands of the lender. In any case, you will be eligible for a Fannie Mae backed mortgage much qucker (2 years rather than 5) than if you let the home go to foreclosure.  

What if my lender doesn’t approve my short sale?

Another attorney provided this very good analogy.  You go to the doctor and he says you may need an operation, but there are some drug treatments that might help you avoid the operation. Do you just do the operation or do you try the drugs and if they don't work, then do the operation?  Same logic. Do you do the foreclosure or do you first try the short sale?  If it does not work out, at least you tried to avoid foreclosure.  In any case you do everything you can to avoid the judgment against you (even a bankruptcy drops from your record before a deficiency judgment from a foreclosure!).