Short Sale Questions Foreclosure Questions Mortgage Forgiveness Debt Relief Act of 2007 Buying a Short Sale

Short Sale Questions:

What is a short sale?

A short sale is a special real estate transaction whereby your lender will work with your real estate broker and allow you to sell your home for less than you owe on it.  The lender will usually pay all fees, title costs and commissions.  In a short sale, you get your home sold, the loan(s) paid off and you avoid foreclosure.

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?

Nothing. Really! 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.

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.  Call me to find out what your lender’s policy is regarding short sales. 

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 is 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.  There is also the possibility that through negotiation with the lender you can avoid having the short sale reported to a credit agency.

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 and bankruptcy or do you first try the short sale?  If it does not work out, or you get stuck with a bill you can't pay, then you can always do the bankruptcy.  In any case you avoid the judgment against you (even a bankruptcy drops from your record before a deficiency judgment from a foreclosure!).