A Real Estate transaction where the proceeds are not sufficient enough to pay all encumbrances and fees associated with said transaction. When your home is sold through a real estate transaction and your mortgage lender agrees to take less than what is currently owed on the unpaid balance.
A short sale can provide a mutual benefit for both the homeowner and the bank because it helps both parties avoid foreclosure. If the bank agrees to short sale, you can sell your home and payoff all or a portion of your mortgage balance with the proceeds.
Some of the benefits of a short sale are:
- It can eliminate or reduce your mortgage debt
- Help avoid foreclosure and the negative impact to credit associated with foreclosure
- Start repairing credit sooner than if the property forecloses
- May be able to purchase another house sooner than if the property forecloses
Ideally, short sales take 60-90 days but realistically they can take as long as 6 months or more. We’ve had a handful of short sales close in less than 30 days! Because short sales require a team effort to facilitate the transaction, it can become time consuming to coordinate all steps necessary to complete.
Short sales are completed in phases. The initial phase relies heavily on the homeowners and realtors submitting all supporting documents necessary to provide a complete short sale packet to the mortgage company. After a full packet is received and submitted to the mortgage company they have a specific protocol they have to follow. These internal steps take time. Sometimes your mortgage company has to get permission from the investor who owns your loan in order to proceed with short sale as well as schedule an evaluation on your property to determine its value. Once all of this has been completed and an approval letter is issued it can take 30-45 days for the buyers to be prepared for closing.
Typically short sales are completed to avoid foreclosure and the damages it can do to credit rating. A short sale can potentially avoid a deficiency judgment from the lender and be a less severe marking to credit rating. Short sales can also be completed to help homeowners who cannot afford their mortgage payments or have had to relocate from their property for a job transfer. A short sale can be completed on rental properties but sometimes guidelines and qualifications can vary. Give us a call to discuss any questions you may have.
Most situations qualify for a short sale, even if there is no hardship. If the market value of your home has fallen below what you owe on your mortgage(s) then your home would be listed for sale as a short sale. If you have a hardship that has caused you to fall behind on your mortgage payments or if you have relocated more than 100 miles for a job transfer you may qualify for a short sale. Here are some (but not all) hardship reasons that may qualify homeowners for a short sale.
- Recently denied for a loan modification
- Financial insolvency (no other assets)
Financial hardship such has:
- Loss of employment
- Medical illness
- Death of family member or borrower
- Vacant Rental property
- Job transfer
With foreclosures on the rise in the US, lenders are looking for any way they can mitigate their losses. In some cases it is much more cost effective for a bank to agree to a short sale rather than foreclose on a home. Typically the bank doesn’t want to own real estate so a bank will take a loss in a short sale to avoid owning a property. Additionally, if your home is in foreclosure a bank must pay for upkeep, insurance and other costs plus the bank could incur legal or court fee when going through the foreclosure process.
In some cases, homeowners qualify for an incentive when the short sale is completed successfully. There are several different programs depending on the bank and investor, HAFA being one example. Incentive amounts range from $750 to $35,000 and more in some cases. We are happy to answer questions regarding this topic, please call our offices.
There are several companies that charge the homeowner or the buyer for negotiation services. Our fees are built into the listing commission. If an agent is working with NWHS there is no charge to you or the buyer. In some cases your mortgage insurance company may ask for a contribution toward balance owed. This doesn’t happen very often and when it does NWHS works to eliminate or reduce the amount requested.
The answer to this question involves many unique variables. Each lender has a different way of reporting that a short sale was completed. The most common language used is “Paid in full for less than the full amount.” As you may already know there are 3 major credit reporting agencies and if you are behind on mortgage payments your bank has the right to report any delinquency beyond 30 days past due to all agencies. This in itself can have a direct impact on your credit score. In some cases we have successfully completed a short sale without homeowners missing any payments. However, we strongly advise that you work with a credit counseling agency or scoring expert for more specifics on this topic.
When the short sale is successfully completed your lender will typically pay a commission to your real estate agent. We then share that commission. We do not get paid anything unless we are successful in completing the short sale. In most cases homeowners pay nothing out of pocket for the short sale.
There may be tax ramifications to a short sale but every situation is unique. We highly recommend consulting a tax accountant or tax attorney regarding short sale tax implications. While we are very successful at closing short sales, we are not tax experts. The Mortgage debt relief act of 2007 may help avoid having to pay taxes on debt that is forgiven after a successful short sale. Please refer to irs.gov for more information regarding this act.
There are a handful of reasons why a bank might reject a short sale. Several reasons include (but are not limited to):
- Whether or not the bank will make more money by granting the short sale over pursuing foreclosure
- Homeowner’s financials show no hardship
- The purchase price offered on the property is too low and/or the property has been vacant for too long
Again, these are examples of reasons but every situation is unique and we are willing to attempt ANY short sale.
Yet another reason to get legal advice or speak to a real estate attorney. One of the main reasons to do a short sale is to get a release of personal liability. Not every seller or every mortgage is released. Different states have different guidelines regarding the deficiency balance. In the state of Oregon, generally, a lender cannot pursue for a deficiency judgment on loans taken out to purchase a property. Most Home Equity Lines of Credit are not secured to your home and could be personally backed by you. This means that foreclosure will not eliminate this debt. NW HomeSavers will negotiate additional liens and push for full debt forgiveness.
First you want to find a realtor to determine the fair market value of your home and list it for sale. NW HomeSavers will handle the negotiations with your mortgage company and work with your realtor to sell your property. We will provide a clear list of items needed from you and submit them directly to your mortgage company on your behalf. Contact our offices today with any questions or to get started.
We’ve worked with just about every Mortgage Company and lender out there. Our experience has helped thousands of homeowners. Our connections within the banking industry are unsurpassed. We offer our services at no cost to sellers or buyers. You will work with one person in our office who understands your circumstances. We care about you and your short sale and will go the extra mile to see it through to closing.
Who owns my loan? Determine which investor owns your loan. This may be helpful to determine specific guidelines related to your mortgage when starting the short sale process.
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