1. What is a Short Sale?

 A short sale is the process where homeowners can sell their home for less money than they actually owe on the mortgage(s). This is accomplished by providing proper documentation to the lender(s) to prove hardship and convince them to reduce the mortgage balance to allow the sale.  If the sale is approved, the mortgage lender(s) will take a loss on the mortgage.

If the lender approves the reduced offer, the home is sold for a price lower than the amount owed without the seller having to come up with the deficiency. The mortgage is satisfied and any foreclosure process stops.

2. How does the bank or lender decide what price to put on the property?
3. What type of situation is the short sale best for?
4. Does a homeowner benefit from a short sale?
5. I'm an investor, can I short sale my rental property?
6. Does it matter what kind of loan I have?
7. I am in foreclosure. Is a short sale for me?
8. What if my mortgage is an FHA, HUD or VA mortgage?
9. What options other than a short sale might I have?
10. What is "financial hardship" and why is it so important?
11. Who owns the house after a short sale?
12. What, if anything, do I do about my back property taxes when I do a short sale?
13. Do you handle short sales throughout the nation?
14. Do you handle duplexes, apartment buildings, condos, or commercial property?
15.  My home is already listed for sale on the MLS, but isn't selling; can I still do a short sale?
16. My home is really nice, why is the short sale offer price so low?
17. Who pays the real estate commissions on a short sale?
18. Are short sales guaranteed to work?
19. How long does a short sale take?
20. Why do I have to sign a 3rd Party Release and Authorization form?
21. I have heard I could owe income taxes after a short sale, is this true?
22. I am behind on my mortgage payments but not yet in foreclosure. Can I do a short sale?
23. My house needs a lot of repair.  Can I still do a short sale?
24. I have equity in my home.  Can I still do a short sale?
25. Other people are on the deed with me, but they don't want to short sell. Can I still do a short sale?
26. I have other liens (i.e. mechanics, IRS, court judgments) on my house.  Can I still do a short sale?
27. I have 2 or 3 mortgages on my house. Can I still do a short sale?
28. Can I get a mortgage after a short sale?

2. How does the bank or lender decide what price to put on the property?

The bank or lender does not make that decision.  The bank or lender entertains any offer that is proposed by a realtor.  When an offer is tendered, every bank or lender has their own method of deciding what they will accept on a short sale.

3. What type of situation is the short sale best for?

Most short sales are accomplished on properties heading toward foreclosure. This means the homeowner is at least 3 payments behind and the foreclosure process has already begun. Recently, however, mortgages that are simply behind or "in default" are considered short sale candidates without actually being in foreclosure.
Next, the homeowner typically has no equity or negative equity in the home. In other words, the total balance owed to the lender is equal to or greater than, the price at which the house can be sold.
Lastly, the homeowner must have some type of financial "hardship" which is preventing him or her from paying the mortgage.

4. Does a homeowner benefit from a short sale?

• First, a short sale relieves the stress of being in foreclosure and it allows the homeowner to get rid of their mortgage payment and move on with their lives.
• A short sale permits one to stop a foreclosure proceeding and get a fresh start and this is arguably, the greatest benefit to the homeowner.
• From a credit side, a short sale is arguably the lesser of two evils. Having some late payments and a foreclosure filed has already done damage to your credit usually a drop of no more than 200 points (on average 100 points).   However, a completed foreclosure will do far more damage than a short sale agreed to by a lender.  Credit scores drop at least 200 and usually much more than that.  In almost every case of foreclosure, the LENDER PURSUES THE HOMEOWNER FOR THE DEFICIENCY!!!!!!!!
• Obviously, a bankruptcy significantly damages your credit score more so than a short sale or a foreclosure.

5. I'm an investor, can I short sale my rental property?

Yes, but remember the "hardship" element must be present. For investors there may also be some income tax issues resulting from mortgage relief.  Always consult with your CPA, attorney or tax advisor.

6. Does it matter what kind of loan I have?

Yes!  In some instances there is a potential risk of a deficiency judgment or a lawsuit on a loan contract as opposed to judicial foreclosure.

7. I am in foreclosure. Is a short sale for me?

Each situation is different and must be evaluated individually. The important factors in relation to a short sale are:

• Property in foreclosure or default 
• Personal financial hardship
• Little or no equity in the property
• At least 60 days until eviction date
• The value of the home has declined below the loan amount

8. What if my mortgage is an FHA, HUD or VA mortgage?

Short sales can still generally be accomplished on all of these types of mortgages, though each one has different criteria.

9. What options other than a short sale might I have?

• Cure your mortgage default (bring your payments current)
• Attempt a loan modification that adjusts the terms of your existing loan
• Refinance your mortgage with another lender
• Sell your home through normal channels
• Attempt to get your lender to accept a deed in lieu of a foreclosure
• File for bankruptcy
•  

10. What is "financial hardship" and why is it so important?

"Financial hardship" is a critical part of the short sale equation. No matter what you hear about lenders "not being in the business of owning real estate", they DO NOT easily give homeowners a break. They require sound and fundamental reasons to approve a short sale.
The only reason a lender will agree to a short sale is if they determine a short sale will net them more money than proceeding with the foreclosure. Understanding the homeowner's financial hardship plays a major role in the lender's estimation of whether or not it will be paid in full for the mortgage. Frankly,  lenders will make the borrower pay the shortfall if there is no hardship.
Many homeowners try to use a short sale as a "get out of jail free" card to dump a poor investment. Lenders will not allow this and more often than not, it is a waste of time to try. If you are employed, have a sound personal balance sheet but you simply lost value in your home and want to sell, you probably cannot successful short sell. If you are current on your mortgage, it is very difficult to short sell. Lenders need to see you simply cannot pay them before they will agree to a short sale.

11. Who owns the house after a short sale?

The purchaser of the house is the owner after a short sale just the same as in a normal sale. The mortgage lender is paid off and the previous homeowner moves to a different home.

12. What, if anything, do I do about my back property taxes when I do a short sale?

Just as in a normal home sale, the property taxes are the responsibility of the homeowner until the date the sale is closed. Then, they become the responsibility of the buyer. If your property taxes have not been paid this will affect the negotiations between the buyer and the lender so you must inform the buyer of the taxes owed.

13. Do you handle short sales throughout the nation?

Yes, we are a nationwide firm. 

14. Do you handle duplexes, apartment buildings, condos, or commercial property?

We handle residential short sales only.

15.  My home is already listed for sale on the MLS, but isn't selling; can I still do a short sale?

Yes and it is relatively common. Some lenders even require a house be listed for sale BEFORE approving a short sale in order to show that a discount is necessary.

16. My home is really nice, why is the short sale offer price so low?

Most homeowners (sellers) often have an emotional attachment to their home and may feel a short sale offer is too low. It is important to remember a couple of key items.  First, the seller in a short sale can never receive any money in the transaction. It should be of little concern what price is offered as long as the short sale is successful.   The only real exception is when the seller has tax liability concerns. (If there is tax liability, a lower sale price means larger mortgage relief and a greater tax liability.) Otherwise, the selling price is of little concern for the seller.
The important factor in a short sale is whether the lender will accept the price offered. That is where we come in and prove your hardship.  Lenders often accept prices for short sales which may be surprising to normal homeowners or Realtors. Discounts of 30% to more than 50% are no longer uncommon. This happens for several reasons:

• Sellers are often in denial about how bad the market really is for housing and therefore, how far the value has declined.
• Lenders don't like the foreclosure process any more than homeowners do.   Lenders incur substantial costs during a foreclosure process that can last more than 12 months. There are legal fees, filing fees, publication fees, lost interest on the money that is tied up, property taxes, insurance, maintenance costs as well as the potential for vandalism of a vacant home. This is all BEFORE having to try to sell the home as a bank-owned (REO) property and pay the associated sales commissions. A short sale is a way to avoid some or all of these costs. If a lender calculates his cost of eviction at $50,000 and more for a home, they will often take a loss on a short sale instead and be better off for having done so.  Plus, it is easier to sell a home with someone in it versus one without someone in it.

17. Who pays the real estate commissions on a short sale?

The commissions are paid from the funds the buyer places in escrow and because there is no equity in the house, the lender ultimately is the one paying the entire sales commission and consequently, our fees.

18. Are short sales guaranteed to work?

No. All of the criteria must be met before a lender will even consider a short sale. Even then it isn't easy to convince a lender the market value of the home is lower than what they are owed.
Plus, if all the paperwork has been correctly completed it can still take several weeks or even months only to be denied. If the lender does not approve the short sale, no transaction occurs. The Purchase Agreement becomes void and the listing continues.

19. How long does a short sale take?

A short sale can take 60 to 120 days or longer to complete.  The process is complicated and takes a lot of time. To exercise the short sale option, one must act quickly. If the homeowner waits until one week before eviction, no one can help you with a short sale. It is virtually impossible. DO NOT WAIT!

20. Why do I have to sign a 3rd Party Release and Authorization form?

The 3rd party release and authorization form gives the lender permission to speak to your representative (hopefully the Short Sale Pros) about your loan. That's all it does but it is necessary. An authorization must be filled out for each mortgage and for each Realtor or escrow officer authorized to act on your behalf.

21. I have heard I could owe income taxes after a short sale, is this true?

Possibly, but it's not that simple. There are a number of factors involved. For example, are you an investor or is the property your primary residence?  Is the debt on the property "purchase money" or has the home been refinanced?  If you're an investor or if the property was refinanced are you insolvent?  You can see how the matter can become complex in very short order.  It is the goal of the Short Sale Pros to exonerate the homeowner from any deficiency but there are no guarantees that can be accomplished.  In all financial matters, you should consult with your legal counsel, tax advisor or CPA on this issue.
You should know that when a lender writes off part of a loan (discounts it), the portion written off is the equivalent of a cash infusion or income to the owner. This "mortgage relief" is then reported as income to you by means of a 1099C form.  Even if you receive a 1099C and declare it as income, there is a good chance you will owe very little tax. This is because there is an IRS rule regarding "insolvency" which essentially says if you are insolvent (more liabilities than assets) at the time of the short sale, you don't have to count the 1099C as income (instead you declare it, then obtain the exemption). There is an IRS form to complete to show you are insolvent. See the Internal Revenue Service website at www.irs.gov
In December of 2007, President Bush signed a new law into effect providing for a specified period of time homeowners who satisfy certain requirements will not be taxed on mortgage relief. This bill is called, the "Mortgage Debt Relief Act of 2007" and it may or may not apply to your situation.  We always suggest you consult with your CPA, legal counsel or tax advisor before you make any decision.

22. I am behind on my mortgage payments but not yet in foreclosure. Can I do a short sale?

Yes!  This is occurring much more frequently than ever before.  Sometimes these are the most attractive short sales for both the buyer and the lender because the buyer can take advantage of the lender's ability to avoid the vast majority of the costs of foreclosure.
In these cases, it is more important to have a very clear "hardship" story to explain to the lender why you are unable to make the payments.

23. My house needs a lot of repair.  Can I still do a short sale?

Yes, though it can make the process more difficult because the price must be lower to compensate for the repairs. The key is to show the lender's appraiser all the work that needs to be done.

24. I have equity in my home.  Can I still do a short sale?

That is not a likely scenario for a short sale but you may be a candidate for a regular sale.

25. Other people are on the deed with me, but they don't want to short sell. Can I still do a short sale?

No. All parties listed on the deed or mortgage must sign the short sale purchase agreement. There are no exceptions to this rule.

26. I have other liens (i.e. mechanics, IRS, court judgments) on my house.  Can I still do a short sale?

Yes, but it gets much more complicated and will take longer. If this is the case with your home, be sure to COMPLETELY list all liens you have. Each lien holder must be negotiated with individually. A short sale in this circumstance will take substantially longer.

27. I have 2 or 3 mortgages on my house. Can I still do a short sale?

Yes, each mortgage or line of credit (HELOC) can be negotiated individually. It is important to know which mortgage filed the foreclosure or if more than one are in foreclosure, which one filed first.
There are several reasons you might have interest in purchasing a foreclosed home. There are the obvious personal reasons. But, as a business, foreclosure houses can be a great investment. Even if the houses are in disrepair, you can still secure a reasonable profit when you place them back on the market. As you explore foreclosure homes as a possible investment, there are few terms you need to be aware of, including the different phases of foreclosures.

28. Can I get a mortgage after a short sale?

If you recently had to sell your home as a short sale you might be wondering if it is possible to get another mortgage after a short sale.  In a few words, yes, it is possible to get another mortgage but there are some certain stipulations that are attached to your situation and will take some hard work in rebuilding your credit score to obtain another mortgage.
The first step you will want to take when applying for another home loan is to review what lead to your short sale.  Fannie Mae requires that you wait 24 months before applying for another mortgage if you were delinquent on your previous property.  If you were current on all of your payments and still had to short sell then you may apply for another loan right away.
You will also want to manage your credit very carefully. You can obtain your credit report from the three reporting bureaus free of charge once per year.  When you receive this report you will want to check it for accuracy and make sure all of your other debts are current.  By doing this you will greatly increase your appeal to potential lenders and get started on the right track to restoring your credit score.  Another way that you can increase your attractiveness to potential lenders is to lower your debt to income ratio.  Lenders will look at the total income you make per month and compare that figure to your monthly expenses.  If the ratio is too high you are less likely to receive a loan.  Having a solid financial budget will help you out a great deal when trying to secure another mortgage.
Be up front with possible lenders when discussing your past.  Letting them know about your past situation and the current steps you are taking to correct this will help you to get that second loan.  If you can provide documentation about your short sale, current financial situation and how you are taking appropriate steps to rectify this you will greatly increase your chances of obtaining another mortgage.
While it certainly is no easy task trying to get another mortgage after a short sale it is something that still can be done.  If you follow the tips in this article you will be giving yourself the best possible chance to succeed while hopefully restoring the damage the short sale has caused to your credit report.

Here are definitions you should get to know if you’re considering a short sale. 

Lis Pendens
Lis Pendens, or LIS, is the second part of the pre-foreclosure process. When a buyer defaults on mortgage payments, he first receives a Notice of Default (NOD) as a warning. The Lis Pendens follows as a notice of lawsuit filing.

Short Sale
A short sale occurs when property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed. 
NFS
NFS stands for notice of foreclosure sale. NTS, notice of trustee sale, is equivalent when it comes to foreclosure.  Both mean a home is under foreclosure and typically sold at auction.
REO
REO stands for real-estate owned. Also known as bank-owned, this is the last stage in the foreclosure process. The lender takes possession of the property and then sells it to recover its loss.
HUD Home
A HUD home is a foreclosure house sold by the U.S. Department of Housing and Urban Development because it became HUD property due to its FHA-insured mortgage.
Market value
The market value of a house is the price a buyer would pay in a typical sale. In regard to foreclosures, it gives buyers a basis of comparison as to what you would pay for the property if purchasing under normal circumstances.