Short Sale F.A.Q.’s
Why would my Lender want to allow a Short Sale to help me?
The reason is simple. A short sale often has a better return on investment for the lender than a foreclosure. The average savings a lender receives from a short sale property compared with a foreclosure property is $54,000. Not only does the lender receive this savings, they are also paid on the loan 6 months earlier than in the foreclosure process. This allows them to collect and cash-out earlier than they would in a foreclosure. Plus, lenders spend a great deal of money with attorneys to complete the foreclosure process. Lenders created the short sale process as a foreclosure alternative for these very reasons. The incentives to perform a short sale on your property are in place to motivate you to participate.
When should I start my Short Sale?
It is best to begin a short sale when you realize you can no longer afford the mortgage, so that your property can be marketed properly. The earlier you start, the higher likelihood of success. We have sold short sales that have already gone to foreclosure sale. Contact Us to see if you have enough time.
How long does it take for you to complete the case once we fill out the paperwork?
Typical cases are completed within three to six months. If you have a foreclosure sale date approaching, we will work diligently to complete it sooner. In the past we have found buyers quickly and have used a variety of short sale negotiation companies who have relationships with the banks to push back your foreclosure sale date.
What is a Deed in Lieu?
A Deed in Lieu is when the property is deeded back to the lender with the approval of the borrower prior to foreclosure. (This process may still leave a negative impact on the borrower’s credit.)
Why should a lien holder accept less than the outstanding debt?
After the lender does an appraisal on the property and discovers that the value is less than the payoff, the lender will decide if it is worth further legal actions and cost. A business decision is made to either continue foreclosure action or accept the short sale offer.
What is a Closing Statement or HUD?
A form used at closing that gives an account of the funds received and paid at closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.
What is a Deed?
The legal document conveying title to a real property.
What is a Deed of Trust?
A deed of trust is an instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.
What is Depreciation?
A loss of value in a real property brought about by age, physical deterioration, functional or economic obsolescence.
What is Loss Mitigation?
Loss Mitigation is a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan. If you call your lender, you would ask for their loss mitigation department.
What is a Loan Modification?
A mortgage modification is a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and reduce the monthly payments.
What is a Forbearance Plan?
A forbearance plan is a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.
What is a Short Sale?
A short sale is a negotiated settlement. This is when the lender agrees to accept less than the amount owed as a payoff on a loan.
What is an Offer on a property?
An offer is an indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
How long is a Short Sale process?
Depending on the mortgage company and the state in which the home is located, a short sale process can take between 3-12 months.
What is the difference between a Satisfaction of a Lien vs. a Release?
A satisfaction is a total release from the debt owed. A release is when the lender releases the lien from the property to allow the home to be sold. (The borrower may still be required to repay the balance of the debt.)
How does a foreclosure and a short sale show up on my credit?
Foreclosures show up as FORECLOSURE, and can stay on your record for seven years. Anytime you apply for a new loan or have your credit run, the foreclosure will show up and is usually a required disclosure you must make on most credit and job applications. A short sale is listed as SETTLED DEBT, and is much less harmful to your credit. Please consult a credit company for more information.
What liability do I have when doing a short sale?
In a short sale, it is possible the bank could 1099 you for the difference in what you sell your property for and what you owed. This means the IRS could consider the difference as income, and you could be taxed on that income. The bank might also ask you to pay a portion of the difference back in the form of an unsecured note, which is similar to an I.O.U. It is a negotiation, and we employ tactics to have the bank consider the debt settled.
In a foreclosure, your house is sold at an auction, which typically causes the difference of the total amount you owe and the foreclosure sale price to be much greater. This means you have a higher potential tax liability. Additionally, the bank may come after you for a Deficiency Judgment.
A successful short sale will eliminate a deficiency judgment, minimize your tax liability, and keep the foreclosure off your credit.
What is a Deficiency Judgment?
A Deficiency Judgment can arise when the bank sells the house at foreclosure auction. The bank can sell the house at auction for any amount less than the total amount owing of the debt plus fees. A deficiency judgment can arise if the bank sells the house for less than the mortgage debt. The lender then holds you responsible for the unpaid portion of the loan. For instance, if you owe $100,000 to the mortgage servicer and they see proceeds after the auction of $55,000, the remaining difference of $45,000 can be moved into a judgment against you. This will also appear on your credit report along with the foreclosure. The lender may be allowed to take further legal action such as garnishing wages to pursue payment based on the laws of your state. Some states have restrictions and regulations on deficiency judgments, but unfortunately the majority do not.
Some lenders will choose the deficiency judgment while others may pursue a path to write off the loan. If they choose to write off the loan, the lender may issue a 1099 form which you will have to pay taxes on for the calendar year, UNLESS you qualify for the mortgage debt relief act.