Short Sale Basics and FAQs
What is a Short Sale?
According to the Arizona Association of Realtors®, “The term ‘short sale’ is used to describe a sale in a situation
where there is more debt owing against a property than the property’s value. In a loan default situation, (pre-foreclosure)
the creditor(s) may be willing to agree to allow the property to be sold for less than the loan amount and/or accept less
than (or “short”) the amount owed as payment in full.”
A short sale will ruin your credit rating, unless the bank has specifically agreed not to report the shortage, the bank will report it most times as a Score Factor
Code 22. That score factor relates to delinquencies, derogatory records and collections.
Benefits for Short Sale
• Retain some dignity in knowing that you sold your home.
• You won't suffer the social stigma of the "F" word: Foreclosure.
• No mortgage payments to make, unless you choose to make them.
• You will be eligible, under Fannie Mae guidelines, to buy another home in possibly 2 to 7 years.
• If your credit report does not reflect a 60-day+ late pay, under Fannie Mae guidelines, you will be eligible to buy another home possibly immediately.
Why do Short Sales Work?
Fundamentally, a Short Sale is a bank authorized alternative to foreclosure.
It is not an alternative to a sale. The basic idea is that instead of getting foreclosed on,
you sell your property at a price and terms and conditions satisfactory to you and your lender. This can usually take place under the following conditions:
-You are unable to continue making payments due to some hardship
(divorce, death, loss of job, health, etc.).
-The amount owed on your house is greater than what Buyers are willing to pay in this market.
The bank is often more willing to take a reduced amount in a short sale rather than take the property back through a Trustee’s Sale.
The banks are in the lending business, not the property ownership business.
The short sale process can be very confusing because it is not as common as a regular real estate transaction. Typically the short sale
process takes longer because you have to deal directly with the bank and gain their approval to sell the home. When a buyer makes an offer
to purchase a real estate short sale they do not have the benefit of getting a quick response like they would from a regular seller.
The short sale process begins with the client having to show that they are eligible for a short sale. All lenders typically require 2 years
of tax returns, 2 years of W2's, 2 months paystubs, 2 months of bank statements, income versus expenses work sheet, and a hard ship letter.
The process of getting approved for a short sale is the exact opposite of what a borrower goes through when they are trying to obtain financing.
When a borrower obtains financing they have to show that they can afford to make the mortgage payments. When a seller is trying to get the bank
to approve them for a short sale, they have to show the bank that they have made every attempt possible to try and make the payments. If a lender
sees that they have other liquid assets they will not be very likely to help a seller out and approve them for a short sale.
Short Sale Basics
The short sale process can be very confusing because it is not as common as a regular real estate transaction.
Typically the short sale process takes longer because you have to deal directly with the bank and gain their
approval to sell the home. When a buyer makes an offer to purchase a real estate short sale they do not have
the benefit of getting a quick response like they would from a regular seller.
The short sale process begins with the client having to show that they are eligible for a short sale. All lenders
typically require 2 years of tax returns, 2 years of W2's, 2 months paystubs, 2 months of bank statements, income
versus expenses work sheet, and a hard ship letter, etc. The process of getting approved for a short sale is the exact
opposite of what a borrower goes through when they are trying to obtain financing. When a borrower obtains financing they
have to show that they can afford to make the mortgage payments. When a seller is trying to get the bank to approve them for
a short sale, they have to show the bank that they have made every attempt possible to try and make the payments. If a lender
sees that they have other liquid assets they will not be very likely to help a seller out and approve them for a short sale.
Short Sale FAQs
How much does your Short Sale service cost?
Our short sale service is free to homeowners
Do I have to have my home Approved by the lender prior to offering it for sale as a short sale?
No. There is no such thing as a short sale approval.
The actual approval only happens with an accepted offer.
I just missed a payment and I know I will miss more how long does the foreclosure process take and is there time to do a short sale?
The foreclosure process takes differing times depending on your state. . In California it can take 6+ months. Generally speaking a well priced short
sale being processed by an educated short sale listing agent will sell and close in less than 120 days.
Will I still have to pay property taxes if I do a short sale?
Property taxes will always have to be paid as part of any accepted short sale. Whether it’s you or the lender, it depends on their policies and the
specific agreement you reach while negotiating the short sale.
I owe more than my home is worth and I can’t make the payment. Do I have to somehow qualify for a short sale?
If someone can’t make their payment and they are otherwise insolvent, they qualify for a short sale. Note: insolvent simply means their total debts are
great than their assets.
Do I have to pay income taxes and will I get a 1099? Will the loss the bank takes be treated as a taxable gain to me the seller?
Consult your Tax Attorney or Qualified CPA. Very recently the tax law was modified and now most people who do a short sale will have no taxes due.
How do you, my listing agent get paid who pays your commission?
The bank will pay the commission along with all the other usual closing costs.
Do I have to miss a payment to do a Short Sale?
No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment. However, those sellers that have
missed payments seem to have a higher priority.
I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
No. Both of your lenders will need to be satisfied to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate
the terms with the second lender.
Premonition Investments LLC. Can Help…..Contact us today – 602-326-9341
