Frequently Asked Questions & Answers
About Short Sales
What is a Short Sale?
A "short sale" occurs when a lender agrees to accept less than the amount owed on a promissory note. It is most often utilized when a seller cannot pay the mortgage on their property. Often, both lenders and sellers will consent to the short sale process because it allows them to avoid foreclosure. Foreclosure typically involves hefty fees and losses for the lender and poorer credit outcomes for the sellers. This agreement, however, does not necessarily release the seller from the obligation to pay the remaining balance of the loan, known as the deficiency. The deficiency may be released by the lender at their discretion.
What are the Warning Signs of an Impending Short Sale?
Short sales are usually thought to be useful to both mortgage lenders and sellers in situations where:
the seller is behind or it is imminent that they are going to fall behind on their mortgage payments
the seller has a legitimate hardship; and/or
the seller has little or no equity (generally 8% or less)
Who qualifies for a Short Sale?
Generally a Short Sale is granted by the lender to homeowners who have experienced a financial hardship that prevents them from continuing to pay on the mortgage. Rather than foreclose on the home, which is a huge expense to the lender and very devastating to the homeowner's credit, a Short Sale may be completed instead.
Some of the common hardships that lead to a Short Sale are: loss of a job; a serious illness; divorce; financial stresses from liens or delinquent taxes; or even the death of a spouse or loved one.
Will I receive any money at the closing of my home?
Generally no, however a new program (HAFA) may allow the homeowner to receive up to $1,500 to be used for relocation expenses. As of November 30, 2009, the Home Affordable Foreclosure Alternatives Program can offer some assistance to help with moving costs.
Who will pay the realtor’s commission and the seller’s closing cost?
Your lender pays both the realtor fees and closing cost in order to avoid a more costly foreclosure.
Is the seller responsible to pay any fees to the Realtor if the home does foreclose?
No. Realtors are only paid a commission when the house is sold.
Would it be easier to let my home foreclose?
On one hand, yes it is easier because the seller really doesn't need to communicate as often with the lender. However, there are some potentially damaging consequences. In some states, a lender may seek a deficiency judgment following a foreclosure to try to get back the money you still owed on the home. The lender may then try to place liens on other properties, garnish your wages, or even repossess vehicles to recoup their losses. This is why a Short Sale may be a better option for a distressed homeowner in that a deficiency judgment and the negative consequences might be avoided. For more detailed information, seek advice from your CPA or legal counsel.
What is the seller's advantage in completing a Short Sale?
Well, one of the best reasons to complete a Short Sale is to try to avoid a lender from pursuing a deficiency judgment against the homeowner. The next reason is preserving the homeowner's credit.
Both a foreclosure and a short sale will negatively impact a homeowner's credit, however a foreclosure is much worse. A person's credit may recover in 2 years with a short sale, but a foreclosure may take up to 10 years. This will hurt the person's ability to get a new home loan and will put him or her in a high risk category causing much higher interest rates. It could also impact career choices as many employers now check a person's credit report as part of the hiring process.
Will filing for Bankruptcy affect a short sale?
Yes, if you have put the home under bankruptcy protection then the home cannot be sold as a short sale until the home is released or discharged from the bankruptcy. Notify your real estate agent to discuss the options available to you.
Why do banks and lenders accept Short Sales?
At first it seems hard to believe that a bank would be willing to so deeply discount the sale of a home until you look at the situation from their perspective. If a bank forecloses on a home they must repossess it, make repairs, change the locks, and pay for a variety of legal fees. A short sale often costs less than what it costs to foreclose on the home, so the bank has actually saved money. Another reason is that in this distressed housing market with so many foreclosures, the bank doesn't want too many foreclosures (or bad debts) on their books. This prevents them from borrowing more money from the Federal Reserve, so they are unable to give out new loans to increase their revenue streams.
How long does a Short Sale take?
How long it takes will depend on what state you are in. In Georgia, a typical short sale may take from 2 to 4 months. Some reasons why short sales take longer than conventional home sales is that there is more paperwork involved and the process is delayed when short sale paperwork is missing or incomplete. Sometimes overwhelmed lenders will reject offers for this reason and the process must be started over from scratch. This is one reason why it is important to use someone familiar with the short sale paperwork for that lender in order to avoid having a file closed or any unnecessary delays.
What is needed from the seller to process a Short Sale?
Each bank or lender may have their own specific requirements for its Short Sale paperwork (packet). However, there are some general requirements such as: a hardship letter (explaining why the homeowner can no longer pay the mortgage); financial statements (monthly income & expenses); tax returns for the last 2 years; bank statements for the past 2 months and a pay stub for the past 30 days. Lenders also may want the realtor's listing that shows the property listed at the current fair market value.
Will the foreclosure process stop by listing my home as a Short Sale?
No, however there are a couple of exceptions. If you have an FHA loan, you may qualify for a Pre-Foreclosure Sale Program due to your hardship which postpones your foreclosure for 90 days. Another possibility is if an offer is made on your home before the foreclosure date then a lender may consider postponing the foreclosure in order to review the offer and short sale paperwork.
Can I keep my current real estate agent if I work with Pendleton & Associates?
Yes, your realtor will list and show your home to potential buyers while Pendleton & Associates works by negotiating with the lender to accept the lower short sale offer and process all the short sale paper work for a smoother closing.
Give Pendleton & Associates a call TODAY to find out whether a short sale is right for you!