About short sales

Short Sales approval is a lengthy process and getting a Short Sale Package together
can be a chore, but if done correctly it will help expedite the process.

What is a short sale?

A short sale or negotiated settlement or short pay occurs when a lender agrees to accept
less than the amount owed to payoff a loan as an alternative to foreclosure. If the
property is worth less than the amount owed on the loan, then even if the lender
forecloses and takes back the property, they know they are going to take a loss. We can
often convince a lender they will do better if they take less than what is owed rather than
taking the property back by foreclosure and trying to sell it later. Keep in mind, not all
lenders will accept short sales or discounted payoffs, especially if it would make more
financial sense to foreclose.

Example: If the unpaid balance of a loan is $200,000 and a property sells for $180,000
and there is $10,000 in closing costs, a short sale lender might accept a pay-off of only
$170,000. In some cases, a second or even a third mortgage may exist on a property.
When this occurs, the process becomes much more complex. We will need to negotiate
between the existing lenders as to the actual payoff amount they are willing to accept in
relation to the other lenders. Quite often, if this is the case, the process can take longer
to complete.

How long will it take?

The short sale negotiation process is a lengthy one. It may take several weeks or more
likely several months to get an approval. Many lenders have several layers of
bureaucracy, insurers, and investors that we will have to maneuver through in order to
get a short sale approved. So it is important to be patient during this long process.

But my house is going to foreclosure, will I have enough time?

Maybe or maybe not. Just starting a short sale will not automatically stop a foreclosure.
However, many times we can convince a lender to temporarily stop the foreclosure to let
us attempt to negotiate the short sale. So, while there are no guarantees, it does not hurt
to try.

Can I stay in the house?

The purpose of a short sale is to get the property sold. So, you will be moving. This is
NOT a program that can stop a foreclosure and allow you to keep your house indefinitely.

How do I know this will work?

You don’t. We cannot, we have not, and we will not make any promises or guarantees to
you that this will work. Once you miss a payment, the lender is in charge and can
proceed to foreclosure if they want to. We are very good at what we do, but no promises
or guarantees are being made as to whether or not the lender will accept a short sale.
They may or they may not.

Will I get any money from the sale?

No. A universal requirement of lenders in granting a short sale is that the borrower will not
get any proceeds from the sale of the property. The lender is going to take a loss on your
loan. They are not going to let you get any money.

What happens if this does not work?

Your house will likely go to foreclosure. A short sale is something you try after you have
exhausted your other options.

What is a release?

A lender may offer to release its security interest against the property in exchange for
less than the total amount of the note. A release will allow the property to be sold without
paying off the obligations of the note. However, the note is not satisfied. Advantages:
This successful short sale will allow the property to be sold and thus avoid a foreclosure.
Disadvantages: The remaining debt on the property (sometimes called a deficiency) still
exists. You are still liable for the note, in other words, you still owe the money. Reality:
Lenders often will not pursue the deficiency unless you have other significant assets. If
you don’t try a short sale and the property goes to foreclosure, you may have a deficiency
anyway.

What is a satisfaction?

A lender may agree to accept less than it is owed as complete and total satisfaction of the
note and release its lien against the property. Advantages: Your note and obligation to
the lender are satisfied for less than you owe. When the property is sold, the debt is paid
off completely. Disadvantages: You may have some tax consequences that you should
discuss with your tax advisor due to the fact that the lender is making money you owe
disappear. However, a recent federal statute may exempt you from negative tax
consequences. Sometimes our negotiations are successful in obtaining a satisfaction.
Sometimes all we can get is a release.

Will this have an impact on my taxes?

If in the short sale the balance of the unpaid debt is forgiven, there may be tax
consequences. However, a recent federal statute may exempt you from tax ramifications
of a short sale if the property was your primary residence. You should check with a tax
professional or accountant for complete information.

Will this have an impact on my credit history?

Yes, however, it may have less of a negative impact on your credit score than a
foreclosure. Under current Fannie Mae regulations, a short sale may enable you to
qualify to buy a house again sooner, in as little as 2 years, than if you had gone through a
foreclosure, which would be 7 years before you would be eligible again. You should check with a mortgage expert for complete information.

What will I have to do?

Your lender(s) will require a financial package that usually includes: two months’ bank
statements, two months’ pay stubs, two years’ IRS tax returns, and other information. The
leading cause of delay and even denial of our offer to the lender is caused by the seller
failing to deliver these items in a timely manner. To help us succeed please find as much
of this information as you can right now. We will be contacting your current lenders and
requesting their documentation you are required to complete and this may include
additional documentation which you will be required to provide.

How do I get started?

Your lender will not talk to anyone about your loan unless you give your lender permission in writing. Please fill out and sign both of these forms so that we can work on your short sale.

Mortgage Authorization: Mayer and Mayer [pdf, 70k]

Mortgage Authorization: NLH [pdf, 69k]

 


Disclosure

Mortgage Assistance Relief Services (MARS) disclosure for Keller-Williams Realty [pdf, 91k]

Mortgage Assistance Relief Services (MARS) disclosure for Property Consultants Realty [pdf, 87k]