Short Sale Q&A
What is a Short Sale? In the world of Real Estate, a short sale refers to the sale of real property for an amount less than the amount owed on the property. In the short sale scenario, the bank agrees to accept less than the full balance due on the debt, and usually ‘forgives’ all or a large portion of the difference. A Short Sale is a win-win solution for the home owner and the lender. The lender gets the highest price for a quick sale at a market price. The borrowers get their credit restored and generally get relief from possible future legal actions and deficiency judgments. Short Sales occur when borrowers sell their property for a sales price less than the amount owed to their lender(s) after all sales expenses, including brokerage fees, are taken into account. In order for this to take place the lender(s) must accept a discounted payoff; meaning the bank(s) get paid less than the full loan amount owed. In a short sale, the homeowners get complete relief from all of their mortgage debt. The end result is your home is sold, the mortgage is satisfied (paid off) and you avoid a foreclosure or a bankruptcy in the event of hardship. Perhaps even better, your credit rating will almost immediately improve because your credit report shows that your mortgage was paid in full.
How will the Short Sale affect my credit?
Who benefits from the Short Sale?
Why would banks forgive the difference?
This sounds too good to be true!?
What is Negative Equity?
Why does my property have negative equity?
What if I owe what my home is worth?
Why not just let my lender foreclose?
What if I'm not behind on my payments?
What are the Benefits of a Short Sale? Can investment properties be short sold?
What is a Hardship?
Does It Matter Who Does a Short Sale?
How long does it take? What Happens If I Don’t Do a Short Sale or my Short Sale is Unsuccessful?
What if my home is already in foreclosure?
Will my lender send me a 1099 on the debt forgiven?
How much will the short sale cost me?
How will the Short Sale affect my credit?
Short Sales are still a relatively new concept. Banks have the option of submitting the short sale to the credit bureau as "Paid in Full" or "Settled for less than full balance". As far as your credit score is concerned, there is no evidence whatsoever to support that a short sale will lower your credit score. Some have the idea that this is like a bankruptcy or a foreclosure. That's far from the truth! In a short sale, the lender is simply allowing you to pay less than you owe! If you are currently behind on your mortgage or facing foreclosure, the short sale will actually help your credit! How? Because once you are approved for the short sale, all collection activity will STOP and you will avoid foreclosure!
Who benefits from the Short Sale?
Short sales are a win-win situation. Lenders, Mortgagees and Realtors all benefit from the successful short sale. Mortgagors get the majority of their money back, Mortgagees get the relief they need and are able to sell their property and avoid foreclosure, and Realtors can facilitate the transaction and receive compensation (commission) from the sale of the property.
Why would banks forgive the difference?
To mitigate their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property ‘back’ through foreclosure, a short sale often makes a much wiser business decision for the bank.
This sounds too good to be true!?
Not really. Things that are ‘too good to be true’ usually don’t make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is, Mortgage companies and banks are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.
What is Negative Equity?
Also known as being "upside down" negative equity is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. For example, if your car is worth $10,000 and you owe $15,000 on it, you would have a negative equity of $5,000. Negative equity can result from a decline in the value of an asset after it is purchased. Some areas decline in value. In other areas, prices may remain flat so that the properties in that area do not appreciate. If a seller wants to sell within 2-3 years of purchasing their property, they may be in a situation where they have negative equity.
Why does my property have negative equity?
Here are a few common reasons:
1. Person bought at the height of the market and the market has now declined or paid more than the property was worth.
2. The area has become less desirable for any number of reasons, so property values have declined.
3. Person purchased the home with little or no money down and wants to sell within a few years of purchase… and the property value has not increased during that time. Therefore, costs associated with selling the property may create a balance due at closing.
4. Person refinanced the home (with a high appraisal value) and now has little or no equity.
5. Person bought in a brand new subdivision or recently developed area that has not been fully developed or has not appreciated (or has depreciated) in value.
6. The market is soft because there is too much builder (new home) inventory or too many existing homes on the market (buyer’s market).
What if I owe what my home is worth?
Even if you owe exactly what your home is worth, you may still need to do a short sale in order to pay for the costs of the sale (Realtor fees, Title Policy and other seller closing costs).
Why not just let my lender foreclose?
NO! What is the first thing banks do when they foreclose on a property? Hand it over to a real estate agent to get rid of it quick! The foreclosure process is a legal process. It involves attorneys and it costs MONEY. Once they get the property back via foreclosure they must often sell it for MUCH LESS than market value and pay Realtor commissions and all customary closing costs. Doesn’t it make more sense for them to take at or a little below fair market value before foreclosing? And, even when they do sell it through foreclosure... this does NOT remove your obligation to repay the remaining balance! It is not wiped away!!!
What if I'm not behind on my payments?
Short sales work – even if you’ve never missed a payment! Yes, I know… short sales have gotten a stigma of being only available for folks who are in foreclosure. But I have successfully negotiated dozens of short sales for folks who have never missed a mortgage payment! They just happen to be in a negative equity position and need the short sale in order to sell their home.
Can investment properties be short sold?
Most definitely. Any type of property can be sold through a short sale.
What is a Hardship?
Reduced Income or Unemployment. Inability to work due to health reasons. Separation or Divorce. Medical Bills. Business Failure. Death of a Spouse. Adjustment in mortgage payment or unforeseen increase in your monthly expenses. Any other circumstance that cripples your ability to repay your mortgage.
Does It Matter Who Does a Short Sale?
Very much so. Most Realtor s only get about 15% of short sales approved. We have some of the most successful short sale agents in Sacramento, our success rate is over 95%.
What Happens If I Don’t Do a Short Sale or my Short Sale is Unsuccessful?
The result is the same: A Foreclosure. Our goal is for you to avoid foreclosure, which will affect your credit more than a short sale. Generally a foreclosure is one of the most damaging occurrences in a credit history. Most likely you will miss mortgage payments through the course of a short sale and this will show on your credit history. But at the end of the day, when your short sale is completed, your credit report will show that your mortgage has been completely “satisfied” and typically your credit score should almost immediately rise by 65 points.
How long does it take?
Short sale approval can take as little as 3 weeks up until 6 months, depending on the banks involved.
What if my home is already in foreclosure?
Banks use to postpone foreclosure sales during the short sale process, this in not the case with most banks now!!! That's why it's imperative that you contact me right away!!!
Will my lender send me a 1099 on the debt forgiven?
While the lender does have the right to report to the IRS the amount they have ‘forgiven’ in a Short Sale transaction, the amount of the resulting tax will be far less than the debt forgiven. For example, we had one client who did get a 1099 for $30,000 forgiven. This resulted in additional taxes of $1,300 for that year. The resulting tax is far superior to paying the difference of the debt. Also, if the property is in foreclosure, the foreclosure would have a much more devastating affect on you than the amount of the 1099. It has been our experience that the lenders on 90% of the short sales we process do not pursue filing a 1099 – but there is not a guarantee they won’t.
How much will the short sale cost me?
We strive to complete the entire short sale process without having the seller bring any money to closing. In late 2007, some lenders changed their policies and there are certain expenses that the lender might not pay, such as unpaid Home Owners Association dues, certain escrow fees, and some minor closing costs. In most cases, these items total no more than $300 - $800. We will not know exactly how much they will be, if any, until we are closer to closing. It is a good idea to set aside $500 - $1000 for these incidental expenses. Although this may sound high, it is usually less than one month’s mortgage payment. We attempt will to get the lender to forgive your unpaid taxes, unpaid mortgage payments, pay all of the REALTOR fees associated with the sale and customary seller closing costs. The savings to you is typically in excess of $20,000, so the amount you might have to bring is a small price to pay for the large debt forgiveness.
What is a Short Sale? In the world of Real Estate, a short sale refers to the sale of real property for an amount less than the amount owed on the property. In the short sale scenario, the bank agrees to accept less than the full balance due on the debt, and usually ‘forgives’ all or a large portion of the difference. A Short Sale is a win-win solution for the home owner and the lender. The lender gets the highest price for a quick sale at a market price. The borrowers get their credit restored and generally get relief from possible future legal actions and deficiency judgments. Short Sales occur when borrowers sell their property for a sales price less than the amount owed to their lender(s) after all sales expenses, including brokerage fees, are taken into account. In order for this to take place the lender(s) must accept a discounted payoff; meaning the bank(s) get paid less than the full loan amount owed. In a short sale, the homeowners get complete relief from all of their mortgage debt. The end result is your home is sold, the mortgage is satisfied (paid off) and you avoid a foreclosure or a bankruptcy in the event of hardship. Perhaps even better, your credit rating will almost immediately improve because your credit report shows that your mortgage was paid in full.
How will the Short Sale affect my credit?
Who benefits from the Short Sale?
Why would banks forgive the difference?
This sounds too good to be true!?
What is Negative Equity?
Why does my property have negative equity?
What if I owe what my home is worth?
Why not just let my lender foreclose?
What if I'm not behind on my payments?
What are the Benefits of a Short Sale? Can investment properties be short sold?
What is a Hardship?
Does It Matter Who Does a Short Sale?
How long does it take? What Happens If I Don’t Do a Short Sale or my Short Sale is Unsuccessful?
What if my home is already in foreclosure?
Will my lender send me a 1099 on the debt forgiven?
How much will the short sale cost me?
How will the Short Sale affect my credit?
Short Sales are still a relatively new concept. Banks have the option of submitting the short sale to the credit bureau as "Paid in Full" or "Settled for less than full balance". As far as your credit score is concerned, there is no evidence whatsoever to support that a short sale will lower your credit score. Some have the idea that this is like a bankruptcy or a foreclosure. That's far from the truth! In a short sale, the lender is simply allowing you to pay less than you owe! If you are currently behind on your mortgage or facing foreclosure, the short sale will actually help your credit! How? Because once you are approved for the short sale, all collection activity will STOP and you will avoid foreclosure!
Who benefits from the Short Sale?
Short sales are a win-win situation. Lenders, Mortgagees and Realtors all benefit from the successful short sale. Mortgagors get the majority of their money back, Mortgagees get the relief they need and are able to sell their property and avoid foreclosure, and Realtors can facilitate the transaction and receive compensation (commission) from the sale of the property.
Why would banks forgive the difference?
To mitigate their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property ‘back’ through foreclosure, a short sale often makes a much wiser business decision for the bank.
This sounds too good to be true!?
Not really. Things that are ‘too good to be true’ usually don’t make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is, Mortgage companies and banks are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.
What is Negative Equity?
Also known as being "upside down" negative equity is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. For example, if your car is worth $10,000 and you owe $15,000 on it, you would have a negative equity of $5,000. Negative equity can result from a decline in the value of an asset after it is purchased. Some areas decline in value. In other areas, prices may remain flat so that the properties in that area do not appreciate. If a seller wants to sell within 2-3 years of purchasing their property, they may be in a situation where they have negative equity.
Why does my property have negative equity?
Here are a few common reasons:
1. Person bought at the height of the market and the market has now declined or paid more than the property was worth.
2. The area has become less desirable for any number of reasons, so property values have declined.
3. Person purchased the home with little or no money down and wants to sell within a few years of purchase… and the property value has not increased during that time. Therefore, costs associated with selling the property may create a balance due at closing.
4. Person refinanced the home (with a high appraisal value) and now has little or no equity.
5. Person bought in a brand new subdivision or recently developed area that has not been fully developed or has not appreciated (or has depreciated) in value.
6. The market is soft because there is too much builder (new home) inventory or too many existing homes on the market (buyer’s market).
What if I owe what my home is worth?
Even if you owe exactly what your home is worth, you may still need to do a short sale in order to pay for the costs of the sale (Realtor fees, Title Policy and other seller closing costs).
Why not just let my lender foreclose?
NO! What is the first thing banks do when they foreclose on a property? Hand it over to a real estate agent to get rid of it quick! The foreclosure process is a legal process. It involves attorneys and it costs MONEY. Once they get the property back via foreclosure they must often sell it for MUCH LESS than market value and pay Realtor commissions and all customary closing costs. Doesn’t it make more sense for them to take at or a little below fair market value before foreclosing? And, even when they do sell it through foreclosure... this does NOT remove your obligation to repay the remaining balance! It is not wiped away!!!
Short sales work – even if you’ve never missed a payment! Yes, I know… short sales have gotten a stigma of being only available for folks who are in foreclosure. But I have successfully negotiated dozens of short sales for folks who have never missed a mortgage payment! They just happen to be in a negative equity position and need the short sale in order to sell their home.
Can investment properties be short sold?
Most definitely. Any type of property can be sold through a short sale.
What is a Hardship?
Reduced Income or Unemployment. Inability to work due to health reasons. Separation or Divorce. Medical Bills. Business Failure. Death of a Spouse. Adjustment in mortgage payment or unforeseen increase in your monthly expenses. Any other circumstance that cripples your ability to repay your mortgage.
Does It Matter Who Does a Short Sale?
Very much so. Most Realtor s only get about 15% of short sales approved. We have some of the most successful short sale agents in Sacramento, our success rate is over 95%.
What Happens If I Don’t Do a Short Sale or my Short Sale is Unsuccessful?
The result is the same: A Foreclosure. Our goal is for you to avoid foreclosure, which will affect your credit more than a short sale. Generally a foreclosure is one of the most damaging occurrences in a credit history. Most likely you will miss mortgage payments through the course of a short sale and this will show on your credit history. But at the end of the day, when your short sale is completed, your credit report will show that your mortgage has been completely “satisfied” and typically your credit score should almost immediately rise by 65 points.
How long does it take?
Short sale approval can take as little as 3 weeks up until 6 months, depending on the banks involved.
What if my home is already in foreclosure?
Banks use to postpone foreclosure sales during the short sale process, this in not the case with most banks now!!! That's why it's imperative that you contact me right away!!!
Will my lender send me a 1099 on the debt forgiven?
While the lender does have the right to report to the IRS the amount they have ‘forgiven’ in a Short Sale transaction, the amount of the resulting tax will be far less than the debt forgiven. For example, we had one client who did get a 1099 for $30,000 forgiven. This resulted in additional taxes of $1,300 for that year. The resulting tax is far superior to paying the difference of the debt. Also, if the property is in foreclosure, the foreclosure would have a much more devastating affect on you than the amount of the 1099. It has been our experience that the lenders on 90% of the short sales we process do not pursue filing a 1099 – but there is not a guarantee they won’t.
How much will the short sale cost me?
We strive to complete the entire short sale process without having the seller bring any money to closing. In late 2007, some lenders changed their policies and there are certain expenses that the lender might not pay, such as unpaid Home Owners Association dues, certain escrow fees, and some minor closing costs. In most cases, these items total no more than $300 - $800. We will not know exactly how much they will be, if any, until we are closer to closing. It is a good idea to set aside $500 - $1000 for these incidental expenses. Although this may sound high, it is usually less than one month’s mortgage payment. We attempt will to get the lender to forgive your unpaid taxes, unpaid mortgage payments, pay all of the REALTOR fees associated with the sale and customary seller closing costs. The savings to you is typically in excess of $20,000, so the amount you might have to bring is a small price to pay for the large debt forgiveness.
