Short Sale How To Guide


DID YOU KNOW MORE THAN 70% OF ALL FORECLOSURES HAD AN OWNER THAT NEVER TRIED TO GET HELP?


This unfortunate fact happens due to lack of education among the public. Many home owners and investors who owe more than a property is worth are faced with hard decisions when they can no longer make the payments due to job loss, changes in income, divorce, vacancies, expensive repairs and other issues. Foreclosure should be the last option. We have put together a summary of some of the most common questions which is a subset of our short sale resource document. Call us for a free consultation. If we can help, we'll tell you. If we can't, then at least you'll know you tried.


What is a short sale?

When there is not enough equity to sell, satisfy all the mortgages and pay all costs of the sale the seller has to sell the property for less or “short” of what is owed.  Short sales are a way for home owners to avoid foreclosure on their homes and still be able to pay off their loan by settling with their lender. This is called a short sale.  


Will the bank pay me to do a short sale?

New government programs offer sellers cash for participating and completing a short sale.  Depending on your loan and your circumstances, you may qualify for cash incentives which range from $750 up to $3000.


What are the benefits of doing a short sale?

In addition to potential receive a cash incentive a short sale can minimize the credit impact, tax liability and embarrassment as well as help with future employment. 


How do I sell my house as a short sale?

Contact us for a free consultation.  We will provide a step by step list of things to do to initiate the short sale.  In general we recommend you seek  legal counsel and tax advice.  If you are current on your payments, we suggest you check with your lender to determine if you must be delinquent to qualify for a short sale.  A key part of selling the house as a short sale is finding a buyer.  We will provide a market analysis to determine the price of the house.  Once your paperwork has been completed we will list your house.  When we find a buyer our team will handle the communication with the bank and keep everyone updated on the progress. Contact us for a list of paperwork that will be needed by your lender and things to do to initiate the short sale.


What are the most common mistakes sellers make on a short sale?

The most common is waiting too long to start the process.  Other reasons are failing to obtain legal counsel when needed, not providing a complete financial package, not providing updated documents when requested, filing bankruptcy or electing to do a loan modification in the middle of a short sale.


When should we begin working on the short sale together?
The sooner the better. Ideally we would like to begin working on your Short Sale as soon as you recognize that you have decided to let the property go to foreclosure or are unable to keep up with your payments and will be falling 30+ days behind. The important thing for you to know is the sooner we begin working with you on the short sale process, the more you increase the chance of a successful closing. Don’t wait any longer.  Act today by calling us immediately.


When is it too late to do a short sale?

If the Trustee’s Sale is scheduled to be held in 30 days or less it is probably too late to do a short sale.  It could take some time to find a buyer.  Then the bank has to have time to process the paperwork.  Many banks will no longer push out Trustee’s Sales or will only push them out one time.


How long does a short sale take?

There are several steps to the short sale.  The lender and investor review of the paperwork can be lengthy because there are so many short sales being processed. Whenever the lender requests more documentation from the seller the file goes back to the bottom of the pile.  This is why it is so important to get all the documentation together initially. The typical sale takes 5-7 months from start to finish though it could be longer. 


Should I stop making payments if I am going to do a short sale?
We will not advise you on whether to continue or stop making payments.  Lenders vary in their requirements. We recommend talking to your lender before you decide.   


How much will it cost me to short sale a property?

The good news is the realtor commissions, closing costs and sometimes the negotiator’s fee, will be paid by the bank.  The bad news is despite what some commercials say it may cost you money to do a short sale. In some cases lenders will ask for a promissory note or a cash contribution in order to approve the sale.  They also pay the majority of the closing costs. See below for more details on what you may be required to pay and why.


Do I have to pay the realtor commissions? 

In a Short Sale transaction you, as the seller, do not have to pay the Realtor commissions. The bank covers these costs. 


Do I have to pay closing costs? 

In a Short Sale transaction you, as the seller, do not have to pay closing costs. The bank covers these costs. In fact sometimes the bank will not allow the seller to make any contribution to the buyer as the bank wants the money.


What if the buyer wants me to pay their closing costs?

You would not pay the buyer’s closing costs.  This would be stated in the contract.  Sometimes the banks will pay the buyer’s closings costs but there is no guarantee.  


Do I have to pay an upfront fee for a short sale?

You should not pay an upfront fee for a short sale. Some real estate agents or negotiating companies charge an upfront processing or retainer fee from the seller before beginning a short sale.  We are one of the few that do not.  Most realtors and short sale negotiators charge an additional fee that is usually a percentage of the sales price in addition to the commission.  However this fee is only paid if they are successful in negotiating an acceptable short sale and the fee is paid by the buyer.  


Unfortunately there are a lot of unscrupulous individuals who are trying to take a seller’s money without doing any work.  There are some red flags to be aware of and they are detailed in our short sale resource document.  


Why would a buyer want to buy a short sale property?

The advantage to buying a short sale property is typically the property is in better condition. Often the seller is still living there so the property is being maintained.  The buyer can get some history on the house about past repairs. The best reason is the property is usually a bargain. 


How do I know if the lender will approve my short sale?

Though there is no guarantee the short sale will be approved the banks have been approving more short sales.  This is due to pressure from the government to reduce the number of foreclosed houses on the market as well as the banks desire to reduce the number of non-performing loans in the banks inventory.  Foreclosures tend to drive prices down making the depressed housing market even worse so it is in everyone’s best interest for the banks to approve the short sale.


How do I know if I will qualify for a short sale?

If you are behind on you mortgage payment and do not have enough income to keep up with all of the monthly obligations then this is a good reason for a short sale. You should have a qualifying hardship like a divorce, loss of a job, disability, medical bills, income reduction or other financial issues like excessive debt.  You don’t have other major assets. Lenders who see home owners with large bank accounts or assets are less likely to cooperate on a short sale. Retirement funds are not typically considered as an asset.


Who should I talk to if I want to short sale a property?

If you have to sell a property as a short sale it is important to talk to an Attorney, Accountant, Credit Counselor and a Realtor.  There are also free services available to Arizona residents like the Arizona Foreclosure Helpline.  We can refer you to the professionals we work with.


I’m behind on my payments, how long until the bank forecloses on my home?
Most notes (the document that you signed with the bank when you first qualified for your loan where you agreed to repay the loan) give the bank the right to file the “foreclosure notice” or the “notice of default” as soon as you are 30 days behind on your mortgage. While the bank has the right to file the “foreclosure notice” or set the trustee sale date (the date your home will be foreclosed on) in as little as 30 days after you miss your mortgage payment, they often will not do so until you are 90 days or more behind on your payments. The bank has the sole discretion on when they want to file the sale date and all banks make this decision differently and within different time parameters.  When the official “foreclosure notice” is filed (whether it is filed after you miss 1 mortgage payment or 3 mortgage payments), there is a 91 day period of time between the filing and the actual “foreclosure sale” or “trustee sale.”


Below are examples of other questions we have received over the years of handling short sales.  To receive a complete a free consultation please give us a call or send an email. We are here to help you.


* Will the lender lock  me out of my house during the short sale negotiation?

* Can the lenders ask me to sign a note or pay cash to settle the debt?

* I haven’t filed taxes for last year.  Can I still do a short sale?

* Can I sell my home to a relative?

* Do I have to keep paying the HOA Dues and Assessments if I am short selling a property?

* Do I have to payoff all the mortgages when I short sale a property?

* Can the lender pursue me for the amount forgiven?

* Will there be tax consequences if I short sale my home?

* Why did the bank reject my short sale and then sell the property for less at the Trustee’s Sale?

* How do I know if my loan is backed by Fannie Mae?

* What is PMI and how does it impact my short sale?

* How does a short sale effect my credit?

* How long do I have to wait after a short sale or foreclosure before I can buy a house?

* What are the common misconceptions or myths of a short sale? 

* What are the detailed steps required to do a short sale?

* Do you have a list of documents needed for a short sale?

* Can the bank take money out of other accounts at the same bank if I don’t pay my mortgage?

* If I have a dispute with my lender such as a payment not being credited to my account can they still report me to the       credit agencies?

* What is “greenmail”? 

* If the lender agrees to postpone the Trustee’s Sale in writing can they change their mind later?

* Should I accept a temporary loan modification?


Disclosures

IMPORTANT NOTICE: 1st Southwest Realty is not associated with the government and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating


IMPORTANT NOTICE: You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us a commission of six percent of the contract price for our services. 1st Southwest Realty is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.