Short Sales
Frequently Asked Questions
What is a Short Sale?
A short sale is the sale of a property when sales proceeds do not fully pay off the existing loan(s) and lender(s) accepts a discounted payoff to fully satisfy the loan.
Is a Short Sale right for me?
If you are unable to meet your obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through foreclosure. Remember, your lender is looking to limit any potential loss on your loan. By completing a Short Sale, your lender has arrived at a solution that is, for them, much better than a foreclosure.
If I do a Short Sale, how much will I have to pay to sell my home?
In most cases you will pay literally no sales costs if your lender approves the Short Sale. All commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the Short Sale approval.
How do I get started on a Short Sale?
It’s simple. If you would like to get prequalified for a Short Sale, please call us at 212-612-9681 to set up an appointment. Or if you would prefer email, please email us at PatrickLillyTeam@CoreNYC.com.
Can I deed my property to someone else and avoid the hassle?
Deeding your property to someone without paying off the loan is nearly always a bad idea. First place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit.
Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property. Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.
What sort of hardship would my lender consider legitimate?
Generally, so long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.
Click here to see a list of “hardships”.
I am current on my mortgage, will my lender consider a Short Sale?
Some lenders will accept a Short Sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent.
Why would a mortgage company agree to accept a Short Sale?
A mortgage company has several reasons why they would approve a Short Sale. Here are a few;
Legal Concerns – Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
Wall Street is Watching – Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved quickly.
Asset Management Expenses - If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets - homes – spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful Short Sale eliminates most of these costs.
Reserve Requirement - Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful Short Sale lets the lender put more money to work.
Do lenders approve all Short Sales?
No not always. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved.
My property is in rough shape and needs work; can I still do a Short Sale?
Yes. Lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work.
I am concerned about my credit. How will a Short Sale affect my credit?
Well the important element here is to avoid foreclosure. A foreclosure is the most damaging event your credit status can encounter. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit.
By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such).
My income problem was temporary. Do I need to sell my home?
You may be able to keep your home. You need to convince your mortgage company of two things:
One, the problem that caused you to miss payments was beyond your control – illness, injury, temporary disability or forced job changes are a few examples.
Two, you are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount.
What is a Forbearance Agreement?
A Forbearance Agreement is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:
You promise to remain current on the mortgage going forward.
Some plan for making up the delinquent interest and other charges.
How late in the pre-foreclosure process can you start a short sale?
This depends on individual state law and regulations. A foreclosure can proceed as quickly as 35 days from the date the notice to the borrower is filed. Time is of the essence and you should allow a window of no more than 60 days to effectuate a lender approved short sale.
What documents are necessary to proceed with a short sale?
The documents necessary to proceed with the short sale will depend on the lender. Typically the lender will require hardship letter detailing the circumstances behind the short sale. A signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender. There will be additional requests for more detailed information on the financial condition of the seller, i.e.; pay check stubs, bank statements, a personal financial statement and monthly budget assessment, to name a few.
Will a lender allow the seller to make a profit on a short sale?
The seller is not going to make a profit on the short sale. They may have extracted equity from a previous refinance of the home, but their current loan balance will be higher than the selling price of the home.
If a seller is in bankruptcy, will that affect the short sale of the property?
Yes, most lenders would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding.
Will the bank or lender require an appraisal on the home in a short sale?
Yes, lenders will require a full appraisal to be submitted in the short sale package. The lender will need some formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer.
Are there tax implications in the short of real estate.
Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost a debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount of debt forgiveness.
Need further explanation?
Please call us 212-612-9681 or email us at: PatrickLillyTeam@CoreNYC.com.
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