Frequently Asked Questions About Short Sales!
Click on a question to see the answer.
What is a Short Sale?
A short sale is when a lien holder accepts less than what they are owed in order to release the lien from a property so that a property can be sold. The difference in the amount owed and what they actually receive from the sale may or may not be forgiven by the lien holder, it all depends on how the offer was submitted and how the short sale was negotiated.
Why are Short Sales so popular?
1. Financially, many people see no sense in paying more for a house than it is worth.
2. A short sale is an effective way of avoiding foreclosure.
3. With a short sale, you have less chance of getting a deficiency judgment, which could be on your credit for ten years.
4. A short sale means that you may be able to buy a house again in two years, instead of 5 years if you let the house go into foreclosure.
How much do I have to pay to get a short sale done by a professional?
You don’t have to pay us anything. All commissions, taxes, and closing costs get paid from the proceeds of the short sale. However, if the property is governed by a Condo or a Home Owners Association, then it is recommended that the seller keep payments current because in most cases banks will not agree to pay these when doing the short sale.
I want to do a loan modification because I don’t want to lose my house. What are my options?
We encourage sellers to try to do a loan modification first. However, keep in mind that most banks do not want to modify loans. It’s very difficult to get approved and it can take months. It’s like making a loan application from scratch. Banks are looking for full documentation of income, including tax returns, pay stubs, and bank statements.
Also, a loan mod application doesn’t stop the lawyers from the collection department pursuing a foreclosure action against you.
Even if you are successful, you may end up having the arrears tacked on to the end of the loan and since banks are rarely doing principal reductions you can end up paying hundreds of thousands of dollars more than what the house is worth, plus interest.
Also, a loan mod application doesn’t stop the lawyers from the collection department from pursuing a foreclosure action against you.
I want to do a short sale. How long before I have to leave my house? I know people that have not made a mortgage payment for years and the bank has not thrown them out yet.
There are ways to stall the foreclosure process. However, this may only be a short term solution. If you want to buy another house in the next few years, these severe delays show in your credit report, which may condemn you to damaged credit for years. The quicker you take action and get the house sold through a short sale, the quicker you will be able to buy another house.
Isn’t it easier to just allow the bank to take back the house and for me to just wait until they come and kick me out?
A foreclosure has a devastating effect on your credit. Lenders and creditors generally view a person doing a short sale as much more credit worthy because it speaks a lot about a person’s character and their willingness to resolve difficult financial matters.
Also, it will cost you a lot more in all types of insurance, higher credit rates, not being able to purchase or lease the car of your choice, and not being able to buy a house for years.
Ok you know what…I will just let the bank take the property back, where do I send the keys to?
Some banks will be unable to accept a deed-in-lieu if there is a second mortgage or a lien on the property. You should also know that a deed-in-lieu is a voluntary foreclosure. This is great for the bank, as it saves them a lot of money on the legal fees involved in processing a foreclosure. However, it has the same terrible effect on your credit as a normal foreclosure.
I have heard that your credit gets just as damaged with a short sale as with a foreclosure, so why bother?
No, no, no! Thousands of people do short sales because it’s the best thing for them and for their families. A foreclosure will take much longer for you to recover from – often 5 years until you can buy a home again, compared with as little as two if you do a short sale. We live in a society where we need credit for many things such as insurance, credit cards, car loans, and employment. All of these will be severely affected if you have a foreclosure on your credit. However, banks are aware that people that do short sales did not just walk away and that they chose to sell their house rather than allowing it to be repossessed.
If I do a short sale, won’t I be responsible for the balance?
Most of the time we manage to get full settlement with the banks. This is because we know how to negotiate and because we know what the banks need to reach this point.
Well, I have heard you are liable for the tax, and you get a 1099 on the difference.
Most people are not liable for this tax thanks to the Mortgage Debt Forgiveness Act, and as an added bonus you may not have to pay tax thanks to a great clause from the IRS code. Check with your accountant.
I have heard that short sales are very hard to do and that banks don’t always accept them. How can I be sure that won’t happen to me?
The first tip is to keep all your home owners’ associations up to date. Make sure that you work with someone who has a successful track record. Be ready to cooperate, and in our case, we close 95% of all deals where the seller cooperates. We have one of the highest closing rates in the industry, so you would be dealing with experts.
What's in it for me?
1. Your credit will be in much better shape, which will save you thousands of dollars.
2. We can help you get funds to move.
3. You have control and peace of mind while living in the house, knowing that you won’t get kicked out.