Short Sale

What is a Short Sale?
A Short Sale is the sale of a home when sales proceeds are not sufficient to pay off the existing loan(s) but the lender(s) accepts a discounted payoff to fully satisfy the loan. At the same time, the existing lender pays for all sales fees. This includes sales costs, commissions, escrow, title and any repair costs. The loan shows as “paid” with a zero balance on your credit and you avoid foreclosure.

Why would a lender accept a Short Sale over Foreclosure?
With an uncertain housing market, it is often in the financial interests of a lender to accept a negotiated settlement rather than incur the costs of a prolonged foreclosure process. And if a lender does repossess a property, they could continue to incur costs for months in order to maintain the property while they try and sell it. A short sale is a practical and cost saving alternative for all parties involved.

Why should I consider a Short Sale over Foreclosure?
You can negotiate up-front how the lender will treat your debt after the sale. You can negotiate for the lender to commit to take no further effort to collect the shortage on your mortgage.

Also, with a short sale your credit report will indicate the balance on your loan is zero, versus a foreclosure where they can and typically will report on your credit the outstanding balance they never collected from you for 7 to 10 years.

Furthermore, a foreclosure on your credit will prevent you from being able to obtain a new mortgage for over seven years. In contrast, the worst-case scenario with a short sale is only two years (and only one year for FHA financing). In two years, will home values have gone up? Not likely! In seven years, however, who can say?

Is a Short Sale right for me?
If you add up your total monthly expenses, including your mortgage, property tax payments, insurance, car payments, utilities and food and compare that to your take-home income, how much longer can you afford to keep up with your payments? If you have an adjustable rate, and the payment is going up, how long can you afford that? Is it worth prolonging your current financial situation?—especially if home values in your area continue to decline?

If you are faced with economic hardship, a Short Sale can be a financial life-saver. You may need to ask yourself, is it worth it to continue to fall deeper into debt, falling further and further behind with little hope of catching up?

A lender would usually rather negotiate a settlement today with a Short Sale than be forced to incur the expense of a foreclosure later. Consider this: the lender wants to limit their losses in the future just as badly as you do.

Too often, however, people only decide to do a short sale, or just succumb to foreclosure only after first expending their life savings. Do not wait that long.

How much would it cost me to sell my home in a Short Sale?
Nothing! All fees and commissions are assumed by your lender—NOT YOU. (By the way, this won’t stop some real estate agents from asking you to front them money for their work—our team does not work that way).

A short sale contract should specifically read: “Seller’s agreement to sell is subject to approval by existing lender of a Short Sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow.”

Do lenders approve all Short Sales?
No. Approval by a lender is not automatic. This is why it is critically important that you work with someone that has experience in Short Sales—someone that knows how to effectively negotiate on your behalf. If not handled properly, a lender could reject your Short Sale offer—risking foreclosure.

If I have two loans, can I still do a Short Sale?
Yes. Your negotiator will work with both lenders to negotiate a Short Sale transaction. Even if the value of your home is less than the value of the first loan, an experienced staff can normally get both lenders to cooperate. This involves the first lender offering money to the 2nd lender so they will agree to a short sale, typically for pennies on the dollar. Why would the 2nd mortgage agree to that? Because the alternative is a foreclosure where they would get $0.00 on the dollar.

Do I have to be late on my mortgage to get approved for a short sale?
NO! And if any real estate agent ever tells you something different, ignore them. Our team has assisted dozens of people get approvals without ever being late. Will lenders always offer this option? NO WAY! You will probably never again see banks negotiate like they will today.

What about my credit? Won’t a Short Sale ruin my credit?
We have seen different impacts. If you are already significantly late on your mortgage, those delinquencies are what have done the damage. We have seen people never pay late and do a short sale, and their mortgages report on credit as “paid in full” and their credit score goes up! This is not a guarantee of what you could experience. When someone with good credit ends up with a “settled for less than the full amount” placed on their credit we usually see a score drop of 20 to 25 points. This is not a guarantee of what you could experience.

That said, a short sale cannot begin to compare to the damage your credit will incur if you are ultimately forced into foreclosure. With a foreclosure, you can expect to be unable to obtain a mortgage for at least 7 years. With a short sale, you can expect to resume normal borrowing (for mortgages, car loans and credit cards) within a short period of time. Remember, with a Short Sale, you walk away with your mortgage debt zeroed out. With a foreclosure, the outstanding deficiency stays on your credit indefinitely!

My property needs a lot of repair work. Can I still do a Short Sale?
Yes. A lender is often less likely to want to repossess (foreclose on) a home that needs work—it would make it harder for them to sell it later. Lenders are not in the “home repair” business. They do not want the responsibility. A home in rough shape may serve as an incentive for a lender to do a Short Sale. DON’T SPEND YOUR OWN MONEY FIXING IT UP!

Can I simply deed my property to someone else and avoid foreclosure that way?
No. Be wary! If you fall behind on your mortgage payments you will quickly find yourself drowning in mail and phone calls from different people promising to “save” you. But deeding your property to someone else without first paying off the loan(s) is almost always a bad idea.  Even if you deed the property to someone else you are still responsible for the loan payments. If the loan payments are not made, it is your credit that is affected (regardless of who holds the deed). In other words, you lose control of the property and can still be foreclosed on. Whatever you decide, do NOT deed your property to someone without first paying off the loan unless you have consulted with your OWN personal attorney.

Loan Modification

Short Refinance