Short Sales 101
What is a Short Sale?
A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.
A homeowner is ‘short’ when the amount owed on his/her property is higher than current market value. For instance, you owe $300,000 and the homes current market value is only $200,000
A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then ‘sold short’ of the total value of the mortgage…saving you from Foreclosure
Why would a mortgage company agree to accept a Short Sale?
There are many reasons why mortgage companies are now allowing homeowners to Short Sale their homes. First, foreclosure costs are extremely high for lenders. Lenders are in the business of lending money, not owning real estate. They have to pay asset management companies and realtors to handle the foreclosure process. This cost and what it takes to keep properties maintained, keep utilities on, and make repairs when damage occurs, can drag down the lender’s bottom line significantly. Secondly, typically when a homeowner works to short sale their home, they continue to live there and take care of the property. This is a great benefit to lenders as they work to clean up delinquent and non-performing loans.
How do I know a Short Sale is right for me?
To qualify for a short sale you must fall into all of the following circumstances:
Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
Some of the hardships lenders look for are:
Family injury or illness
Job relocation or significant change in commute
Extended family illness, especially if it forces relocation or loss of income
Job loss or loss in income
Divorce or split of partners
Increase in living expenses in relation to income
Increase in your mortgage payment
If these circumstances describe your situation then a short sale is a great option for you. We can help you process your paperwork with the bank, list your home for sale at market price and negotiate the contract and closing with your bank… all while continuing to live in your home. Also, if you’re worried about where you will move from there, we can even help you find your new rental home or consult you on buying a new home when you are ready.
If I need to do a short sale, how much will it cost me?
Nothing – That’s right… you can walk away from your mortgage paying literally no sales costs if your lender approves the Short Sale. Commissions, title and escrow fees are all paid by the lender as part of the Short Sale approval. The fact is, lenders will accept the resulting losses of a Short Sale to avoid bigger costs associated with foreclosure.
What if the home I need to sell is an investment property and it’s in need of repairs?
You can still do a Short Sale on an investment property and if the home needs repairs, even if someone is still living there, we can price the home to attract cash buyers and/or buyers willing to take on any project.
How will a Short Sale affect my credit and/or security clearance?
The biggest concern is to avoid foreclosure. Foreclosure does the most damage, by far, to your credit status. It’s even worse than bankruptcy. Now, you may very well miss your mortgage payments while trying to get your short sale approved and your credit will take a hit. But, if you can avoid foreclosure, your buying power will return faster. Industry standards show the following is typical:
What is the difference between short selling and foreclosure?
A foreclosure will have a devastating impact on your credit score. Not only will this significantly drop the score, but will prevent the person from obtaining any type of financing for 7-10 years. Even after this period, the mortgage loan application will always state that the borrower had a foreclosure in the past, and can seriously affect future credibility.
A short sale will affect the credit, but not nearly as much as a foreclosure. The credit will be negatively affected for approximately 24 months. By Fannie Mae Guidelines, one should be able to purchase another home after 24 months of having done a short sale.
A short sale can be handled discreetly, even without alerting your neighbors. In contrast, a foreclosure involves a public announcement.
With a foreclosure, a lender can assign a judgment against the homeowner and garnish remaining assets such as bank accounts, income, etc. With a short sale, we negotiate the lender to let you walk away free and clear without any deficiency judgment actions taken.
Issue Foreclosure Short Sale
Credit Score Score lowered anywhere from 250 to 300 points. Typically will affect score for over 3 years. Late mortgage payments will show, but after sale loan will be reported as paid or negotiated. Can lower score as little as 50 points if all other payments are being made. Typically will affect score for 12 to 18 months.
Credit History Foreclosure remains as public record on a person’s credit history for 10 years or more. Short Sale is not reported on a credit history. The loan itself is typically reported as “paid in full, settled”.
Security Clearance Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA, Security, or any other position that requires a security clearance, in almost all cases clearance will be revoked and position terminated. A Short Sale on its own does not challenge most security clearances.
Will my lender approve my short sale if I’m not behind on my mortgage?
Lenders have been known to approve a short sale when the borrower was current on their mortgage. Typically, lenders do not want to consider a short sale if they’re still getting paid on time, but there is no reason not to try to push a short sale though. I do have other options which may work for you as well, just call or email me for more information.
I have two loans – can I do a Short Sale and do both lenders have to approve?
Yes. The key is to get both lenders to cooperate. Many times the same lender holds both the 1st and the 2nd trusts, which works in the borrowers favor. But if there are two lenders involved, you can still Short Sale your home.
Are all Short Sales approved by lenders?
No. It takes a strong Short Sale package to get any lender to approve to selling your home at a loss. But being a Certified Distressed Property Expert (CDPE) and working some of the top Attorney’s and Negotiators the chances of getting an approved short sale are greatly improved. You’ll want to be very detailed with your paperwork and write a strong, compelling hardship letter. On our end, we will list your home at a fair market price and then get a contract ratified on it ASAP so we can present the contract to the lender.
How do I apply to Short Sale my home?
There is a lot to consider when deciding if a Short Sale is the right option for you. First, not everyone is eligible. If you meet the criteria above or just want to see if a short sale is your best option I am here to help you decide on your best option, not push you to sell. Call me on my cell phone anytime at 304-433-5454. I look forward to talking with you!