What is a short sale?
A short sale describes a situation where the lender agrees to take less money than they are owed on a property at time of sale. There may be more than one lender with a lien on the property.
Who is the seller in a short sale?
The individual owner is still in title, they have not been foreclosed on. In some cases foreclosure is imminent. In other cases the seller may not be behind. In all cases the seller owes more to the bank than they are trying to sell it for.
How come some short sales are so much less than other homes on the market?
If a seller is in a "short sale" listing, there is no equity in the home and they are not going to make any money. Many short sales listings continue to lower their price in order to attract an offer. There is no guarantee that the bank will agree to the list price.
When does the bank get involved?
The bank does not get involved until there is a offer on the property. In some cases there have already been offers on the property that the bank turned down, in many cases they gave the seller and listing agent an indication of what price the offer would need to be for them to accept the short sale. The property will then be placed back on the market, sometimes at or around the price stated by the lender. If a new offer comes in the process starts from the beginning.
What is the short sale process?
The seller needs to provide the bank with :
Listing Agreement
Purchase Contract
Hud1 or Net Sheet
Hardship Letter
Financial Application
2 Current Pay Stubs (if self employed please provide Profit and Loss Statement)
2006 and 2007 Tax Returns w/ W-2’s
2 Current Complete Bank Statements (For All Accounts)
Authorization to speak with all third parties
It is basically a mortgage application in reverse. The seller needs to disclose all income and assets to prove why they can no longer afford to make the payments.
This application will be assigned to a "negotiator" who will process this paper work, order an appraisal of the property and determine if the price offered is close enough to the current appraised value and if the seller meets the hardship guidelines. In some cases they may have to send it to a board to review, to an outside investor and/or a mortgage insurance company.
How long does this process take?
This could take anywhere from 1 months to over 6 months depending on the lender.
Does the lender have to accept the offer?
No, and often times they do not. If the offer is close enough to the current market value and the seller meets the hardship requirements there is a good chance.
Does a seller of a short sale home have to pay any taxes?
If it is a seller's primary residence the answer is no. The Mortgage Relief Debt Act of 2008 does not permit lenders to issue a 1099 to a borrower for a deficiency balance on a primary residence.
If it is a second home or an investment property the seller will receive a 1099 for the deficiency balance and it will be treated as income on the seller's tax returns.
Will A Short Sale Destroy the seller's Credit?
Yes and no. The short sale may not show up on your credit. In fact, most mortgage trade lines report “Mortgage Paid” after a short sale. Any late payment history will still appear, as will any Notice of Default filings. What won’t report is an actual foreclosure. A promissory note may prevent the lender from reporting the mortgage as a loss. In today’s credit market, a foreclosure may prevent you from obtaining a mortgage for at least 5 years, longer than a bankruptcy.
Will a seller owe any money after the short sale?
In some cases the lender may determine that a seller has sufficient assets and/or income to contribute towards the loss. They will ask the seller to sign an interest only promissory note for a set amount paid back over a set period of time. If the seller does not agree and this can not be negotiated, the lender will not accept the short sale.
If you have further questios on the short sale process please do not hestitate to call or email me.
Franziska Smith
Coastal Elite Properties
239-390-1150
franziskasmith@gmail.com
www.LeeCollierHomesmls.com
www.CoastalEliteProperties.com
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