Short Sales Explained

Home retention alternatives such as loan modifications, payment plans and mortgage forbearance should always be the first option for all homeowners who are in distress and want to save the home from foreclosure.

However, once all of your home retention options
have been exhausted, the best solution is to sell the house in a Short Sale and avoid foreclosure.

 What is a Short Sale?

A Short Sale is a workout option in which the bank or mortgagor lender allows the homeowner to sell the home for less than the total amount owed on the mortgage.  The bank’s decision to accept a Short Sale is driven by an economic or financial hardship on the part of the homeowner, sometimes (but not always) in full satisfaction of the debt.

For example, if the unpaid balance of a loa
n is $150,000 and the property owner receives an agreement of sale contract for $100,000, the lender may accept the offer of $100,000 as a payment in full and forgive the $50,000 difference. It is important to mention that not all lenders will accept a Short Sale or discounted payoffs, especially if it would make more sense for the bank to foreclosure. In every Short Sale scenario, the bank has to approve the offer. In some cases they may reject an offer, counter-offer or approve as it was submitted. Upon final approval, a Short Sale can help homeowners avoid foreclosure action. Although there will still be an impact to the homeowner's credit history, the effect will be less than in the case of a foreclosure or bankruptcy. Typically, the mortgage account reported to the credit bureaus may be noted as follows: "Settled for amount less than owed."

What Sets Genesis Real Estate Short Sale Experts Apart From The Competition?

For one, we have helped countless homeowners through the most difficult and frightening time in their lives. Genesis Real Estate Services is dedicated to advocating for the education and empowerment of consumer to make informed home ownership decisions.

This invaluable certification has been instrumental in ensuring our company and its agents know, understand and apply all the principals that make up the CDPE Certification. Our agents know the entire foreclosure and short sale process from A-Z. We have learned to make it a priority to keep families in their homes where possible. Our experts understand the emotions, stress and fears that arise when individuals and families are faced with foreclosure. Only when all home retention options, such as a loan modification or forbearance plan, have been exhausted, will we complete effective Short Sales helping our customers avoid foreclosure. We continue to help homeowners who are facing financial hardships find the best foreclosure prevention option for their situation.

  When faced with the possibility of foreclosure, we’ve seen too many homeowners make poor choices, even walking away from their homes without calling their lender or a real estate agent. These people didn’t know the options available, or even how to find any information that might better their situation.  It is alarming that today 7 out of 10 homeowners go into foreclosure without visible intervention. When faced with the possibility of foreclosure, too many homeowners think they have to carry the burden on their own. Know that Genesis Real Estate Services is here and looking forward to earning your trust and assisting your family during your challenging times. We have negotiated numerous Short Sales with most large and small lending institutions. If you are facing foreclosure, please contact us by leaving your information on the contact us page and we will make sure our experts contact you immediately to set up a face to face appointment.       

Frequently Asked Questions on Short Sales

 Q. Do I qualify for a Short Sale?

You must consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not be a good candidate for a short sale.

The Home’s Market Value Has Dropped.
Detailed comparable sales in your community or area must substantiate that the home is worth less than the unpaid balance due the lender.

The Mortgage is in or Near Default Status.
 It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are eager to head off future problems at the pass.

The Seller Has Fallen on Hard Times.
The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the monthly payments.

Examples of true hardships included unemployment, job hours reduction, high debt, divorce, death, serious and/or sudden illness. A few examples that DO NOT constitute a hardship are:

  • Home value has decline.  The lender will not consider a decrease in home value as a valid reason to approve a short sale if there is not an economic or financial hardship to substantiate the short sale.
  • Bad purchase decisions. Blowing your paycheck on a home theater system with surround sound or top of the line SUV does not qualify as a hardship. Sometimes, the problem is not mortgage related, but driven by high expenses.
  •   Buying another home. The lender will not care if you have decided the home is no longer suitable for you or your family.
  • Moving into an apartment. If you decide to move out of your home, that is a lifestyle decision and not a very good reason to abandon your home.
  • Unhappy with the neighbors. Even if every home on your block has turned into a neighbor nightmare, that will not qualify as a hardship

The Seller Has No Assets.
The lender will probably want to see a copy of the seller's tax returns and/or a financial statement. If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall. For example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even IRA accounts, the lender will most likely determine that the seller has assets. However, the lender might discount the amount the seller is required to pay back.

Q. Will a bank consider my Short Sale if I don’t have a buyer for the home?

No.  While the bank should give you guidance and explain the different options available to you, a short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer's offer. If the lender rejects the offer, a short sale will not take place. And there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid.

Q. What are the consequences of a Short Sale?

There are tax and credit report consequences.

Tax Consequences. If the lender agrees to the short sale, the lender may possess the right to issue you a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness. The I.R.S. could consider debt forgiveness as income.  Some situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007.   You should speak to a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes, if any.

Blemished Credit Report. A short sale will show up on your credit report. It's a pre-foreclosure that has been redeemed. Short sales affect credit ratings. While the damage to your credit report may not seem as significantly bad as a foreclosure to you, creditors may not make the distinction. Experts say the drop in your FICO score is identical to a foreclosure reporting. Before you sell on a short sale or go through a foreclosure, seek legal and tax advice

Q. Will a Short Sale destroy my 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. However, 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.

Q. If I have two loans, can I still do a Short Sale?

Yes. Your Genesis Real Estate Services agent 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, our experienced staff can normally get both lenders to cooperate.

Q. Can I sell my property to a friend or family member?

No. Short Sales must be an “arms-length” transaction. The property may not be sold to anyone you have a close personal or business relationship with including family, friends or neighbors. Some banks are requiring “Arms-Length Affidavits” to be completed by seller, buyer and all agents involved.

Q. How long does the process take?

This is totally up to the lender.  The average time is 2 to 4 months, but some lenders take as little as two weeks, some over six months. The only way to know is to start the process. But remember that the key is making sure that your short sale package is complete, and that you follow up weekly with your agent.

  Q. Will the bank come after us for the difference?

 Unless you have great credit, are not delinquent, or have significant assets, most banks will not. Our goal at Genesis Real Estate Services is to have the lender release liability of the mortgagee in writing.  However, this decision is ultimately in the hands of the banks and it will be driven by your hardship and financial situation.

  Q. Why do I have to provide personal information?

 All lenders require a complete short sale package, including tax returns, bank statements, pay stubs, etc, to show that there is a genuine hardship or the need to sell.

Q. Why should I accept such a low offer on my property?

To sell quickly, you must list the property at or below current market value, not what you wish you could sell for, or what you think the property should be worth. Some short sales fail because they are not priced correctly.  Our Short Sale Specialist will do a market study to support the right pricing to obtain a buyer offer in the least amount of time possible.

Q. 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 extensive 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. Our Short Sale agents at Genesis Real Estate Services have years of experience with a proven success record.

Q. 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.

Q. Can I simply deed my property to someone else and avoid foreclosure?

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. What ever you decide, do NOT deed your property to someone without first paying off the loan unless you have consulted with your OWN personal attorney.

Q. Will I get any money from the sale?

 No Most lenders will not allow a borrower to receive any money at closing. If the lender thinks you are getting paid from the sale, they will immediately kill the deal.

Q. How much would it cost me to sell my house in a Short Sale?

 Nothing!  All fees and commissions are assumed by your lender—NOT YOU. Your contract will 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.”

Q. How can I get started on a Short Sale?

 Very easily. To be pre-qualified, just give us a call today at 215-226-6200 or contact us via email and we will review your situation and options. There is no charge and no obligation.  It will be our pleasure to serve you.