Frequently Asked Questions on Short
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 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?
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
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
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.
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
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
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
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
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.”
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.