Everything About Short Sales
Selling your Home?
Do you owe more than the house is worth? Then you may be facing a Short Sale. A Short sale is when the net proceeds to the bank from the sale won't cover your total mortgage obligation and closing costs, and you don't have other sources of funds to cover the short/deficiency.
A Foreclosure is, when your lender takes title of your home through a lengthy legal process and then sells it.
What your options as a home owner are when your property is in or heading toward default/short
- A short sale or a repayment plan?
- A short sale or a forbearance plan?
- A short sale or a loan modification?
- In the case of an FHA loan, a short sale or a partial claim?
- A short sale or a short sale/assumption agreement?
- A short sale or a deed-in-lieu of foreclosure?
- A short sale or a bankruptcy?
CHECK LIST FOR HOMEOWNERS: What to Consider before pursuing a Short Sale.
As a homeowner, before moving forward with the short sale process, challenge yourself to make absolutely sure that you have exhausted all other options available. Educate yourself regarding the other choices that might serve your particular situation better. Make sure you are fully versed on the details of the following options:
- Traditional Sale
- Rent Property
- Repayment Plan
- Forbearance Plan
- Loan Modification
- Partial Claim (for FHA loan)
- Assumption Agreement
- Deed-in-lieu of foreclosure
- Short Sale
- Foreclosure
- Bankruptcy
- Other
If you have reviewed all of the above options and decide that your only solutions is to go through the Short Sale process contact an Attorney and a qualified Real Estate Agent.
What you should expect from a Certified Distressed Property Expert
- Be able to respond all your questions and concerns and walk you through the short sale process. Educate and prepare Sellers as to what a short sale involves. A long process: It will take the lender up to 30 days or more to review the offer. It is not unusual that a short sale process will take between 3 to 4 months.
- As your CDPE agent I will explore every option with you and work toward a resolution”.
- Help you determine a Realistic Value of the home, market it and get it sold.
- Facilitate the presentation of the information “The Short Sale package” to the bank for approval on behalf of the howeowner.
General Requiremenets for a Short Sale Package
Each lending institution has unique requirements for the sumbission of a Short Sale Package. Anticipate that you will be required to submit the following documents with your Short Sale Package submission:
Documents that memorialize your relationship with the homeowner and the proposed short sale transaction
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Completed lender supplied Short Sale Form (as/if required)
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Signed authorization to represent the homwowner
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Signed homeowner disclosure statement regarding the nature of a short sale transaction (advisable even if not required by lender)
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Letter signed by homeowner agreeing to accept the terms of the proposed solution
Documents that define the proposed short sale transaction
- Signed listing agreement
- Signed contract to purchase
- Evidence of buyer funds, mortgage commitment letter or both
- Preliminary HUD-1
- Escrow instructions
- Preliminary title report (if required in the jurisdiction
Documents that define/establish the hmeowner's position and situation
- Hardship letter
- Copy of Tax Return (IRS Form 4506) http://www.irs.gov/pub/irs-pdf/f4506.pdf
- Copies of past two annual tax returns
- 1099 and W2's
- Paycheck stus for the past two months
- Profit/Loss statement for self-employed homeowner
- Personal financial worksheet and personal/family budget
Documents that define the premise of the proposal you will present
- Competitive Market Analysis or Broker Price Opinions
- Analysis of local market conditions
- Descirption of your marketing effor as well as a descriptionof your results and your findings
Don’t expect a short sale to solve your financial difficulties. Know that a short sale might not be the end of your financial problems. It is important that you know that your credit score will suffer, typically from 100 to 250 point reductions but know that if you are diligent you can rebuild your score in as little as 18 months but it usually takes around 2 years.
You may also be asked by your lender to sign a promissory note to pay back the amount of your loan not paid by the short sale.
The Four R's of Short Sales:
RECOVER: Homeowners have the need to "recover" and move on.
RECOUP: Lenders have the need and right to "recoup" as much of their loan balance as possible.
REAP: Buyers have the right to expect to "reap" the benefits of their decision to buy in this market.
RENDER: Attorneys and real estate agents need to know how to best "render" their suitable and appropriate skills and services for the betterment of their clients and the community.
Reasons to Avoid Foreclosure
- The client will always have to disclose that they have had a foreclosure on any mortgage application and many job applications they submit in the future and this can have an adverse affect on your future mortgage rates. This is the only credit item that is asked specifically and does not rely on what is on an individual’s credit report.
- Credit scores will be lowered by 300+ points and a foreclosure is the most devastating credit issue you can have in relation to future credit availability.
- A foreclosure is the one credit report item that is almost impossible to have “repaired”.
- Your lender can seek a deficiency judgment against you and collect for any amount they do not recuperate a bank sale.
- Many employers run credit checks on prospective employees and foreclosure is one of the top items that will put a potential new hire in jeopardy.
- Many current employers run credit checks and a foreclosure can put a current position in jeopardy.
- Security clearances and government positions including but not limited to military and law enforcement can be jeopardized by a foreclosure.
The client may be responsible for any deficiencies after foreclosure for an indeterminate period of time depending on the state you live in: this can land in a homeowner in never ending collections
