Short Sale Questions and Answers

Short Sale Questions and Answers

1) The definition of a short sale

When a home owner is in a situation where they must sell their home for less than the amount to pay off the mortgage we call this a short sale. A short sale is appropriate for sellers whose financial situations demand that they sell their property. A simple definition is when the owner must sell and the property value has fallen below the loan amount.

 2) Why will my bank do a short sale?

Banks DO NOT want to do a foreclosure. A foreclosure will cost the bank lots more than other options and data has shown that when a bank receives a property through foreclosure it is in worse shape compared to other options because angry owners who have been foreclosed on trash the property before leaving. A short sale reduces the banks losses and helps the seller sustain their credit. When you’re a suffering a true distressed scenario your bank is more willing to allow a short sale as opposed to foreclosing on your home.

3) I have an FHA loan. Will my bank do a short sale?

Absolutely a bank will do a short sale on an FHA loan. There is actually a new program called PFS Pre-Foreclosure Short Sale Program that will pay you the seller up to $1,000 at the closing just for going through with the short sale. This program was designed to help you transition to more affordable housing while avoiding a foreclosure.

4) Can I do a short sale if I’m current on my payments?

You do not have to be delinquent on your loan to get short sale approval. There are more details below on the requirements for short sale approval but it is important to know that a short sale can be accomplished because of the value of the house dropping below the mortgage amount or if the seller has faced tough times. A hardship situation is all you need to qualify for a short sale, such as being underwater.

5) Will I have to pay a tax loss if I do a short sale?

 In most cases you will not be required to pay taxes on the loss. In 2007 President Bush signed The Mortgage Debt Relief Act that eliminates taxes paid on the loss in a short sale. The Mortgage Debt Relief Act has been extended through 2012. It is important to consult a certified accountant in regard to your personal situation because not all short sales are protected. Investors selling an investment home through a short sale may be exempt from paying this tax, through IRS guidelines for the sellers being insolvent a day before the short sale. IRS insolventcy guideline can be found on the IRS website http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-

6) How many months will a short sale last?

A carefully designed short sale strategy will yield speedy results. Many uneducated realtors will drag a short sale out over 10 months to over a year and at frequent times fail to produce an approved short sale. A knowledgeable short sale real estate professional will quickly complete the short sale process and get your short sale approved in approximately 60 days from contract date. Short sales are a highly technical business and it takes qualified experts who will finalize the procedure in a timely manner

 

Before a short sale you should look at a few other options.

A short sale is when a seller must sell their property and the proceeds are less than the amount owed to pay off the mortgage. A short sale is needed for home owners whose financial situation or predicament calls that they sell their house and they have run out of other loss prevention options. A short sale is when the value of the property has dropped below the current mortgage balance that needs to be paid off.

Before we go into details on a short sale it is important to know what other options might be available to you. Often times if you have defaulted on your mortgage it is “curable” and there is a strong option that you are capable of replacing lost salary or trim down your costs.

Special Forbearance – forbearance is a written repayment contract between you and your mortgage company that involves of an arrangement to reinstate your loan after it has fallen behind. Some variations are settlement over a several months, a cut of your payment for a short time, or a plan for you to resume full monthly payments while delaying the missed payments. In a sense your bank is allowing you to get caught up on your missed payments.

Loan Modification – A loan modification is a permanent alteration to your loan. It also allows your loan to be reinstated and deliver a monthly payment that you can pay for. Modifications open up a number of options like dropping your interest rate, or extending the time for you to repay the mortgage by re-amortization the amount owed. It’s similar to applying for a new loan but not all will get approved for a modification.

Combining Options – It is possible that your mortgage lender will combine strategies to accomplish a desired conclusion. Each mortgage companies are a little distinct on how they handle these matters. The purpose of mitigation is to keep you in your home and assist you in recovering from an adjustment in your monetary situation.

Sometimes it is not possible to recover and keep your home. When loss mitigation fails or is not an option you are presented with a potential foreclosure. Don’t give up too quick because there are still some options that remain.

Deed-in-Lieu – A deed in lieu of foreclosure is when you as the property owner deed your house over to the bank. Essentially you give your property to your lender. This might look good on the surface compared to foreclosure but there are some things to consider.

 1) A deed-in-lieu has just about the same effect on your credit as a foreclosure.

 2) Mortgage companies don’t really want your property. It becomes an asset that they have to deal with and they are not in the business of selling houses. Many lenders will not take a deed-in-lieu and suggest you try some other option.

Short Sale – A short sale allows you to sell your home and use the proceeds from the sale to pay off part or most of your mortgage. Most lenders are willing to accept a short sale instead of going through a lengthy and expensive foreclosure. As mentioned this alternative is for property owners whose financial condition requires that they sell their home.

Below are a few reasons to short sale your property:

 A declining housing market – This reason does not take into effect your credit or your financial state of affairs. This is a case where the property value has declined in your house and obligated to pay more than it’s worth. Don’t forget a short sale means you must sell your home. This does not apply if you want to move because you don’t like your neighbors.

The Mortgage is in or Near Default Status – This is the reason for most short sales. Before the housing market crashed short sales were not granted unless the loan was in default. Banks have now discovered that in many cases it makes sense to do a short sale before the payments are behind.

The Seller has met with Bad Times – This is a short sale situation where there is a real hardship the home owner is facing. A hardship letter is required in all short sales explaining the reason you are in need of a bank short sale. Sometimes a hardship description can be overdone. It’s good to know the guidelines for writing a good hardship letter. Your letter should always declare that you seek a short sale so that you won’t have to do a foreclosure. Here are some examples of a hardship: (Divorce, Illness, Unemployment, and Death)

Negative Amortization – Some loans that were formed prior to the housing bust actually have a negative amortization. This means that each month the amount the borrower pays is not enough to cover the interest on the loan. A lender will consider a short sale in these situations.

Aggressive Secondary Financing – During the housing expansion period some mortgage companies were giving out second mortgages up to and even over 100%  LTV. This is another situation that will be considered when requesting a short sale. Second and Third mortgages get a little tricky when doing a short sale but we have experience in dealing with these tough situations.

Contact Information

Photo of Cindy Gardner Real Estate
Cindy Gardner
Century 21 New Millennium
2448 Holly Avenue
Annapolis MD 21401
410-703-9202
Fax: 443-458-0174

Now merged with Century 21 New Millennium with Listing Agents in Virginia and Washington, DC to handle your Short Sales.  Also facilitating Short Sales in Anne Arundel County, Prince Georges County, Howard County, Montgomery County, Baltimore County, Baltimore City, Calvert County, Charles County, Carrol County, Frederick County, Talbot County and Queen Anne’s County, Maryland

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Short Sale Expert

Cindy Gardner
Century 21 New Millennium
2448 Holly Avenue
Annapolis, MD 21401
 Phone: 410.703.9202
  Fax: 443.458.0174
Cindy.Gardner@C21NM.com