A short sale or short payoff occurs when a lender agrees to accept less than the outstanding loan amount to satisfy the seller’s loan. For example: you sell the home for $250,000 but the outstanding loan amount is $500,000. A short sale allows both the lender and the distressed property owner to avoid foreclosure by selling the property at a loss.
Lenders prefer short sales to foreclosures for two very important reasons. The first is because a foreclosure represents a greater loss to the lender. Attorney’s fees, trustee fees, holding costs and maintenance outlays continue to add to the amount as the lengthy process continues. Second, banks are in the money business and they can’t lend against a REO property because it’s a non-performing asset.
Even though a short sale is more beneficial for all parties involved, a number of issues typically crop up that either delay the closing or prevent it entirely. The three most frequent problems are:
Banks are under staffed and their employees are over worked and under trained to deal with the bombardment of loan modification and short sale files. To add to this confusion, guidelines are changing daily to cope with local markets fluctuations and government subsidies.
Although a number of real estate agents claim to be “Short Sale Specialists” the statistics tell us that very few have the ability to close a short sale transaction. Only about 12% of short sales are consummated and it’s no wonder. Most Realtors haven’t been effectively trained to package a file according to lender guidelines, negotiate with the loss mitigation decision makers, or read settlement and deficiency language in the short sale addendum. Furthermore, buyers and sellers often have unrealistic expectations with respect to the timing and the process of closing a short sale transaction. That is why we work with Loss Mitigation Network to handle the short sales. They work with us and you to gather and complete the necessary short sale documentation. LMN handles all communication with the lender and all third parties to the transaction. Although the objective is to negotiate using experienced tactics, as a means of last resort, attorneys have the ability to apply pressure a number of ways.
3) 3rd Parties to the Transaction
One of the most common misconceptions is that the first mortgage holder is the sole decision maker when it comes to approving a short sale. In reality, 3rd parties frequent block short sales. Among these objectors are tax lien holders (property, income, estate and/or corporate franchise tax) and mechanic’s lien holders. It is also possible for junior lien holders and PMI insurance companies to prevent a short sale.
Loss Mitigation Network enables us to take advantage of their network of experienced real estate attorneys to negotiate on your behalf. Typical results include:
- No cost to you. You do not pay for the commissions or the handling of the short sale.
- A quicker response from the servicer or the lender.
- Increased likelihood for a successful approval.
- Dramatically less work for you.
- Reduction or elimination of the deficiency and how the sale is reported to the credit bureaus.
When Can You Buy Again?
The good thing is that you can buy again relatively soon. Click here for a breakdown of the timeframe based on the type of loan that you are going to be getting,
Here is the timeline for when a property goes from default to Foreclosure. Make sure you fall within all the timelines for short selling your home so it does not go into foreclosure. The banks are starting to get strict on these timelines and no longer allowing people to live in their home and not paying their mortgage for two years. Click Here for the Foreclosure Timeline According to C.A.R.
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. Click Here for the IRS Info.
Short Sale Deficiences
In a short sale, a homeowner sells the property at a loss, but can nevertheless be held personally liable for the difference between the loan balance and sales price. To protect short sale sellers from this harsh result, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) sponsored new anti-deficiency legislation that came into effect on July 15, 2011. This legal article discusses California’s protection against short sale deficiencies, including the legal and practical issues that may arise for REALTORS® and their clients under the new law. Click Here for the Q & A About Short Sale Deficiencies from C.A.R.
To start finding out more about the short sale process you can fill out the form below (or call me direct). I will contact you in the format you prefer to arrange a time for us to get together and confidentially talk about your options.