A short sale is the sale of a house in which the sales price is less than what the owner still owes on the mortgage. If you can no longer make your mortgage payments and your home is worth less than what you owe on it, a short sale is, in many instances, a good alternative to a foreclosure. Remember, though, all short sales must be approved by the loss mitigation department of the lender. This process can be long and arduous. It is critical that you retain the services of an agent who is not only a good negotiator, but also has the experience and expertise necessary to work effectively with the lender. One missed document can cost weeks or even months of delay. In today's market many lenders will agree to a short sale as an alternative to hiring an attorney and incurring the court costs and associated expenses of a foreclosure action. The foreclosure action takes many months. Once the lender acquires title to the property the lender will then incur the costs of maintaining the property, insuring the property, property taxes and the necessary costs to sell the property. The lender will then be able to sell the property for market value. Statistics show that a lender owned property sells for less than a comparable property. Lenders do not want to acquire potentially unsalable property in a declining market and typically will cooperate with you in a short sale. This results in a win-win situation for all parties. The lender's loss is minimized, the seller gets out of the mortgage and the buyer gets the home usually at a reduced price.
Understand that the lender will not agree to a short sale for frivolous reasons. You must have incurred some type of "hardship" in order to qualify. Examples of hardships are illness, death of co-borrower, divorce or legal separation and loss of income. You must be able to justify the hardship. Each individual situation is different. Please contact me to discuss other situations that may qualify as a hardship. Each lender has a "Short Sale Package" which your agent can request on your behalf. I always order this for my clients at the same time I list their property. The lender will require proof that the property has been listed with a licensed real estate broker prior to considering a short sale. You will also need to price your property in line with the recent comparables. Over or under pricing the property will only complicate the issue. In addition, there is specific language that should be added to your listing agreement to make sure you are protected. The lender needs to be assured that you are doing everything to the best of your ability to get the house sold. Again, an agent who has experience with handling all the intricacies of short sales is crucial. There is certain documentation that the lender will require. This documentation may include bank statements, tax returns, pay stubs and a financial statement. I can assist you with compiling these documents. It is also recommended at this time to order a title search. Once an offer to purchase the property is received, the offer, the short sale package that has already been compiled and a HUD-1 is forwarded to the lender. The lender will review the documentation and the offer and then order a Broker's Price Opinion (BPO)from an independent broker. The BPO with supporting documentation is reviewed and the lender makes a determination whether to accept the offer or make a counter-offer. You must stay in constant communication with the lender or this process will take months. Lenders are not efficient at processing short sales. Each lender has a slightly different way of processing their files. Most lenders from the time they receive the offer to the time they accept or counter the offer will take three to four weeks. Again the time frame for this is directly related to the tenacity and competence of your agent. If the offer is accepted the sale proceeds much like any other transaction. Keep in mind, though, that the lender reserves the right to deny the sale. No part of the sale proceeds may be paid to the property owner and the buyer and seller must not be realted.
Patience, patience and more patience. Be sure you and your agent do your homework. Remember that the transaction is not personal to the lender so the more documentation you provide the lender with the greater the chances of a successful transaction. Lenders are not trying to lose any more money than is absolutely necessary. The offer to purchase should include a pre-qualification letter from a lender or a proof of funds if your offer is a cash transaction. I have found it helpful to include a summary of any repairs the property may need together with a synopsis of the neighborhood including recent sales, actively listed properties and the number of foreclosures or available short sales in the neighborhood. This information is very useful as many of the lenders are not in the State of Florida and our real estate market is changing daily. You should find an aggressive agent and make a commitment to work exclusively with that agent. You want an agent working for you that is searching the market for you daily to find you the best opportunity. With a good agent buyers and sellers can succeed in a short sale transaction.
Most lenders are forgiving the deficiency balance (the portion of the mortgage not covered in the sale of the property). When the lender forgives the balance, the lender will typically issue a 1099-C form stating the amount of the canceled debt. There was legislation passed in December, 2007, the Mortgage Forgiveness Debt Relief Act of 2007, that eliminates the income tax liability on mortgage debt forgiveness on primary residences for people in financial hardships and lowers the amount of a gain made through the sale of most non-primary residences that are not subject to income tax. I can provide you with a copy of this legislation, however, please consult with an attorney or a certified public accountant to determine your specific tax consequences. In some instances the lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the short sale, or may attempt to collect the dificiency balance from the seller after the property has closed.
I have had many anxious sellers ask this question. My answer is always the same - because of the long term impact on your credit score. If you are unable to pay your mortgage payments and have attempted to work out a modification of your loan with your lender (I can assist you with this) but have been unable to, then a short sale will not damage your credit score as much as a foreclosure. You should be able to recover from the short sale in two years, however, a foreclosure will usually take at least four years and once a lender reviews your credit report and sees the foreclosure you will undoubtedly pay a higher interest rate. A short sale is also more favorable on your credit report than a deed in lieu of foreclosure.
Below is a sample timeline of what you can expect in a foreclosure: Day 1: You miss the payment due on the first day of the month. Day 16 - 30: A late charge is assessed on the missed payment. The lender attempts to contact you to find out why you missed the payment. Day 45 - 60: You receive a letter from the lender advising you have violated the terms of the mortgage. Day 90 - 105: Your loan is referred to the foreclosure department. You may receive a demand from the lender's foreclosure department or you may be served with a foreclosure action. Day 150 - 415: The house is foreclosed on and a sale of the property on the courthouse steps is scheduled.
Search through Florida foreclosures. We also provide preforeclosures in Florida (FL) along with bankruptcy homes and government HUD foreclosures. |
