FREQUENTLY ASKED QUESTIONS ABOUT SHORT SALE
What is a Short Sale?
A real estate Short Sale is a form of agreement between the seller of a home in the beginning stages of foreclosure and their lender, allowing the home to be sold for less than the existing loan balance outstanding. The mortgagee would accept less than the loan amount in order to avoid a foreclosure proceeding. The best part, the existing lender pays virtually all sales costs, including commissions, escrow and title fees. You get your home sold, the loan(s) paid off and you avoid foreclosure.
There are a lot of Real Estate agents that claim to do short sales. How is Plan B HomeBuyers different when it comes to my short sale?
Very simply, we start the process immediately. You’ll have an offer from us that we’ll submit to the bank with your short sale package. Your typical agent (not us!) will list the house on MLS and pray for an offer to come in so they can start the process. The way we handle short sales DRASTICALLY cuts down the process for our clients.
How long do short sales generally take to get completed?
The average is about 4 months, but every short sale is different as it’s ultimately up to the lender.
Is a short sale a foreclosure?
No, it’s the exact opposite of a foreclosure. A short sale is a way to avoid foreclosure.
Is a Short Sale right for me?
Mortgage lenders are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship that makes it likely you will be unable to meet your obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through foreclosure.
As you consider the option of pursuing a Short Sale, remember your lender is looking to limit any potential loss on your loan. By completing a Short Sale, your lender has arrived at a solution that is, for them, much better than a foreclosure. Bottom line, your lender wants to work with you, and we’re very experienced in negotiating short sales for homeowners!
If I do a Short Sale, how much will I have to pay to sell my home?
Nothing. It’s true, in most cases you will pay literally no sales costs if your lender approves the Short Sale. All Real Estate commissions, title and escrow fees are paid by the lender as part of the Short Sale approval. Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
So you handle the short sale negotiations, but who handles the sale of my property?
We handle both. We’re offering to buy the property provided we can negotiate a price that works for us. If we can’t get the bank to agree on a price that works for us, we still work tirelessly to get your house sold to another buyer, at zero cost to you!
How do I get started on a Short Sale?
It’s easy. You simply fill out the Contact form and we’ll get started. There is no charge to you to get started. It is as simple as contacting us and we will get to work.
What documents are necessary to proceed with a short sale?
The individual documents necessary to proceed with the short sale will depend on the lender. Typically, the lender will require hardship letter detailing the circumstances behind the short sale. A signed, valid purchase and sales contract, preliminary HUD-1 settlement statement. There may be additional requests for more detailed information on the financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement and monthly budget assessment, amongst other things. We will work with you to gather all of this information and submit it to your lender in a format they will accept.
Do I need to communicate with my lender about the short sale during the short sale process?
No, Nicole or Brian will handle all communication with your lender(s) and we’ll submit all of the documents to them.
What sort of hardship would my lender consider legitimate?
To some extent, that will depend upon the mortgage company considering the Short Sale request. Generally, so long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.
Below you will find a list of “hardships” that are common and frequently accepted by mortgage lenders.
- Family illness or injury
- Illness or injury in the extended family – particularly if it forces relocation
- Job relocation when the property is equity deficient
- Job loss or significant income loss
- Divorce or split of domestic partners
- Adjustment in mortgage payment or unforeseen increase in living expenses
I am current on my mortgage, will my lender consider a Short Sale?
The answer is, maybe. Some lenders will accept a Short Sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent. We can put your Short Sale file together within a couple days and submit it for approval. (Remember, there is no charge for this). That is the best way to determine if your lender will accept a file for approval on a loan that is current.
Why would a mortgage company agree to accept a Short Sale?
There are several reasons why a mortgage company would approve a Short Sale payoff, including the following;
Legal Concerns – Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
Wall Street is Watching – Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender’s ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved quickly.
Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets – homes – spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful Short Sale eliminates most of these costs
Reserve Requirement- Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful Short Sale lets the lender put more money to work.
Do lenders approve all Short Sales?
In a word, no. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved. From the presentation of the Short Sale package to the lender to working with the lenders Loss Mitigations Department, we know how to keep the file moving towards approval.
I have two loans, can I still do a Short Sale?
Yes. We can work with both lenders put together a Short Sale transaction. Even if the value of your home is below the balance of the 1st mortgage, we can normally get the two lenders to cooperate. In the end, neither lender wants to own another home through foreclosure.
My property is in rough shape and needs work, can I still do a Short Sale?
Absolutely. In fact, lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work. Aside from expense of completing the work, lenders are simply not set up to get the work done. They are in the loan business, not the fix- it business.
I am concerned about my credit, how will a Short Sale affect my credit?
The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event your credit status can encounter. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit.
While it is up to the individual lender to decide what to report, what often happens is the loan will report as “paid” on their credit report. While that is good news, the bad news is that there will likely be a reference that says “settled for less than originally owed” or something similar. The credit scores will recover faster, with a loan “settled for less than was owed” than it will with a completed foreclosure. It is certainly more advantageous to have the short sale referenced than to have a foreclosure on their credit report. By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.
Will a lender allow the seller to make a profit on a short sale?
By the nature of the transaction, the seller is not going to make a profit on the short sale. They may have extracted equity from a previous refinance of the home, but their current loan balance will be higher than the selling price of the home.
If a seller is in bankruptcy, will that affect the short sale of the property?
Absolutely, as most lender would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. Negotiating a short sale between the parties is considered a collection activity and such a negotiation is prohibited in bankruptcy.
Will the bank or lender require an appraisal on the home in a short sale?
Most lenders will require that a full appraisal be submitted in the short sale package. Some may only require a BPO or brokers price opinion. The lender will need some formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer. We will work with your lenders(s) to coordinate this.
Why does it take so long to close a short sale?
A normal real estate transaction can close at will once the contract is “four cornered” or that all signatures are affixed and there has been a meeting of the minds. In the short sale, all agreements are “subject to lien holder approval”. Since the seller is requesting a discounted payoff from the lien holder all parties must allow the lien holder to complete an evaluation to determine the value of the home and determine if the loss is justifiable. The lender wants to mitigate his losses and so the process of evaluation must be completed before approval is granted. This process can delay closing for several months.
If the client files a bankruptcy should he still complete the short sale?
One of the main goals in the completion of the short sale is to minimize the damage to the credit of the individual. It is true that a Bankruptcy is disastrous to ones credit. Adding a foreclosure is financial suicide. Why afflict the client with both. There are methods available to have the home released from the assets included in the bankruptcy allowing the agent to complete the sale.
How long after the short sale can the client purchase another home?
The client’s ability to purchase a new home is dependent upon several factors. Credit is only one of the factors. We have seen cases where minimal credit damage was caused as a result of the short sale and the client repurchased within six months with little down and with an excellent rate. A lender is most interested in the borrower’s ability to repay the loan. If the problems that led to the Short sale are behind and there are at least twelve months of good credit with three or more credit accounts, he should be able to purchase with minimal down payment at a competitive interest rate.
Will I owe any money after the sale if the bank agrees to a price less than our loan amount?
We fight to negotiate a waiver of deficiency for all of our clients!