Short sale guide

Short sale guide

  • What is a short sale?
  • Before proceeding with a short sale
  • Short sale considerations
  • Options other than short sale
  • A short sale is a real estate transaction in which the sales price is insufficient to pay the debt(s) and obligations encumbering the property along with the costs of sale, and the seller is unable to pay the difference.

    Every short sale is dependent upon the seller lender consenting to the transaction and agreeing to release the lender's security interest in exchange for less than what is owed. In some cases however, the lender's approval of a short sale does not necessarily mean the lender relieves the seller of liability for repayment of the entire debt.

    It is possible the seller can sell the home and still owe the unpaid difference, plus interest and penalties, to the lender . The lender may then seek a deficiency judgment against the seller for this difference. If the judgment is issued by a court, it could be in effect for up to 20 years if not paid sooner. This is one of the most fundamental issues that sellers must address in considering whether to sell property as a short sale.

    Simply walking away from the property through foreclosure also does not necessarily relieve a seller of these debts as while Washington State is a non-deficiency state that only pertains to the foreclosing party. A homeowner could lose their property to foreclosure generally to the 1st mortgage lien holder and still owe the balance(s) from the 2nd mortgage or other lien holders.

    A short sale is a very complex transaction that involves numerous issues as well as legal and financial risks. All sellers are advised to seek the advice of a lawyer and tax professional before proceeding with a short sale.

    Before proceeding with a short sale

    Understand a lender's creditors options upon loan default There are many types of liens and other obligations that are secured by real estate. These may be purchase loans, refinance loans, home equity lines of credit, contractor liens, IRS tax liens, DSHS liens for unpaid child support, or other obligations. The type of debt and type of property will determine what remedies a lender may have if you fail to make the required payments. The lender's policies regarding forgiveness of debt, the tax consequences, your overall current or potential future financial strength, the lender's willingness and procedure for processing a short sale request, and the number and nature of other recorded encumbrances (second mortgages for example) on the property are some of the many factors a seller should consider in deciding whether to pursue a short sale.

    Be aware of predatory rescue scams and short sale fraud

    Homeowners worried about foreclosure may be susceptible to predatory rescue scams which may cost money with no results, result in the loss of the home entirely, or involve the seller in a fraudulent scheme. For more information, see this advisory from Fannie Mae.

    Red flags of fraudulent schemes include:

  • Guarantees to stop the foreclosure
  • A promise that you can buy the house back or stay in the house following transfer of title
  • Upfront fees
  • Instructions not to contact the lender
  • Transfer of title or lease of the property
  • Requests that the homeowner execute a power of attorney
  • Report suspected scams to the Department of Financial Institutions
  • Contact a free HUD-approved housing counselor or contact your lender directly
  • Contact a HUD-approved housing counseling agency online at portal.hud.gov/portal/page/portal/HUD/i_want_to/talk_to_a_housing_counselor or call (800) 569-4287 or TDD (800) 877-8339 for advice on your options.
  • For additional HUD resources visit portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure

  • Obtain legal advice from you our county local Bar Association
  • Obtain tax advice for Mortgage Forgiveness Debt Relief Act and Debt Cancellation tax information, go to www.irs.gov/individuals/article/0,,id=179414,00.html
  • Be aware of the consequences of committing waste Damaging the property or removing fixtures such as sinks, toilets, cabinets, air conditioners, and water heaters may result in liability to the lender for waste.In other words, the lender may be able to sue you for damages if you have physically abused, damaged or destroyed any part of the property.

    Short sale considerations

    First, understand that a short sale may not discharge the debt. You should know whether you will still owe your lender money (a deficiency) after the short sale. You should know this before you close the sale of your home. Even if a lender agrees to a short sale, the lender and any junior lien holders may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation. This outstanding personal obligation could result in a subsequent collection action against you. For example, a lender may accept the short sale purchase price to release the lien on the property but still require you to pay the full amount of the original debt. You must be certain of the terms of any short sale before making a decision. All agreements between you and the lender must be in writing. Consult an attorney regarding whether the lender is entitled to pursue collection of any deficiency. Obtain any debt forgiveness agreements with the lender in writing but be aware that the language used in these agreements can be extremely confusing and even misleading. Seek the advice of legal counsel before accepting the lenders terms.

    Second, under that a short sale may result in a higher tax debt A short sale in which the debt is forgiven is considered a relief of debt and may be treated as income for tax purposes. The Mortgage Forgiveness Debt Relief Act of 2007 created a limited exemption to allow homeowners to pay no taxes on debt forgiveness; however, only cancelled debt used to buy, build or improve a principal residence or refinance debt incurred for those purposes qualifies for this tax exemption. For more information on the tax consequences of debt relief, seek professional tax advice and go to www.irs.gov and conduct a search regarding the Tax Relief Act.

    If you decide to pursue a short sale, understand that the process will likely take several months or more to complete. Consider taking the following actions.

  • Contact a qualified real estate professional
  • Interview several real estate professionals and ask about their experience in short sales, the number of short sale transactions they have handled, their education and training in short sales and inquire about any past or pending lawsuits or disciplinary actions.
  • Investigate documentation and eligibility
  • Documentation and eligibility criteria for short sales vary depending on specific lender and investor guidelines. Generally, you must prove that you are financially incapable of paying the loan. The lender will consider this when determining the costs of accepting the short sale versus foreclosing. You will have to document your financial situation. If you have funds to pay the deficiency, a lender will not necessarily allow a short sale. However, some lenders will not require you to dip into retirement accounts to fund the deficiency. These issues will have to be negotiated with your lender. Determine the amount owed on the property
  • All debt and costs must be factored in before a lender can determine whether a short sale is more economical for them. The analysis will include the delinquent loan, all other recorded debt (past due homeowners association fees, unpaid property taxes), and the costs of a sale (closing costs, brokerage commissions, and necessary repairs). If you have more than one loan on the property, a short sale will require the approval of all lenders.

    Determine the estimated Fair Market Value of the property

    You must prove to the lender that the home is worth less than the unpaid loan balance plus closing costs. Consult a real estate professional or an appraiser for assistance in estimating the value of the property.

    Consult legal counsel

    Legal counsel can help you determine whether a short sale is the best option and can advise you during the short sale process. A short sale is a complex transaction.

    Be aware of the impact on your credit score

    The impact of a short sale on your credit score depends upon a variety of factors, including late or missed payments. A short sale may appear on your credit report as pre-foreclosure redemption,paid in full for less than full balance or other similar term. It is possible that a short sale will have a different impact on your credit than a foreclosure or deed in lieu of foreclosure (or any other outcome). But, beware that once you miss mortgage payments, your credit rating will be severely impacted. Some lenders will tell you that they will not consider you as a short sale candidate unless you are behind on payments. Do not intentionally withhold mortgage payments, solely for short sale consideration, without first consulting legal counsel.

    Understand there may be a waiting period before you can buy another home

    Your ability to qualify for a loan to purchase another home after a short sale will likely be impacted because of the impact on your credit score. It may be some time before a lender will loan you the money to purchase another home.

    Home Affordable Foreclosure Alternative (HAFA) program

    The HAFA program was designed to give homeowners alternatives to a foreclosure, which include incentives for completing a short sale. If your home sale can close as a HAFA transaction, you will emerge owing no deficiency. However, it can be very difficult to qualify as a HAFA transaction. For more information on the options available, visit the HAFA program website www.makinghomeaffordable.gov/hafa.html.

    To find the option for which you may be eligible. See www.makinghomeaffordable.gov/eligibility.html.

    To find out if your mortgage servicer participates in the HAFA program go to www.makinghomeaffordable.gov/get-assistance/contact-mortgage/Pages/default.aspx.

    Refinance

    If the lender will not agree to a loan workout or modification, the homeowner may be able to refinance the loan with another lender. The HOPE for Homeowners program will refinance mortgages for homeowners that can afford a new loan insured by HUD's Federal Housing Administration. More information about HUD's refinance program.

    Deed-in-lieu of foreclosure

    The lender may allow a homeowner to give back the property. This option may not be available if there are other liens recorded against the property. If a lender accepts title to property in Washington State through a deed in lieu of foreclosure, the owner's debt owing to that lender is likely forgiven but sellers should have their paperwork reviewed by legal counsel to insure that outcome.

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    Miami short sale questions

    How much do I have to pay you to help me with my Short Sale in Miami area?

    Your Miami Short Sale Agent Betty Garcia does not charge any upfront fees or any other fees at any time. We are compensated by commission paid at closing by the primary lender. We split this commission with any cooperating broker who may represent a buyer.

    Does my home have to be worth a certain amount for you to help me with the short sale in Miami?

    No. We understand the stress that many homeowners find themselves. We believe all homeowners need and deserve our help. We will handle a Short Sale of your home without regard to the asking price. This does not mean we will accept everyone as a client. There are other criteria we use to determine if we are best suited to helping your particular situation.

    Can I do a Short Sale in Miami on a second home or investment property?

    Yes. You may sell any number of properties by the Short Sale process. The lender will look at your 'big picture' financial position and you will need to disclose all of your assets including other properties. Second homes or investment properties are not eligible for the HAFA Short Sale programs.

    Will the condition of my home impact a Short Sale?

    No. The condition of your home has no special bearing on a Short Sale. Keep in mind that a Short Sale is still a sale, and you must attract a buyer. We encourage you to keep your home in good condition, but it is not necessary to make major repairs in order to complete a Short Sale.

    In what areas of Miami do you handle Short Sales?

    We assist distressed homeowners throughout Miami Dade county. Betty Garcia is a short sale specialist in Miami Dade.

    With a short sale you may have the option to sell your home for less than the amount owed on your mortgage. By doing this, you may be released from your obligation to pay back your primary mortgage under it original terms.Lender may accept the proceeds of the sale as payment in full. This option can help you avoid a foreclosure sale and may be considered even if the foreclosure process has started.

    Depending on your situation, you may be eligible for a short sale through the federal government�s Affordable Foreclosure Alternatives program, or through a different program.the homeowner, you:

    Avoid a foreclosure sale � in some cases the foreclosure sale may be postponed once a written, signed offer is received and approved by by the lender short sale department

    Can live in your home until the new owner closes, giving you time to make other living arrangements

    May be released from your obligation to repay your mortgage balance