What is a Short Sale?
The Short Sale is the term to describe the sale of a property in which the bank or mortgage company allows the sale of the property even though their payoff is short or less of what is fully owed to the bank. As real estate values have drastically dropped recently, short sales are becoming more and more common, as banks look to minimize losses that they would incur if having to proceed with foreclosures. These are expense processes for the banks. A short sale helps the homeowner and the lender.
Who Can Short Sell?
Somone who has no equity in their home.
These can be due to unforseen circumstances such as:
- Unemployment
- Loss of Income
- Medical Emergencies
- Divorce or Separation
- Relocation for a new job
- Adjustable Mortgage rate hike
We can HELP you, if the following has happened to you:
- You are behind on your mortgage and cannot continue paying
- You have no other option but to move
- You are overwhelmed with debt, and are hit by unexpected life emergencies
- You need to get out from your house and financial situation quickly
The Short Sale Process, Step-by-Step
Step 1: Gathering up all of the financial documents that your bank will needs: This would be the following:
- The required bank paperwork. Each bank has their own. We will help you with this.
- Profit and Loss Statement of your income and expenses.
- Hardship letter. This is a letter you write to the bank explaining your situation, and why you need to sell your home.
- Settlement Statment (in real estate and bank lingo, this is called a HUD), which will show all expenses to be incrued in the sale, so the bank can clearly see what they will net.
- Payroll information, which will consist of 2 months of bank statements, and recent paystubs.
- Mortgage Statement for your mortgage(s). If there are more than one, we will need both.
- Tax Return request F4506T which is a form the bank asks for so they can pull your records from the IRS directly
- Last 2 years of your bank statements
- Purchase offer package (which will show the selling (listing) paperwork) of your property, as well as an offer received on your property.
Step 2: Putting your property on the market. This includes the following:
Step 3: Negotiating the Short Sale.
After we have received a great offer on your property, we put the whole Short Sale Package together and submit to the lender. We have been getting approvals within 30 days from certain banks, because we aggressively pursue to banks until we get responses.
Once the bank issues us an approval, we immediately move forward with the sale, and can close in 30 days or less. Depending on the requirements of the buyer of your property.
Costs and Fees Associated with Doing a Short Sale
Costs of a short sale are normally paid by the bank. That's what we negotiate for you. This can include commissions, title, escrow and other customary settlement charges. A seller should not have to pay anything. You are already losing money from the sale of your home. We ensure that you don't lose anymore.
Short Sales, Foreclosures, 1099’s, and Taxes
Many people have heard that they should not short sell their property because they will receive a 1099 and have to pay taxes on the difference between what they owe and what the property sold for. Yes, you will receive a 1099-C for debt cancellation from your bank. However, the majority of people who short sell their homes could possible be able to exempt themselves from tax liability. Many of these fall under the insolvency exclusion, as most sellers are insolvent when they short sale. Ask your accountant about this.
You will also receive a 1099-A from the First Mortgage.
Short Sales and Your Credit
What we find affects credit is the missed mortgage payments prior to the sale. The short sale itself is usuallly reported as “settled for less than the full amount”. This is better than having “Foreclosure” or "bankruptcy" on your credit report. A short sales can be negotiated even when you are current on your payments. This is undoubtably much better for your score.
Will I Be Able to Purchase a Home Again in the Future?
According to Fannie Mae, a borrower is eligible to receive another mortgage after 2 years according to their guidelines for conforming loans. A foreclosure can stop you for up to 7 years. Most loan applications will ask if you have ever foreclosed or filed bankruptcy.
Can I Really Get My Bank to Approve my Short Sale?
Banks also DO NOT want to foreclose on properties. So, the answer is YES!
How Long does it take a Lender to Foreclose?
In California, once you have missed your first payment the lender can file a Notice of Default. 90 days later they can then file a Notice of Sale providing 25 days notice of the foreclosure. Your lender can technically foreclose as early as just under 4 months from when you go late on your payments. In most cases the process will be delayed somewhere along the way and takes a bit longer than what is legally required.
Please our home page for details on the foreclosure timeline.
Contact us for more details!
Keller Williams Realty
Mandy Akridge
