Q:What is a Short Sale?

A:A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers.

Q:Will there be any tax consequences to doing a Short Sale?

A:Typically, the tax consequences will be less severe vs. letting the home go to foreclosure. If the home is sold at foreclosure auction, you will still receive a 1099-A for the amount the lender lost due to the sale. In a short sale, if the lenders decided not to seek a deficiency judgment, then they will always give you a 1099-C for the amount they have lost due to the short sale. A CPA should be consulted regarding potential tax consequences to the seller. Also, you can visit www.irs.gov and review the Mortgage Debt Relief Act of 2007.

Q:Who will pay the real estate commission in a short sale?

A:In a successful short sale transaction the lender/creditor will pay the real estate commission and any other fees involved. The amount the lender is will to pay depends on a variety of factors, but most lenders are willing to pay 5-6% real estate commission and typical seller closing costs on the transaction.

Q:What if I have a second are third mortgage on my property?

A:You can still do a short sale if you have other mortgages on your property. In most cases, the first mortgage that is being shorted will offer a nominal amount to the second lien holder for a portion of the outstanding balance to allow the short sale. Both lenders must be agreeable to this amount and agreeable to the short sale in order for the sale to occur. Third liens are typically not offered anything----REMN does not get involved with short sales when more than two liens are being shorted.

Q:Can I do a short sale if I have other liens (i.e. mechanics, IRS, court judgments) on my house?

A:Yes, but it gets much more complicated and will take longer. The lender is extremely unlikely to pay for the release of these liens in a short sale since they are already taking a loss. If you have these types of liens and are trying to get a short sale, REMN will only if you have already negotiated payoffs on this liens and have sufficient funds to satisfy them. REMN only negotiates short payoffs with mortgage lenders.

Q:Can the bank seek a 'deficiency judgment' for the amount they lose by accepting a Short Sale?

A:Yes, depending on the state you live in, lenders can seek a deficiency judgment against you. However, if the bank decides to issue you a 1099-C and write the deficiency off as a loss, then they cannot place this deficiency against you. Even when the bank does not issue a 1099-C, there is no way to determine if they will actually pursue payment on the deficiency judgment. The amount of time and expense in pursuing relatively small judgments is typically not worth it to the larger lenders.

Q:Why shouldn't I just let the house go to foreclosure instead of going through the hassle of the short sale process?

A:The main benefit of a short sale is that you will not have a foreclosure reported on your credit report. In a short sale, the mortgage is typically reported as "paid in full, settled for less" as opposed to "foreclosure". A foreclosure will prevent your ability to get a mortgage for at least 5 years, and will stay on your credit report much longer´┐Żinhibiting you from getting traditional financing and favorable rates for car loans, credit cards, etc. With a short sale and clean re-established credit, you should be able to get another mortgage within 3 years. Also, the amount of any deficiency judgment with a short sale is typically much less than the deficiency judgment you will incur with a foreclosure where the bank's loss is much greater.

Q:How do I know what sales price my bank will accept for a short sale?

A:You do not know what price your bank will accept until you submit a fully executed sales contract and begin the short sale process. Most banks will not issue "pre-approvals" on short sales since there is an expense involved to the lender to determine what "Fair Market Value" (FMV) is. Typically, if the sales price is within 10-12% of what the bank deems FMV, they will accept the contract. The bank determines FMV through the use of internal appraisals, Broker Price Opinions (BPO), and automated means.

Q:Do I have to be delinquent on my mortgage for the bank to approve my short sale?

A:No, being delinquent is not required in most cases for your lender to approve the short sale. In these situations (as in all short sales), a bona fide hardship must be proven to the lender. Some lenders and investors, however, do have guidelines that require the seller to be delinquent (i.e. sellers with FHA loans). Banks tend to look more favorably on situations where the seller is delinquent. In the vast majority of short sales, the seller is experiencing extreme financial hardship and cannot afford the mortgage any longer and is already delinquent. REMN will never advise a homeowner to stop paying a mortgage on-time.

Q:Should I just file for Bankruptcy?

A:Filing for bankruptcy is always an option, but something that you must consult with your attorney who specializes in this area about. If you are currently in Bankruptcy or plan on filing during the short sale process, let your REMN representative know immediately as REMN will not be able to assist you with the short sale. Short sales become much more complicated, lengthy, and costly when the seller is actively in bankruptcy. If you previously filed for Bankruptcy and included any of the mortgages on the subject property, REMN would not be able to assist you.

Q:Can I do a short sale if the property is an Investment Property?

A:Yes, in most situations, your lender will allow a short sale on an investment property. However, the possible tax ramifications may be different for you if the short sale is approved and the bank is likely going to ask for some sort of contribution or repayment from you.

Q:If the bank approves my short sale request, do I owe them anything?

A:The goal of a short sale is to allow you to transfer title (i.e. sell your home) without any sort of repayment to the lender or a deficiency by the lender. Although this is often achieved, there is no certainty that this will be the outcome. Several possible outcomes to a short sale request are below:

  • Bank accepts the contract price, approves the short sale, pays all or most of the standard closing costs for the seller, with full satisfaction of debt (no deficiency).
  • Bank accepts the contract price, approves the short sale, pays all or most of the standard closing costs for the seller, with a possible deficiency judgment.
  • Bank accepts the contract price, approves the short sale, pays all or most of the standard closing costs for the seller, but requires a "cash contribution" or promissory note from the seller. Cash contributions or usually nominal (a % of the balance) and promissory notes can be for all or part of the deficiency (usually at very favorable terms to the seller).
  • Bank can "counter" the purchase price if the bank's appraisal indicates that the property is worth significantly more than the agreed upon sales price.
  • Bank can deny short sale request for value, lack of bona fide hardship, paying mortgage on time, or uncooperativeness by seller/agent.

Q:How does a short sale affect the status of the current foreclosure status on my property?

A:Having an active short sale with a fully executed sales contract does not stop the foreclosure process on your home. While your short sale is being reviewed by the bank, they will continue to move forward with the current foreclosure process. However, most banks are willing to postpone scheduled foreclosure dates once the short sale is approved or if it is close to being approved. Requests for postponements of foreclosures are usually not granted by the lender until only a few days prior to the date.

Q:If I have been denied for a Loan Modification by my bank, can I still try for a Short Sale?

A:Yes. Although the Loan Modification and Short Sale approval processes are very similar, being in a Loan Mod or denied for a Loan Mod does not normally prevent you from getting a short sale approved. The guidelines are different and banks are more willing to approve short sales than Loan Mods so that they can "write off the loss". Most approved Loan Mods become delinquent REO for the banks anyway. If you are currently being considered for a Loan Mod by your bank, you must let us know. Most banks will not simultaneously consider a customer for both. You will need to submit all new paperwork for the short sale since a separate department will be handling it.

Q:Will the bank pay delinquent property taxes or Home Owner Liens on my property?

A:This is case-by-case depending on your lender and your situation. We will request that these amounts be paid by the lender. Lenders will not pay delinquent IRS liens or personal judgments.

Q:Why would my bank be willing to consider accepting such a loss on a short sale?

A:Although your bank will be accepting a loss with the short sale, the loss is typically much loss than the loss they will incur if the property goes to foreclosure. With a short sale, the bank has a purchaser willing to buy the property at or close to market value and they can take their loss now. With a foreclosure, the process will continue longer and the expense to the bank will continue to grow with additional attorney fees, eviction fees, property maintenance, and re-sale fees.

Q:How long does a short sale take?

A:Short sale times vary, but most short sales can take 60 to 120 days or longer to complete. It is very important to list your home prior to have any foreclosure date scheduled. In addition, once a contract is obtained, ensuring that you and your agent have found a buyer who will be willing to "wait it out" through the process. If the buyer walks, the contract is null and void, and most banks will have to start over with a new contract.

Q:My ex-spouse is on the deed and mortgage with me, do they have to submit paperwork as well?

A:Yes. Any individual on the mortgage note must supply all of their financial information to the bank to be considered for a short sale. There are no exceptions to this. However, if you ex-spouse is only on the deed, and not the mortgage, they bank is very unlikely to ask for his/her information.

Q:What is the cost to me for using REMN to help with my short sale?

A:There is no direct cost to you. There may be a nominal upfront fee for our service paid by one of the Real Estate Agents or Buyer. The remainder of our fee will be paid by the Agent only if the property goes to settlement. In addition, the lender will pay our standard closing cost on your behalf at time of settlement. If the lender chooses not to pay our fee, you will not be liable for it.

Q: What are the chances of my short sale being approved?

A: This is impossible to answer. Lenders look at each short sale on a case by case basis. Once your file is reviewed by one of our experts, we can provide you with more specific feedback. Banks are approving tons of short sales every day for homeowners just like you. The biggest obstacle they are facing is that, in many of these situations, the buyer is no longer available by the time the short sale gets approved. That is why it is extremely important for your Real Estate Agent to keep the buyer informed throughout the short sale process and set realistic expectations. If you don't maintain the buyer, you don't have a short sale.

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