1. What is a short sale?
A short sale is the process by which homeowners can sell their home for less money than they actually owe on the mortgage. If the sale is approved, the mortgage lender will actually take a loss on the mortgage, not the borrower.
If a bank approves the discount of a mortgage, the home can be sold for a price lower than the amount owed without the seller having to come up with cash to cover the shortfall. The mortgage is satisfied and any foreclosure process stops.
2. How does the bank decide what price to put on the property?
This is specific to the bank. Every bank has a different method of determining if it should accept a short sale.
3. What is the ideal situation for a short sale?
Most short sales are considered on properties heading toward foreclosure. A home is considered in foreclosure if it is behind at least 3 payments.
Also, the homeowner typically has negative equity in the home. In other words, the total balance owed to the lender is equal to, or greater than, the price at which the house can be sold.
The homeowner must also have a financial “hardship” which is preventing them from paying the mortgage.
4. Does a homeowner benefit from a short sale?
First and foremost, a short sale relieves the stress of being in foreclosure and it allows the homeowner to get rid of their big mortgage payment and move on with their lives. A short sale allows you to stop a foreclosure proceeding and get a fresh start. In our experience, this is the primary benefit to the homeowner.
A short sale is arguably the lessor of two evils. Having some late payments, and a foreclosure filed has already done damage to your credit.. However, a completed foreclosure generally does more damage than a short sale agreed to by a lender. Obviously, a bankruptcy significantly damages your credit score.
5. What is “financial hardship” and why is it so important?
“Financial hardship” is a critical part of the short sale equation. No matter what you hear about banks “not being in the business of owning real estate”, they DO NOT easily give homeowners a break. They require GOOD REASON to give a discount for a short a sale.
The only reason a lender will agree to a short sale is if they determine that a short sale will net them more money than proceeding with the foreclosure. Understanding the homeowner’s financial hardship plays a major role in the lender’s estimation of whether or not it will be paid in full for the mortgage. Quite simply, lenders will make the borrower pay the shortfall if there is no hardship.
6. Who owns the house after a short sale?
The purchaser of the house is the owner after a short sale, just the same as in a normal sale. The mortgage lender is paid off and the previous homeowner moves to a different home.
7. What do I do about my back property taxes when I do a short sale?
Just as in a normal home sale, the property taxes are the responsibility of the homeowner until the date the sale is closed. Then they become the responsibility of the buyer. If your property taxes have not been paid this will affect the negotiations between the buyer and the bank, so you must inform me or any buyer of the taxes owed.
8. I have more than 10% equity in my home – can I still do a short sale?
Probably not. However, you may be a candidate for a regular sale.
9. Other people are on the deed with me, but they don’t want to short sell. Can I still do a short sale?
No. All parties listed on the deed or mortgage must sign the short sale purchase agreement. There are no exceptions to this.
10. I have 2 or 3 mortgages on my house. Can I still do a short sale?
Yes, each mortgage or line of credit (HELOC) can be negotiated individually. It is important to know which mortgage filed the foreclosure or, if more than one are in foreclosure, which one filed first.