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What is a short sale?
The first thing to know is a short sale is when lender(s) voluntarily accepts less money than what is owed on the house. A successful short sale is a positive solution to a negative situation. It is a win-win scenario for the distressed homeowner, who avoids a foreclosure and the lender who avoids having another non-income generating mortgage or real estate owned (REO) property. By accepting a short sale it is possible for them to quickly recover more of their money versus finalizing the foreclosure.
How long does a short sale approval take?
Once we receive your complete short sale paperwork, we will establish contact with your lenders and lien holders by submitting an authorization request. But, your lender will not “open the file” until a buyer is in place and has a purchase agreement ready. Our team of real estate agents understand how to aggressively market your property to find a buyer fast.
When an offer is received we will complete the short sale package and submit it to the lender(s). It can take up to 90+ days for the short sale to be approved and the acceptance letter to be received, plus an additional 30 days for the buyer to close. If a foreclosure sale date is less than 10 days away we will focus our efforts to postponed the sale and allow the buyer enough time to close. Keep in mind that the offer must meet the NET Proceeds amount the lender(s) expect in order to successfully get it postponed.
How will a short sale impact my credit rating?
Once we gain short sale approval the dreaded “Foreclosure” mark on your credit will be avoided. It is most likely that your account will show as “Settled”. The most common negative marks on your credit will be the 30-60-90-120 day late mortgage payments, which will directly impact your overall credit score. Generally, 2nd mortgages, may be charged off as a result of the approved short sale.
What are the financial consequences from a short sale transaction?
Please note that we are not CPA’s, tax accountants, financial planners, or attorneys and the Loss Mitigation Center always recommends that you consult a CPA or attorney for specific answers to your situation.
Short sale of your primary residence
The Mortgage Debt Relief Act of 2007 alleviated much of the tax consequences. We encourage you to review the Mortgage Debt Relief Act of 2007 for more information.
In a short sale for residences other than your primary
You could be taxed for the difference (short fall balance) between what the bank accepts as payment and what you currently owe on the mortgage(s). The short fall balance could be considered as income by the IRS, and you could be taxed on that income. Visit the IRS web site on more specific information relating to this issue: Questions & Answers on Foreclosure and Debt Cancellation.
It is important to remember, if the bank agrees to accept your short sale, they will release their lien from your property, but have the right to ask you to sign a promissory note to payback part or all of the difference in exchange for their approval of the short sale. Typically, promissory notes are 0% interest and payable over several years and can commonly be negotiated down or settled for a few thousand dollars at closing. No short sale transaction is the same and that applies to every servicer and every homeowner who is facing foreclosure.
Lending institutions agree that a short sale is more acceptable that a foreclosure mark on your credit report. For example: If your mortgage loan is backed by Fannie Mae and you end up in foreclosure , you cannot get a new Fannie Mae backed loan for 5 years. On the contrary, if you work a short sale on a Fannie Mae loan, they will loan to you again in 2 years.
Please visit New Fannie Mae Guidelines for more information.
Will I receive a deficiency judgment?
A deficiency judgment can arise if the bank sells the house for less than what is owed on the mortgage. The lender will hold you responsible for the unpaid difference between what is owed and what it sold for at the auction. For instance, if you owe $100,000 to the mortgage company and as a result of the sale they receive a proceeds check in the amount of $75,00 the remaining difference (deficiency) of $25,000 can be moved into a judgment against you. This will also appear on your credit report along with the foreclosure. The lender may be allowed to take further legal action such as garnishing wages to pursue payment based on the laws of your state. Some states have restrictions and regulations on deficiency judgments, but unfortunately the majority does not.
Some lenders will choose the deficiency judgment while others may pursue a path to write off the loan. If they choose to write off the loan, the lender may issue a 1099 form which you will have to pay taxes on for the calendar year. We always recommend that you consult with a CPA to review the tax liabilities for your situation.
How much money can I receive from doing a short sale?
One of the terms of an approved short sale is that the seller (homeowner) will not receive any proceeds from the transaction. Since the lender is going to take a financial loss by accepting the short sale. A homeowner who receives any money resulting from the short sale transaction is considered bank fraud. The Loss Mitigation Center conducts all short sale transactions legally, ethically, and morally right.
Short sale is Approved. Can I stay as the new tenant?
The answer is a definitive No. The lender(s) are going to take a financial loss by accepting the short sale, they will not permit the homeowner to receive ANY financial benefit under any circumstances. Your occupancy after the lender accepts the short sale could be interpreted as a benefit and therefore considered as bank fraud. This is the primary source of "Foreclosure Rescue Scams" you continually see and read about in the news. We do not recommend that you consider that option.
As the owner, do I have to pay you to do a short sale?
We focus on negotiating and executing a “Cashless Closing” for you the seller. There are some situations where we cannot negotiate a “Cashless Closing.” Some 1st and 2nd lenders may ask for the seller to “contribute” to the short sale. We make every effort to get all liens through every other channel possible (buyers, brokers, lenders, etc.) and only come back to ask you as a last resort.
I filed for bankruptcy, can you still help me?
If the property is still in an active bankruptcy, then the answer is No. Bankruptcy is federal protection from creditors. As a result, your lenders are not allowed to discuss a short sale with you or your agents, until the bankruptcy is discharged, dismissed, and the court issues a relief from stay or the bankruptcy trustee allows an abandonment of asset. We may be able to proceed with doing a short sale, once the property is out of the bankruptcy.
Who pays for your service?
The fee for our service is based on the purchase price of the home and is to be paid by both the buyer and the seller. Your portion is paid from the proceeds of the sale, similar to a real estate commission and your property taxes. In some instances the foreclosing lender will not allow our fee to be paid from the proceeds of the short sale. If this situation occurs, we require the real estate brokers to contribute accordingly to cover your portion of our fee. We clearly define our relationship and execute our Loss Mitigation Service Agreement with the homeowner's signature.
How do I begin?
Fill out the Homeowner Assistance Request form. After we receive your request we will schedule a meeting with you to get a clear understanding of your situation and go over our short sale package and checklist. Once we receive the documents in the package that enable us to will begin the short sale process.
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MANDATORY FTC DISCLOSURE: We are a for-profit company. The Loss Mitigation Center is not associated with the government and our services are not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage you could lose your home and damage your credit rating.
IMPORTANT: We DO NOT provide the services of nor do we act as bankruptcy counselors, attorneys, lenders, accountants, financial planners, financial counselors, nor are we a debt relief agency. The content of our website is not legal advice and represents our opinions only.