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If you're
thinking of selling your home, and you expect that the total
amount you owe on your mortgage will be greater than the
selling price of your home, you may be facing a short sale.
A short sale is one where the net proceeds from the sale
won't cover your total mortgage obligation and closing
costs, and you don't have other sources of money to cover
the deficiency. A short sale is different from a
foreclosure, which is when your lender takes title of your
home through a lengthy legal process and then sells it.
1. Consider loan modification
first. If you are thinking of selling your home because of
financial difficulties and you anticipate a short sale,
first contact your lender to see if it has any programs to
help you stay in your home. Your lender may agree to a
modification such as: Refinancing your loan at a lower
interest rate; providing a different payment plan to help
you get caught up; or providing a forbearance period if your
situation is temporary. When a loan modification still isn’t
enough to relieve your financial problems, a short sale
could be your best option if:
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Your
property is worth less than the total mortgage you owe
on it.
-
You have a
financial hardship, such as a job loss or major medical
bills.
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You have
contacted your lender and it is willing to entertain a
short sale.
2. Hire a
qualified team. The first step to a short sale is to hire a
qualified real estate professional and a real estate
attorney who specialize in short sales. Interview at least
three candidates for each and look for prior short-sale
experience. Short sales have proliferated only in the last
few years, so it may be hard to find practitioners who have
closed a lot of short sales. You want to work with those who
demonstrate a thorough working knowledge of the short-sale
process and who won't try to take advantage of your
situation or pressure you to do something that isn't in your
best interest. A qualified real estate professional can:
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Provide you
with a comparative market analysis (CMA) or broker price
opinion (BPO).
-
Help you set
an appropriate listing price for your home, market the
home, and get it sold.
-
Put special
language in the MLS that indicates your home is a short
sale and that lender approval is needed (all MLSs
permit, and some now require, that the short-sale status
be disclosed to potential buyers).
-
Ease the
process of working with your lender or lenders.
-
Negotiate
the contract with the buyers.
-
Help you put
together the short-sale package to send to your lender
(or lenders, if you have more than one mortgage) for
approval. You can’t sell your home without your lender
and any other lien holders agreeing to the sale and
releasing the lien so that the buyers can get clear
title.
3. Begin
gathering documentation before any offers come in. Your
lender will give you a list of documents it requires to
consider a short sale. The short-sale “package” that
accompanies any offer typically must include:
-
A hardship
letter detailing your financial situation and why you
need the short sale
-
A copy of
the purchase contract and listing agreement
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Proof of
your income and assets
-
Copies of
your federal income tax returns for the past two years
4. Prepare
buyers for a lengthy waiting period. Even if you're well
organized and have all the documents in place, be prepared
for a long process. Waiting for your lender’s review of the
short-sale package can take several weeks to months. Some
experts say:
-
If you have
only one mortgage, the review can take about two months.
-
With a first
and second mortgage with the same lender, the review can
take about three months.
-
With two or
more mortgages with different lenders, it can take four
months or longer.
When the bank
does respond, it can approve the short sale, make a
counteroffer, or deny the short sale. The last two actions
can lengthen the process or put you back at square one.
(Your real estate attorney and real estate professional,
with your authorization, can work your lender’s loss
mitigation department on your behalf to prepare the proper
documentation and speed the process along.)
5. Don't expect a short sale to
solve your financial problems. Even if your lender does
approve the short sale, it may not be the end of all your
financial woes. Here are some things to keep in mind:
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You may be
asked by your lender to sign a promissory note agreeing
to pay back the amount of your loan not paid off by the
short sale. If your financial hardship is permanent and
you can’t pay back the balance, talk with your real
estate attorney about your options.
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Any amount
of your mortgage that is forgiven by your lender is
typically considered income, and you may have to pay
taxes on that amount. Under a temporary measure passed
in 2007, the Mortgage Forgiveness Debt Relief Act and
Debt Cancellation Act, homeowners can exclude debt
forgiveness on their federal tax returns from income for
loans discharged in calendar years 2007 through 2012. Be
sure to consult your real estate attorney and your
accountant to see whether you qualify.
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Having a
portion of your debt forgiven may have an adverse effect
on your credit score. However, a short sale will impact
your credit score less than foreclosure and bankruptcy.
Note: This article provides
general information only. Information is not provided as
advice for a specific matter. Laws vary from state to state.
For More Information, Call Dave
at: 208-602-1099
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