What is a Short Sale?

short sale

A Short Sale is a real estate transaction where the home owner owes their lender(s) more than the property is actually worth. This means that the bank must first approve the loss they would take should the home be sold. If you’re behind on your mortgage and need to sell your home, contact us and we can help.

I Need To Sell My Home. Would I Qualify for a Short Sale?

Probably. There is a lot of rumor and hearsay about short sales that can often lead to confusion. If you have no equity in your home and NEED to sell, then you are probably a good candidate. What a lot of people don’t realize is that the bank makes their decision to approve or deny a short sale based off of what will cause them to lose the least amount of money, not who has the biggest hardship!

What Banks Do You Work With?

When it comes to negotiating a short sale, I don’t pick and choose the easiest banks to work with, I will work with any lender in the country to negotiate a short sale on your behalf.

How Long Does It Take To Complete A Short Sale?

From the first time that we meet to the final settlement on your home, the time frame is roughly 5-8 months. Here’s how that time breaks down:

Get home listed on the market and get the short sale package put together on the property. This time frame depends completely on you as the owner getting the necessary short sale package returned to us ASAP, but should only take a week at most.

Market the property to get an offer in as quickly as possible. When we put a short sale up on the market the intent is to place the property at or just below market value in order to get an offer to the lender as quickly as possible. This can take anywhere from 30-90 days.

Once we get an offer in, submitting it to the bank is the next step. Trying to get a bank approval can happen as quickly as 1 week to as long as 90+ days, but usually we see approvals happen within 45-60 days. This process is very labor intensive for us as agents, and typically involves 50+ phone calls and emails to the lenders involved in order to make it all work.

After the bank approves the sale, getting the deal to settlement can take as little as 2 weeks, or as long as 30 days. At this point we are under the gun, so to speak, to make the settlement happen because the bank’s approval of the short sale is only valid for a very limited time frame, and it’s important that we do everything we can to ensure that we don’t miss the deadline.

What Tax Liability Will I Have If I Do A Short Sale?

When you do a short sale, it is typical that the lender may report the amount of the loss to the IRS as income, via a 1099-C, cancellation of debt. The Mortgage Debt Relief Act of 2007 Has offered tax relief to people who have gotten a 1099-C from their lender, but it is imperative that you consult with a tax adviser on this issue. More information can also be found on the IRS website.

If your home is lost to foreclosure, the lender will typically do a 1099-A, which is “Acquisition or Abandonment of Secured Property”. 99% of the time the amount of loss is greater in a foreclosure than it is in a short sale, so if you are likely to receive a 1099 either way, it’s in your best interest to consider a short sale where the loss liability is typically less.

What Are My Credit Consequences in a Short Sale?

It is difficult to gauge exactly how much damage there will be to your credit. Once you are 30 days behind on your mortgage, the lender has the right to report that to your credit. Quite often people will end up with multiple lates reported on their credit and when the short sale is completed the lender will report the debt as “settled” or “paid in full for less than the full amount”.

short sale

Can The Bank Pursue Me For The Amount Of Their Loss?

It is possible that a lender can pursue the homeowner after a short sale or a foreclosure for the amount of loss that they take. Maryland is a “Judicial Foreclosure” state, which means that they can hold the debtor liable. It is not unusual for a lender to require a cash settlement or promissory note be signed for some portion of the loss as a condition of short sale approval. While we do everything in our power to minimize the amount of liability for our clients, we cannot promise how your lender will handle the debt.

Because Maryland is a Judicial Foreclosure state, your lender may have the ability to pursue you for their loss should the home go to foreclosure. This is one of the reasons that a short sale is so important, because the amount of that loss is often greater with a foreclosure than it is with a short sale.

How Long Will It Take The Bank To Foreclose on My Home?

This varies greatly, and in Maryland that number can be as little as 6 months, although the average is a little over 1 year, and in some cases people have been in their homes for as long as 4 years without having made a mortgage payment!

When Should I Call You To Start The Short Sale Process?

Time is of the essence, and as a Realtor, I am limited by the amount of time it takes to complete a short sale vs. the amount of time it takes for the bank to foreclose. The sooner you contact an agent to assist you with a short sale, the better your chances are of successfully completing the process.

35,000 Great Reasons To Do A Short Sale

Thinking About A Short Sale? How Does $35,000 Sound?

That’s a lot of cash. For one of my clients who sold his house as a short sale in Maryland last month, that’s exactly how much Chase Mortgage gave him. Why don’t more people know this is possible? Odds are good that their Realtor isn’t even aware!

A few short years ago getting any proceeds from a short sale was harder than winning an Olympic gold medal, but then the government released the Home Affordable Foreclosure Alternatives (HAFA) program, and suddenly homeowners were seeing up to $6,000 in proceeds from their lender in exchange for successfully completing a short sale.

Why HAFA Isn’t As Cool Anymore

There were a few problems with the program, however. The guidelines were limiting, the banks never help up their end of the agreement, and sellers were left frustrated. The problems weren’t a complete surprise; frustrated home owners at risk of foreclosure are already used to the bureaucracy involved in government sponsored loan mod programs, why should a government sponsored short sale program be any different?

Banks Are Giving Home Owners Big Bucks to do a Short Sale

All of that is starting to change. Banks finally started looking at the cost of actually foreclosing on people (especially here in Maryland, where the process averages 3 years!) and they realized that the lost a lot less money by doing a short sale! Thanks to a number of factors, banks have started paying people to short sale their home!

Lenders are cutting some pretty big checks, too. Instead of a $6,000 maximum, we are closing deals for sellers with banks contributing up to $35,000 in relocation assistance in exchange for the short sale! Not only that, but they are guaranteeing to waive any deficiency on the seller!

People that are underwater and struggling with their mortgage payments have been quietly handed a golden opportunity to cut their debt and start over. The lenders have even sent out letter encouraging people to consider the offer, but many are ignoring it completely, assuming that the latest letter from the bank is just more bad news.

Short Sales Make A Lot Of Sense

Short sales are about more than just facing a financial hardship with your home. It’s a chance to erase debt, buy again in 2 years, and put your massively underwater mortgage behind you. All that being said, it’s a lot easier to work towards that goal when your bank is paying you to do it!

Want More Information About Doing A Short Sale?

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Maryland Short Sale Calculator – How Long Will It Take You To Break Even?

short saleAre you underwater on your home’s value?  Over 30% of the country is currently underwater, but most home owners don’t know how long it’s going to take for them to break even again on owning their home.

Our calculator is designed to help people figure out how many years until their home is an asset rather than a liability.  Most people don’t realize that by doing a short sale you could actually buy another home again within 2-3 years of doing a short sale, whereas waiting out the market could take 7-10 years.
Our calculator is completely confidential and free!
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Do You Need to Stop Making Mortgage Payments to Qualify for a Short Sale?

Short sales are a great way to wipe out your debts, but it can be a hard ball to get rolling. If you tried to get a loan modification and you’re nearing foreclosure, you most likely already qualify for a short sale; but if you are just starting to fall behind on your mortgage payments or are upside down on your mortgage, you may not be there yet. Getting your lender to authorize a short sale will mean finding a buyer and getting everyone who holds your debts to agree to the sale price.

You Can Still Make Your Payments During a Short Sale

Contrary to the information that’s out there, you can keep paying on your mortgage until the home is sold, depending on the lender. You may even be able to salvage your credit and be in a new home as long as you weren’t delinquent on your payments. If you’re not able to sell your home on a short sale offer, you’ll be able to cancel the listing and stay in your home, and keep making your payments. While this isn’t the happiest outcome for someone who needs to relieve themselves of a mortgage payment every month, you’ll be able to stay in your home and you won’t be penalized.

If You Choose to Quit Paying Your Mortgage During a Short Sale

If you choose to quit paying your mortgage payments and pursue a short sale offer, there are some benefits. First, if your house doesn’t sell you’ll have enough money to move out and move on; I don’t even have to go over all of the expenses of moving in Southern Maryland. If the bank isn’t getting your hard earned money, they’re more likely to agree to a short sale to recoup their losses, but they may pursue a deficiency judgment against you if they’re unable to get the full debt repaid.

If the Short Sale Fails, is Foreclosure an Option?

If you can’t find a buyer for your Southern Maryland short sale home, you may face foreclosure for stopping your mortgage payments. This is just one of the consequences you might face for not paying, so you need to be prepared just in case. Many people start down the road to a short sale, stop making their payments and inadvertently end up in foreclosure; with the right Southern Maryland real estate agent (like me!) who specializes in short sales, you’ll have a better chance of avoiding foreclosure and saving your dignity.

If You Stop Making Payments and a Short Sale Succeeds

Congratulations, you’ve escaped foreclosure! But if you stop making payments you may face derogatory reports on your credit to the big three bureaus. You’ll also have to wait 2+ years to qualify for a Fannie Mae mortgage.

If you want your short sale to succeed, you need a southern Maryland real estate agent that’s been through the process before and can guide you through it. Check out my short sale information form here.

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How Does a Short Sale Work?

A Short Sale is the best way to sell your home if you are underwater on your mortgage.

The way it works is when you go to sell your home, your Realtor negotiates directly with your lender to convince them to take a loss on the principle balance of your loan (i.e., what you still owe)

In order for this to work, your lender needs to be given proof of financial hardship showing why you are unable to continue paying the mortgage.

You Don’t Need To Be Late On Your Mortgage!

It’s a common misconception that home sellers need to actually be in default on their mortgage in order to be eligible for a short sale.

That’s not completely true.

While there are still some lenders that want to see a seller in default, the vast majority will actually consider a short sale where the owner has not stop paying the mortgage.  In situations such as this the lender will want to see proof that default is “eminent”, whether that be due to job relocation, an adjustable rate mortgage (ARM) that’s about to reset, death, family illness, etc.

What Paperwork Will My Lender Need?

Every lender is different but most of the paperwork they require remains the same.  Documentation that a lender will typically require includes:

  1. Authorization Letter Filled Out (Our Short Sale Negotiator will be sending this to you)
  2. Hardship Letter (Stating why you are unable to pay the mortgage, and why the bank needs to do a short sale on your property, signed by all parties)
  3. 2 years of tax returns (They can be requested via 4506-T IRS form, Needed for all parties on the mortgage)
  4. 2 months of bank statements for all parties (full statement, not just the front page)
  5. the last 2 pay stubs for all parties
  6. A full list of personal assets, income and expenditures

Each lender also has their own set of required forms which our negotiating team can provide as necessary.

How Long Does A Short Sale Take?

From the time a home is listed as a short sale to the time it goes to closing takes about 6 months.

How Do I Start The Short Sale Process?

Getting a short sale started is easy.  Simply give us a call at 301-653-8113 or click here to fill out a short sale request form and we will contact you directly to help get the process started.  A short sale is the best way to regain control of your financial destiny and stop your lender from ruining your future credit.

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