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.

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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