About Short Sales
About Short Sales
Your questions... Answered!
- What is a short sale?
- Why a short sale?
- How do I qualify for a short sale?
- Can I short sale my home if my payments are current?
- Can I short sale my house if I've been in bankruptcy, or if I'm already in foreclosure?
- How do loan modifications effect the short sale?
- Can I do a short sale if I have a second mortgage?
- How will a short sale affect my credit?
- How long will I have to wait until I can qualify to purchase another home?
- What do lenders typically consider in a short sale transaction?
- What is the Short Sale Process?
- Can I do my own short sale?
- How long does it take to complete a short sale?
- Can I stay in my home during the home sale/short sale process?
- What do I do if I have an upcoming foreclosure or trustee sale date?
- Short Sale Resources
A short sale is a transaction where the lender(s) or lien holders agree with the Owner of the property to accept less than what is owed on the property in order to complete a sale transaction and close an escrow. Back to top
Why a short sale?
Most people chose to do a short sale in order to avoid a foreclosure on their credit. There are credit ramifications as a result of the short sale, however, in today's lending world, short sale credit issues are less damaging and more quickly accepted in terms of rebuilding one's credit in the future. Back to top
How do I qualify for a short sale?
The first thing to do is to call your lender(s) and ask for a short sale application package, or what they will require to begin the process. Next you need to hire a specialist with a team such as ourselves, who can assist you with your lender packet, if you have one, and provide you with all of the tools necessary to complete a successful short sale. Once you've employed our team, we handle all of those type of details for you. Back to top
Can I short sale my home if my payments are current?
Possibly. All lenders have different guidelines for their approval of a short sale and every case is different. You may want to call your lender and ask that specific question of them. They will generally only consider the short sale of your home if you are in some sort of distressed or financial hardship situation. Some examples of hardship are:
- Unemployment
- Relocation
- Higher Living Expenses
- Investment Loss
- Increased Bills
- Divorce
- Medical emergency / sudden illness
- Bankruptcy
- Death
Can I short sale my house if I've been in bankruptcy, or if I'm already in foreclosure?
Yes. There are too many variables and this can be a very complicated question. But the answer is yes, provided your lender does not have a time restriction prior to the foreclosure sale date, or a previous action taken by you with the lender precludes you from qualifying for a short sale. Back to top
How do loan modifications effect the short sale?
Many people attempt to do loan modifications, some with success, some without success. The terms of the successful loan modification may pre-determine the possibility of an eventual short sale, and in our experience, many people who are unsuccessful with their loan modifications are directed by their lender(s) to do a short sale. Each case is different. Back to top
Can I do a short sale if I have a second mortgage?
Yes. Even if you have two different lenders, it is more beneficial for the subordinate lender to settle with a short sale. If the home goes to foreclosure, the second lien holder will likely get nothing. Back to top
How will a short sale affect my credit?
The main advantage of a short sale is not having a foreclosure on your credit report. Short sales may still show up on a credit report as a pre-foreclosure that has been redeemed. Although this can result in a credit score reduction of 100 points or less, a foreclosure will usually reduce your score by more than 250 points. Back to top
How long will I have to wait until I can qualify to purchase another home?
The good news for short sale sellers is the wait is much shorter before buying another home vs. a foreclosure. "They can buy again in about 18 months at a good interest rate," says some lenders. According to Fannie Mae, an individual that forecloses must wait 5 to 7 years, maintain at least a 680 FICO score in the last 2 years, and pay a minimum 10% down on a future home purchase. We have seen customers purchase a new home in as little as two years after their previous short sale. Back to top
What do lenders typically consider in a short sale transaction?
Net Proceeds: The lender agrees to accept the net proceeds from the closing (the sales price, minus the cost of closing the transaction, including broker commissions), perhaps with some additional consideration from the seller (such as a promissory note) in exchange for releasing its lien. Lenders do not agree to short pay-offs to be generous. In negotiating the short pay-off, the lender needs to be convinced that it will come out better than it would by foreclosing on the property and pursuing the seller/borrower for its losses. Though short pay-off procedures vary somewhat from lender to lender, most lenders need to be convinced of the following:
Sales Price: The sales price under the proposed contract is equal to or higher than the amount for which the lender would be able to sell the property after a foreclosure. The lender will require a market analysis from the REALTOR® hired to list the property. The lender will often confirm the market analysis by contacting its own sources, such as an appraiser, real estate agents which handle their REO sales, ordering their own BPO (Broker Price Opinion) from a local Realtor®
Hardship: The lender will want an explanation of the circumstances which created the need for the short pay-off transaction. Common explanations include divorce, medical problems, death, birth of a child taking one wage earner out of the work force, birth of children making the existing home too small, loss of a job, or a job transfer creating the need for a move.
Verifications of the Owner/Seller's Financials: The lender(s) wants to ensure the seller doesn't have the money to make up the shortfall on their own. To verify the financial condition of the seller/borrower, the lender will require: financial statements showing the seller's assets, liabilities, income, and expenses; the seller's tax returns for the previous two years; and the seller's paycheck stubs for the most recent pay periods. The most common disputes which arise in short payoff sales concern the seller's financial condition. On the one hand, the lender will be reluctant to approve a compromise without having the ability to analyze the financial strength of your seller. On the other hand, if this information is provided, it is possible the lender(s) will not approve the short sale without wanting the seller to make a financial contribution. Back to top
What is the Short Sale Process:
Step 1: Determine if a Short Sale is Right For You.
Give us a call at 805-577-7902. As real estate agents, we are prohibited from giving tax or legal advice, however, we have aligned ourselves with tax & legal professionals to help you determine if a short sale is your best option.
Step 2: Obtain Required Documentation
Most lenders require specific documentation, and they don’t all require the same thing. Once you’ve made the decision to apply for a short sale, you can expect the lender will require some or all of the following (which we will help you with):
- Authorization to Receive & Convey Information
- Residential Listing Agreement
- Letter of Hardship
- Signed Purchase Contract
- Net settlement worksheet (estimate HUD)
- BPO (Broker Price Opinion)
- Completed financial statement
- Two (2) years income tax returns
- Three (3) months bank statements
- Payoff demand statement(s) from mortgage holder(s)
- Last 2 month’s mortgage stubs from lien holder(s)
- Copy of the NOD (if already filed)
Step 3: Market the Property
The home is marketed to potential buyers through various channels.
Step 4: Negotiation of the Short Sale
Once there is an offer on your property, we submit the offer and paperwork to the lender and negotiate the deal. Negotiations can be tedious and take time. It’s best practice to continue to market your home and get backup offers because if your first offer wasn’t high enough, the lender will counter and tell you they need a higher offer. An ideal offer is one that is close to the appraised value of the house.
Step 5: Finish the Transaction
If the offer is in the neighborhood of the appraised value, most likely the lender will green light the deal. The next and final step is to begin escrow and close the transaction. Back to top
Does it cost the homeowner/seller to do a short sale?
We realize the homeowner is not likely willing or able to pay someone to facilitate a short sale transaction. We dedicate ourselves to providing you with services that will be of no charge to you. Back to top
No. In California, you need a licensed and experienced real estate professional to perform a short sale. Most Real Estate Agents do not have the knowledge or skill to perform a successful short sale but rest assured that our team is experienced and will guide you through the sale with extreme care. Back to top
How long does it take to complete a short sale?
It varies from lender to lender and is HIGHLY dependent on the follow-up of your real estate agent, the lender's negotiator(s) assigned to your file and any 3rd parties involved in facilitating the short sale transaction (ie: negotiators, attorneys, escrow companies, etc.) and whether the prospective buyer of the property is still interested in the home by the time the lender(s) respond to their offer. It can take as little as 2 months on upwards to 6 months or longer. Back to top
Can I stay in my home during the home sale/short sale process?
You are allowed to live in the home while it is being offered for short sale is being negotiated. You will be expected to leave or vacate the property either on a successful close of escrow or date of sale (foreclosure). Back to top
What do I do if I have an upcoming foreclosure or trustee sale date?
Call us right away at 805-577-7902 and we can discuss your options. More often than not, we are able to contact your lender(s) and negotiate an extension of the sale.
To further explore the possibility of a short sale, avoid foreclosure and potentially save your credit, complete the information below fill in the form below or call us at 805-577-7902 for a free, confidential, no obligation consultation. You may have options!
Explore our website further to learn more about us, the sales process, your home's value, our marketing plan, client testimonials or how we can help you and the people you care about most…
"Helping you get from where you are... to where you want to be!"
- Short Sale Deficiencies Fact Sheet
- 10 Facts for Mortgage Debt Forgivness
- Making Home Affordable (HAFA)
- Home Foreclosure and Debt Cancellation
- The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
Disclaimer: The information contained herein is believed accurate but is not guaranteed. It is intended to provide general answers to general questions and is not intended as a substitute for individual tax or legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.
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