What is a short sale?

During these stressful economic times, many home owners are considering the pros and cons of a short sale. A short sale is when a property is sold at a price that is less than the total loan amount held against the property. The investor holding the note agrees to accept a discount on a mortgage and will release the lien that is secured to the property upon receipt of the agreed amount. For example: If your current mortgage is $200,000, and current market value is $150,000, an offer to the lender for $180,000 is accepted as full payment for the loan.

How soon before I can own again?
FHA LOANS
LENDER Lender A Lender B Lender C
FORECLOSURE Not allowed within 3 years, unless extenuating circumstances can be documented. Completed within 3 years of loan application. Ineligible within most recent 3 years.
Not accepted within 36 months.
CH.7 BANKRUPTCY Must have been discharged at least 2 years with re-established credit. (see Chapter 13 guidelines) Must be discharged 2 years prior to loan application.
CH.13 BANKRUPTCY Allowed if 1 year of the payout period has elapsed. Court must approve the mortgage transaction. Borrower must provide 12 month mortgage rating. Mortgage Included:
1. Re-established credit for 4 yrs
2. No more than 1x30 on any mortgage in past 12 months.

Mtg. Not Included:
1. Follow standard guidelines. 		At least 1 year into payout plan has elapsed.
All payments must have been on time.
SHORT SALE Considered foreclosure Must have re-established credit for 4 years.
No more than 1x30 days late on any mortgage in the past 12 months. 		Permitted if all are met:
1. Must have made all payments due for the 12 months prior.
2. Must have served as full payment of existing lien(s).
3. Not executed to take advantage of declining market.
4. No bankruptcy or foreclosure filed prior to transaction.

CONVENTIONAL LOANS
LENDER Lender A Lender B Lender C
FORECLOSURE 4 years from discharge date. 5 year waiting period with re-established credit. Must be reported within a 5 year period prior to credit report date.
CH.7 BANKRUPTCY 2 years w/ re-established credit & documentation of extenuating circumstances causing BK. Must be filed, discharged, or dismissed 48 months prior to credit report date. Must have been discharged within the 48 month period prior to credit report date.
CH.13 BANKRUPTCY 2 years with re-established credit. 1. Must be discharged 24 months prior to credit report date.
2. Must be dismissed 48 months prior to credit report date.
3. Must not be pending.		 1. 24 months must elapse from discharge date.
2. 48 months must elapse from dismissal date.
SHORT SALE 24 months or greater from completion. Waiting period requirements apply:
* 4 yrs for 90% LTV or less
* 7 yrs for 90.01% LTV to 95% LTV		 Waiting period requirements:
* 2 yrs for transactions with maximum LTV of 80%
* 4 yrs for transactions with maximum LTV of 90%
* 7 yrs for transactions with maximum LTV greater than 90%
Is a short sale right for me?

You should only consider a short sale, if your house is currently worth less than your mortgage balance. This is referred to as "upside down". The primary purpose of a short sale is because you have come to terms with the realization of losing your home and you wish to avoid foreclosure. If you are trying to save your home, a short sale is not for you.

If you're "upside down" and you one of the following apply, a short sale may be the best option for you:

  • you have a hardship, such as a job loss, divorce or medical emergency
  • you're unable to afford your current monthly mortgage payment
  • you're unable to modify your current home loan
You may be considering "walking away" from your home and allowing a foreclosure. Before you do that, consider this about foreclosures:
  • in some states, a foreclosure is a judicial process and you may incure costs
  • a foreclosure will have a more negative affect on your credit than a short sale
  • a foreclosure is an emotionally exhausting procedure
  • foreclosures typically take longer to complete than short sales
I want to keep my house, so what else can I do?
Contact your lender. Most lenders will work with you and explore the various options that may permit you to stay in your home. In addition, there are several Government programs that may apply:
  • Home Affordable Refinancing - Many homeowners pay their mortgages on time but are not able to refinance to take advantage of today’s lower mortgage rates perhaps due to a decrease in the value of their home. A Home Affordable Refinance will help borrowers whose loans are held by Fannie Mae or Freddie Mac refinance into a more affordable mortgage.
  • Home Affordable Modification - Many homeowners are struggling to make their monthly mortgage payments perhaps because their interest rate has increased or they have less income. A Home Affordable Modification will provide them with mortgage payments they can afford.
  • Second Lien Modification Program (2MP) - Many homeowners may be struggling to make their monthly mortgage payments because they have a second lien. The 2nd Lien Modification Program (2MP) offers homeowners a way to lower payments on their second mortgage when their first mortgage is modified under the Home Affordable Modification Program.
  • Home Affordable Foreclosure Alternatives - Many homeowners may feel that they can no longer afford their home, but want to avoid the negative effects of foreclosure. The Home Affordable Foreclosure Alternatives Program offers homeowners $3,000 to help transition to more affordable housing when they complete a short sale or deed-in-lieu of foreclosure.
  • Local Solutions to Avoid Foreclosure - In an effort to combat foreclosures, stabilize communities, and improve the economic condition of families across the country, there are a number of programs and initiatives that provide solutions at the state level.

I'm an investor, can I short sale my rental property?
Yes, but the "hardship" rule applies to investors also. For investors there may also be some income tax issues resulting from mortgage relief. Always consult your tax advisor.
What do I do about my back property taxes when I do a short sale?
Just as in a normal home sale, the property taxes are the responsibility of the homeowner until the date the sale is closed. Then they become the responsibility of the buyer. If your property taxes have not been paid this will affect the negotiations between the buyer and the bank, so you must inform yor Realtor or/and the buyer of the taxes owed.
My home is already listed for sale on the MLS, but isn't selling; can I still do a short sale?
Yes, you can and it is relatively common. Some lenders even require that a house be listed for sale before approving a short sale in order to show that a discount is necessary.
Other people are on the deed with me, but they don't want to short sell. Can I still do a short sale?
No. All parties listed on the deed or mortgage must sign the short sale purchase agreement. There are no exceptions to this.
Will a short sale hurt my credit?
The short answer is YES, but not as much as a foreclosure.

Fannie Mae and Freddie Mac, who hold the loans on a large percentage of the loans in the country have this to say. Fannie Mae only requires two years on a short sale before you can get a new loan. If you allow your house to go into foreclosure, you have to wait for five years and with some new requirements, this can drag this out to 7 years. This makes foreclosure more damaging than even a bankruptcy, which requires a 4 year wait.

One of things that often go hand and hand with a short sale or foreclosure, are the delinquencies leading up to it. If you are late on your payments, creditors will often report these and these will have an adverse affect on your credit.

If you are successful with a short sale, you can show future lenders that you settled and it is not a foreclosure.
Will I get any money back from the sale of my home?
No, because a short sale would allow you to sell your home for less than what you owe, you would not receive any money back at the time of the sale.

There are some special programs that may allow for some relocation assistance. Call me for details.
How long does a short sale take?
A short sale can take a week to several months depending on many factors:
  • the investor holding the loan
  • the number of liens on the property as well as the servicers on those liens
  • the details of the short sale offer
  • the strength of the buyer and their lender
The key to a successful short sale is to be patient, deligent and have a Realtor that understands the process.
What's next and how do I get started?
If it is determined that a short sale is right for you:
  • Gather the following financial documents: previous 2 months bank statements, 2 pay stubs and 2 years bank statments
  • Keep and have your loan information available
  • Contact me and we will devise a plan to market your home, field potential offers and find a buyer
  • Set up times to meet with a tax accountant and attorney to field your important questions
  • After an offer has been reviewed and approved by the lender, you will receive a letter releasing the home for purchase and closing