Short Sales
A Real Foreclosure Alternative
**While there is no guarantee to a successful short sale, IT IS VITAL that you have the advice and assistance of a Realtor® who is an expert in the process.
***Brian has been successfully closing short sales for years and has an unheard of 98% success rate closing short sales since 2006.
What is a Short Sale?
Simply put a short sale is a sale of a property negotiated with a lender in which the lender agrees to accept less than the total amount of the loan still due on the property.
Upside Down Properties – This refers to those properties in which the mortgage is greater than the value of the property. In this scenario the financial institution may be willing to forgive some of the mortgage to make a sale possible in order to avoid foreclosure. The amount of the mortgage that is forgiven may or may not be taxable depending on circumstances, negotiations, current tax law and the mortgage company may send the borrower a 1099 form at the end of the year, so consulting with your tax expert is imperitive.
Short Sales have become a preferred method of avoiding foreclosure. This process may result in a negative impact on the borrower’s credit rating, though not as much as a foreclosure since foreclosures are public record FOREVER and applications for home loans and some forms of credit ask "Have you EVER had a Foreclosure or Bankruptcy?"
Note, two things MUST occur for a successful short sale on a property:
- The home must be under a contract to purchase
- The lender must accept the discounted payoff amount
The objective of a short sale is to obtain written confirmation of the recordation of release or satisfaction of mortgage from the mortgage lender upon receipt of the funds.
Remember, there are no guarantees that a lender will accept the discounted payoff amount, no matter what the offer and how proficient your Realtor® is in short sales.
Sound complex? Short sales are tricky, time consuming, and unpredictable, so you’ll need to understand the entire process from beginning to close. This is why it's important to consult a Realtor® who is proficient in the Short Sales process in order to make sure you have the best information available for your situation.
Brian is BOTH a CDPE (Certified Distressed Property Expert) and SFR (Short Sale & Foreclosure Resource Certified) REALTOR®
Unfortunately, the term "Short" does not apply to the length of the transaction as it often takes 3 to 4 months minimum to complete a successful "Short Sale" AFTER an acceptable contract to purchase the property is received.
Benefits of a Short Sale
Benefits to the Seller:
- Helps to maintain credit score by not having a foreclosure on the credit report because most short sales are usually recorded as a payment satisfied or negotiated whereas a foreclosure is a public record FOREVER.
- Often times someone with a Short Sale can qualify for a home loan in as little as 2 or 3 years of responsibly managing their credit after negotiating the short sale.
- A Deficiency Judgment on a short sale is almost always than the deficiency entered from a foreclosure and in some instances can be forgiven. You should always consult proficient Legal and Tax Council to see how these will effect you.
- The seller can, and should, usually continue to live in the home through the negotiation process.
- Most sellers believe that it is morally correct to pay their debts.
Benefits to the Lender:
- The lender doesn't have to go through a lengthy and costly foreclosure process. The costs to foreclose typically run 40% to 45% of the loan amount.
- “Toxic Loans” are removed from their portfolios.
- The cost of REOs are reduced. The lender doesn't have to incur costs for carrying, listing and marketing the property.
- The lender doesn't have to deal with issues like eviction.
- The lender does not have to spend the time and money to correct problems with the home due to defects, deferred maintainence or homeowner’s frustration and acts of desperation destroying the home.
- Eliminates having to sell the home as a REO for a lesser amount than the proceeds of the short sale in a declining market.
- Saves time to work on other properties
Depending on the lender and type of loan involved (Conventional, VA, FHA), short sales processes, programs and requirements can vary widely.
VA Compromise Sale (Short Sale)
If the borrower (seller) is unable to sell the property for an amount that is greater than or equal to what he/she owes on the loan, including closing costs, the VA may pay a “compromise claim” for the difference in order to allow the private sale to go through. The borrower can sell the property to a buyer who gets his/her own financing or to a buyer who qualifies for and may want to assume the loan. However, with a compromise assumption, the lender does have to agree to have the amount of its guaranty reduced by the amount of the claim payment.
In order to be considered for a compromise sale, several factors must be considered:
-
It Must be a VA Guaranteed Loan
-
The property must be sold for fair market value.
-
The closing costs must be reasonable and customary.
-
The compromise sale must be less costly for the Government than foreclosure.
-
There must be a verifyiable financial hardship on the part of the seller.
-
On loans that originated on or before December 31, 1989, the seller must be willing to sign a promissory note.
-
There must be no second liens or other liens (unless the amount is insignificant). In situations whereby there are second liens or other liens, the seller can request that the lienholder consider releasing the lien and converting the loan to a personal loan.
-
The seller must first obtain a sales contract in order to be considered for the program.
-
The sales contract will be contingent and/or subject to the approval of a VA compromise sale by the VA and Lender.