1. Define a short sale?
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the current debtor. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers.
2. Who Qualifies for a Short Sale?
In order to qualify for a short sale, the seller must prove to the lender one or more of the following conditions:
- Loss of job, and difficulty in finding new suitable job
- Job Relocation, when equity is deficient
- High medical expenses due to disability, injury or illness in family
- Divorce
- Unable to afford the loan from the beginning
- House needs unexpected major repairs
- Overextended Credit
- Changing Economy
- Adjustment in mortgage payment due to interest rate or an unforeseen increase in living expenses
These are also the most common reasons for foreclosure.
3. What happens to a seller’s credit rating when they short sell their property?
What typically happens is the loan will show up as “paid” on their credit report; however there will be a notation that says “settled for less than originally owed” or something along these lines. It is more favorable for a homeowner to short sell than to have a foreclosure on their credit report.
Foreclosure or Deed-in-Lieu of Foreclosure
Both these solutions affect credit the same. Sellers will take a hit of 250 to 280 points. This means if a seller’s FICO score before foreclosure was 680, it could dip as low as 400.
Short Sale
The affect of a short sale on a seller’s credit report is much less damaging. The ding on credit will show up as a pre-foreclosure in redemption status, which will result in a loss of 80 to 100 points. This means a short sale with a previous FICO of 680 will see it fall to 580 to 600.
4. How long is the waiting period before buying another home?
Foreclosure or Deed-in-Lieu of Foreclosure
A seller who wants to buy another home after foreclosure will end up waiting about 36 months before a lender will offer any kind of interest rate that makes sense.
Short Sale
The good news for short sale sellers is the wait is much shorter before buying another home. They can buy again in about 18 months.
5. Can a seller/borrower negotiate a short sale for themselves?
Yes, but doing it alone and on the phone with the lender leads to inconsistent results that are frequently not acceptable to the seller/borrower. Working with us, we provide written and verbal negotiations, and are experienced in negotiating and navigating successful short sales that yield successful results for the seller/borrower.
6. Can any Real Estate Agent assist me in selling my home in a short sale situation?
Possibly, but usually you have only one shot to succeed in a short sale transaction. It is therefore highly recommended you choose to work with a REALTOR experienced in short sale negotiations that can properly represent you.
7. What documents do I have to include in a short sale package?
Documents depend on the lender. Each lender has different requirements. It is typical to require hardship letter, purchase and sales contract, Estimated Cost Obligation Reporting (ECOR), settlement statement (HUD 1, net sheet, pay stubs, bank statements, personal financial sheet (monthly budget), amongst other things.
8. Will the lender send someone out for an appraisal on a possible short sale?
All lenders order a Broker Price Opinion (BPO) before making their decision to accept or reject the short sale offer. This is similar to an appraisal except the BPO is done by a real estate Broker while an appraisal is completed by a Certified Appraiser. This is the lenders way of assessing the value of the property.
9. I have 2 or 3 mortgages on my home. Can I still do a short sale?
Yes, each mortgage or line of credit (HELOC) can be negotiated individually. It is important to know which mortgage filed the foreclosure or, if more than one are in foreclosure, which one filed first.
10. What if a property needs work, can I still apply for a Short Sale?
Yes. In fact, lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work.
Still have questions? We will contact you to discuss your specific questions and concerns.
Did you know that it is a big myth that that houses do not sell during the winter months? Sellers who wait until spring to list their homes become another property on the market to choose from. Let’s highlight a few reasons why we encourage sellers to list their homes or keep them on the market through the Holidays and the winter months, and not wait until spring.
