Shortsale Q&A

 

Foreclosure/Short Sale

In the past 12 years House Buyer Florida has closed over 300 short sales. Below are some of the most common questions we’ve encountered in our 22+ years of real estate experience related to short sales.

 

Frequently Asked Questions:

Q. What is a short sale?

A. A short sale is, simply put, a negotiated settlement or a reduced payoff of the loan attached to the property that is worth less than what is owed. All we are doing in a short sale situation is helping the homeowner negotiate a lower payoff so that we can close the transaction without the homeowner having to come to closing with money.

 

Q. Do you charge any fees for a short sale?

A. No, we do not charge any fees to do a short sale. We make money by either purchasing the home or having a retail buyer purchase the home.

 

Q. Will the homeowner get any money from the sale?

A. No. A requirement of the lender in granting a short sale is that the homeowner will not receive any money from the sale of the property. The lender is going

to take a loss, so they are not willing to have the homeowner receive any money from the sale.

 

Q. How long does a short sale take?

A. A short sale negotiation process can be anywhere from three months to six months. It is very important that the homeowner be patient during this long process.

 

Q. Can the homeowner stay in the house?

A. The homeowner owns the home until the auction, so they can stay in the home; however the purpose of a short sale is to get the property sold. We find that it is easier to sell the house if it is vacant, so the homeowner should make plans to move out as soon as possible.

Q. Will the homeowner still own the lender money after closing?

A. Maybe or maybe not. The mortgage note makes the borrower responsible for the loan. When the short sale is granted, or if the property goes to foreclosure, the borrower still owes the unpaid balance (deficiency) to the lender and the lender may or may not try to collect this deficiency. Our goal is to have the lender waive the deficiency, and in most cases this can be accomplished. One thing that the lenders’- have been doing in the last year is having the homeowner sign an unsecured note for a partial settlement. The lender may also grant a full release and total satisfaction, which means that the note is satisfied completely.

Q. What is the short sale process?

A. The first step is to collect financial documentation from the homeowner. Secondly, we create a package that contains this and other information and send it to the bank along with an offer. The third step is to then request a bank appraisal on the property. After the bank has received the appraisal, they will then accept the offer or counter the offer. Finally, if the offer is not accepted, we will market the property aggressively to sell as soon as possible in order to stop the foreclosure.



Q. What happens if a short sale doesn’t work?

A. The home will likely go to foreclosure. A short sale is something that is attempted after all other options have been exhausted.


Q. What about the 1099 that the homeowner is going to get?

A. If a full release and satisfaction is given, then there may or may not be tax consequences. Talk to your tax accountant because everyone’s tax situation is different.  The Mortgage Forgiveness Debt Relief Act of 2007 may pertain to your situation.  It states that the discharges of indebtedness on principle residences will not receive a 1099 in connection with a foreclosure or short sale.  The act currently affects the tax years of 2007, 2008, 2009, and 2010.

 

 

 

 

FORECLOSURE VS. SHORT SALE Homeowner Consequences

 

ISSUE
FORECLOSURE
SUCCESSFUL SHORT SALE

Future Fannie Mae Loan- Primary Residence

A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period of 5 years.

A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed mortgage after only 2 years.

Future Fannie Mae Loan- Non Primary

An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae-backed  investment mortgage for a period of 7 years.

An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed investment mortgage after only 2 years.

Future Loan with any Mortgage Company

On any future application, a prospective borrower will have to answer YES to question C in section VIII of the standard 1003 form that asks " Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?" This will affect future rates,

There is no similar declaration or question regarding a short sale.

Credit Score

Score may be lowered anywhere from 250 to more than 300 points. Typically will affect a credit score for over 3 years.

Only late payments on mortgage will show, and after sale, mortgage is normally reported as 'paid as agreed', 'paid as negotiated', or 'settled'. This can lower the score as little as 50 points if all other payments are being made. A short sale's effect can be as brief as 12 to 18 months.

Credit History

Foreclosure will remain as a public record permanently, and on a person's credit history for 10 years or more.

A short sale is not reported on a credit history. There is no specific reporting item for 'short sale'. The loan is typically reported 'paid in full', 'settled'.

Security Clearance

Foreclosure is the most challenging issue against a security clearance outside a serious misdemeanor or felony conviction. If a client has a foreclosure and is a police officer, in the military, in the CIA, security, or any other position that requires a security clearance, in almost all cases clearance will be revoked and the position will be terminated.

On its own, a short sale does not challenge most security clearances.

 

Current Employment

Employers have the right and are actively checking the credit of all employees who are in sensitive positions. In many cases, a foreclosure is a reason for immediate reassignment or termination.

A short sale is not reported on a credit report and is therefore not a challenge to employment.

Future Employment

Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.

A short sale is not reported on a credit report and is therefore not a challenge to future employment.

Deficiency Judgment

In 100% of foreclosures (except in those states where there is no deficiency), the bank has the right to pursue a deficiency judgment.

In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.

Deficiency Judgment (amount)

In a foreclosure, the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment.

In a properly managed short sale, the home is sold at a price that should be close to market value, and in almost all cases will be better than an REO sale resulting in a lower deficiency.