What is a Short Sale?
A short sale occurs when a homeowner sells their home for less than the balance of the amount owed on the property. Typically, the homeowner cannot afford to repay the full balance of the mortgage or mortgages, and we attempt to negotiate with the homeowner’s Lender or Lenders to release the lien or liens, and accept less than the amount owed on the mortgage by selling the property to a third party.
We also negotiate with your Lenders so that you can receive a waiver of deficiency. This means that the Lender will not be able to come after you later for the difference between the amount you owe and what the home sells for.
You may wonder why the bank would have any incentive to accept a short sale when you are significantly underwater. We have had banks accept short sales when the homeowners are up to half a million dollars underwater and when the homeowners have been current, and when the homeowners had significant assets and income.
At Van and Associates Law Firm, our staff has the homeowner’s best interest at heart throughout the short sale process. If you hire us we will review your paperwork for accuracy, negotiate for a waiver of the deficiency, and we discuss your options with you and the ramifications of each option. Call us today! (702) 529-1011
Why a Lender Might Approve a Short Sale
There are many reasons why a bank might approve a short sale:
- When the homeowner is behind on their mortgage, the bank can at try to at least recoup some of the proceeds from the original mortgage through a short sale.
- Plus, the banks save a lot of time, money, and resources by forgoing the foreclosure process.
- Some Lenders have been given incentives by the government to accept short sales rather than foreclose.
- Lenders are not in the business of owning property. They do not want to be responsible for cleaning out the home, marketing, and selling the home while paying the HOA fees, taxes, and insurance. In addition, the Lender does not want to be responsible if the house is vandalized while the home sits vacant.
Why a Lender Might Reject a Short Sale
Sometimes Lenders are not always willing to accept short sales due to the fact that short sales require more time and administrative effort than typical home sales. Furthermore, Lenders have to often deal with other Lenders, mortgage insurers and sometimes liens on the property, thus making the short sale process more complicated. However, we find in most cases we have been able to get the bank to accept a short sale.
Short Sale Success Stories
We have been successful in getting short sales approved when sellers have:
- High income (over $300,000 to even $4,000,000 in income)
- Are current on their mortgages.
- When sellers have assets.
There is no rhyme or reason as to why a lienholder will approve a short sale, so sellers should always at least attempt to short sell their house, rather than foreclose.
Some lienholders just want to get all the bad loans off of their books, or they may want to get out of loans in a certain area.
We have been successful in getting banks to waive up to $500,000 in negative equity on single homes, so I am sure we can help you.
Our short sale team has saved homeowners over 8 million dollars and have been extremely successful in obtaining
deficiency waivers on our closed short sales.
What Does the Short Sale Process Consist of?
Usually we will give you a list of documents for you to fill out. The Lender usually requests the list of documentation below, in addition to the specific application that the Lender requires. Each Lender has different forms specific to their company. Documents that your bank will request include:
- 2 months of bank statements
- 2 months of paystubs
- 2 years of tax returns
- A recent HOA statement
- A recent utility bill
- A hardship letter
During this process while you are completing your forms and gathering your documentation, the Realtor or if you use our Real Estate Team, will list your house as a short sale. Your house will go on to the MLS and other websites, such as Trulia.com, Zillow.com, Homes.com, and Realtor.com so that buyers can find your home and hopefully put a fair market value offer on the house.
You may have to show the home a few times, until a buyer is found, and then you will not have to show the home as often after an offer is accepted. After an offer is agreed upon by the Buyer and Seller, and escrow is open, you may have to occasionally show the house to the Buyer for re-inspections, a home inspector, a BPO agent who will do an appraisal valuation of the home, and the loan officer’s appraiser.
Once we receive your documents and forms, we will review the documents for accuracy and completeness, we will assist you in revising your hardship letter, we will discuss your legal options and the ramifications of each option and we will answer any questions you may have regarding the short sale process.
Short Sale Process
- Although a Lenders’ requirements vary in terms what is needed to initiate a short sale, Lenders typically require financial disclosures of the homeowner (i.e. bank statements, pay stubs, tax returns, etc.), along with some type of appraisal or broker price opinion (B.P.O) of the value of the property.
- After the appraisal or broker price opinion (B.P.O), the Lender will decide whether the property in question qualifies for a short sale, along with informing the homeowner of the minimum price the Lender is willing to accept to proceed with a short sale.
- It is the Lender who decides whether an offer is acceptable and whether to approve the short sale.
- Typically if the short sale is approved, the Lender sends a short sale approval letter to the homeowner, dictating the terms of the short sale. (See link to short sale approval letters.) This short sale approval letter must be strictly followed or the short sale will be declined and the process may have to start all over again.
- In the short sale approval letter the Lender can decide to either waive the deficiency, preserve the right to collect the deficiency, or the Lender may not mention the deficiency at all in the short sale approval letter.
- Another factor in short sales is second liens (often second mortgages). Second Mortgages often make short sales more difficult because Second Mortgages must sign off on the short sale as well. Typically, Second Mortgage Lenders want some compensation as well, so homeowners pursuing a short sale should factor this in.
Short Sale Strategies
- Homeowners should attempt to set aside money or anticipate borrowing money when attempting to do a short sale. Often, Lenders ask for money to release the lien, money to waive the deficiency, etc.
- If the Lender requests paperwork, provide all your paperwork in a timely manner. They sometimes give you only 24-48 hours to return your documents before declining a short sale. This decline means that you will have to start the process all over again.
- Make sure whomever you decide to hire reviews all your bank statements, financial statements, Lender specific forms, and hardship letter to make sure any red flags or mistakes are addressed. It may affect whether your short sale is approved or the amount you will have to pay the Lender as a settlement.
- Be as honest as possible throughout the short sale process.
Benefits of a Short Sale Rather Than a Foreclosure
There are several advantages to doing a short sale rather than modifying a loan or allowing a home to go into foreclosure:
- In many cases it may take years of mortgage payments before your house is worth what you owe. Most mortgage payments on a home loan only cover the interest in the beginning before touching the principal.
- Some people have a payment that is going to adjust higher in the future. Many people have chosen to get out of these unfortunate situations by pursuing a short sale. (It will be more than 20 years until home prices reach pre-bust levels, according to Moody’s)
- A short sale has the potential to bring a new buyer into the property immediately. This avoids foreclosure signs, dangers to the neighborhood of having vacant and non-maintained properties that may become targets to vandalism or squatters.
- If you short sell while current, your credit is usually not as affected. Most of our clients report their credit score fell only 15-30 points if they were current on their mortgage payments. The short sale will be reported as a “debt settled less than the full amount”, “account paid in full for less than full balance”, “paid as agreed, paid as settled”, “negotiated”, “paid in settlement/never late or account legally paid in full for less than full balance”. You can also purchase a house sooner, and in some cases right away. Click here to see examples of short sales we did when the seller was current, and how their credit was affected.
- It will not be in the public records that you were foreclosed upon.
- Credit and loan applications ask whether or not you have had a foreclosure. Currently, credit and loan applications do not ask if you have short sold your home.
- You will be able to qualify for a loan sooner and buy a home sooner if you short sell your home rather than foreclose.
- If you are delinquent when you short sale, your credit score will not be as affected as if you were to foreclose. Usually a foreclosure takes longer, so the longer you are late on your payments the more your credit score is affected. If you short sell while delinquent, your credit score will probably drop 50-80 points per loan that you are delinquent on. The credit score effects of a foreclosure may be 3 years, whereas the credit score effects of a short sale are 12-18 months.
- If you foreclose and hold a high security position, it may affect your employment, so this is another reason to short sell rather than foreclose.
- You can negotiate a deficiency waiver away in a short sale, whereas if you foreclose, the lender can pursue you for a deficiency judgment and garnish your wages, lien your property and freeze your bank accounts.
- In some cases you may be able to get paid by your lender to do a short sale. In some cases, our clients have received $3,000 to $33,000 in compensation for just short selling their house.(Click Here for Details)
If you’ve had a financial hardship such as reduced income or increased living expenses there are also short sale alternatives.
- You can request a loan modification that has the possibility of reducing your principal and/or removing a second mortgage, enabling you to keep your home with a reduced loan balance.
- You can voluntarily give title of your property to the mortgage Lender in exchange for forgiving your mortgage. This deed in lieu of foreclosure is an exit strategy that can avoid the foreclosure process and have less impact on your credit score. This is very rare as banks do not normally grant deed’s in lieu of foreclosure unless all your options have been exhausted.
Another avenue is to reduce a mortgage balance through foreclosure mediation; however it is very rare to see principal reductions in foreclosure mediations.
Van and Associates Law Firm has helped many in the Las Vegas and Henderson community with foreclosure, short sale, bankruptcy, debt settlement, loan modification, government homeowner programs, and personal injury.
Please feel free to contact us today so that we may discuss the options that are available to you.
Van and Associates Law Firm at 702-529-1011