If you owe more than your home is worth and cannot afford to sell or keep it, you may be eligible for a short sale.
JCPG is highly experienced in the short sale process. We continue to close dozens of short sale contracts each year for both buyers and sellers. We are very familiar with the process and understand what it takes to make the deal work.
What is a short sale?
The term “Short Sale” is used in the real estate business to describe a situation where there is more debt owing against a property than the property is worth. In other words, the owner can’t sell the property unless the creditors (“Third Parties”) agree to accept a payment that is less (or “short”) of the amounts actually owed to those Third Parties. The Third Parties are usually mortgage lenders, mortgage insurers, bankruptcy trustee, and federal, state and local taxing authorities (such as the IRS or State Tax Commission).
How does it work?
A Short Sale requires the written approval of the Third Parties. Consequently, the owner of the property, and any interested buyer, are advised that even if they reach an agreement between themselves for the purchase and sale of the property, that agreement will not be binding until the Third Parties approve the terms of the Short Sale.
How long does it take?
Approval from the third parties can be as short as a few weeks to as long as a few months. Currently, average is 90 days.
Why does it take so long to close a short sale?
A normal real estate transaction can close once the contract is signed.. In the short sale, all agreements are “subject to lien holder approval.” Since the seller is requesting a discounted payoff from the lien holder, all parties must allow the lien holder to complete an evaluation to determine the value of the home and determine if the loss is justifiable. The lender wants to mitigate his losses and so the process of evaluation must be completed before approval is granted. This process can delay closing for several months.
What information will I need to provide?
A complete short sale package consists, at minimum, of the following:
- Sellers’ hardship letter
- Tax returns
- Payroll stubs
- Financial statement
- Bank statements
If I file for bankruptcy, should I still complete the short sale?
One of the main goals in the completion of the short sale is to minimize the damage to the credit of the individual. It is true that a bankruptcy is disastrous to one’s credit. Adding a foreclosure can make matters worse. Instead of foreclosure, there are methods available to have the home released from the assets included in the bankruptcy allowing the agent to complete the short sale.
How long after the short sale can I purchase another home?
The ability to purchase a new home is dependent upon several factors. Credit is only one of the factors. In some cases, minimal credit damage is caused as a result of short sale and buyers are able to repurchase within six to twelve months. A lender is most interested in the borrower’s ability to repay the loan. If the problems that led to the short sale are behind an individual and there are at least twelve months of good credit with three or more credit accounts, he or she should be able to purchase again. Under Fannie Mae guidelines, a person is eligible to buy another home in 2 years after a short sale, in contrast to 5 + years in a foreclosure.
Why would a lender agree to take a loss on my property?
Lenders are in the business of lending money, not acquiring real property. They are required to keep their REO inventory below a certain percentage of their assets. When they foreclose and receive a property in their portfolio, they work as quickly as possible to sell or turn it around. The foreclosure process is costly. The lender will determine the current market value and then contract with a real estate professional to market the property. Regardless of the amount originally owed, the home can be sold only at market value. Lenders can mitigate losses and reduce expenses by selling the property pre-foreclosure.
Why won’t the lender work directly with me as the homeowner?
When a borrower signs the original Note, he agrees to pay the money back as outlined in the agreement. Regardless of the circumstances, he is still obligated to pay the full amount. The lender cannot negotiate with the homeowner. When faced with the decision to liquidate the property, a lender must hire a professional to evaluate all of the marketing costs and value of the property.
Can a property sell that has multiple liens?
Liens against a property are prioritized according to date and time of recording. When a property is sold “short,” the loan in first position is paid the majority of the proceeds. All others get what they can. All lien holders can be negotiated with.
How does a short sale affect my credit?
There are as many opinions about this question as there are attorneys. When a borrower fails to pay his loan as agreed and falls 30-60-90 days behind, he is considered in default. When the lender files a “Notice of default,” which is recorded with the county recorder, the foreclosure process begins. At this point, the majority of the damage to ones credit is done. It is actually considered a positive step if the borrower sells the property. The credit scores will recover faster with a loan “settled for less than was owed” than it will with a completed foreclosure.
What does it cost to do a short sale?
You will never give us money for our services. All closing costs and fees are absorbed by your current lender.