Short Sale Q and A

What is a Short Sale? 
Simply put, a short sale is a Lender’s voluntary acceptance of less money than is owed and the release of liens or the Lender’s security interest so a property can be sold as an alternative to a foreclosure sale.

Is The Lender Required To Do a Short Sale? 
No.  A short sale is a voluntary agreement to do something that the Lender does not have to do.  No one has a right to a short sale and, therefore, the art and science of negotiation is critical to the success of a short sale.

What Is The Lender Looking For? 
We have a Checklist of items that we need for the borrower(s) to complete and sign and when we have everything on the Checklist, we have a “Complete Short Sale Package” to give to our negotiator to start the short sale journey with the Lender.  It’s not complicated and most Sellers can complete and sign the Short Sale Checklist agreements, documents and forms in a day or two.

What Is The Short Sale Checklist? 
This checklist simply reminds everyone what we need to get to the Lender so negotiations can begin.  Our participating realtor or affiliate is there to review and explain what you need to do and what the documents say.  At the top of the checklist are the personal financial items that we need from the homeowner, such as a hardship letter, a completed financial worksheet and copies of pay stubs, bank statements, IRS returns, property tax bill, monthly loan statement(s) and the like.  The property information form is a sheet that the realtor will complete to give us and our negotiator a snap shot of the house problem, the value of the house and the amount that is owed to each lender.  And, the bottom of the checklist, we’ve provided a listing of the contract, agreements and disclosure documents that the Seller signs in the presence of a notary.

Do I Need To Be Behind On My Payments Before Negotiations With The Lender Begins? 
No.  And, we would never tell you to stop making payments.  The real issue here is your hardship or reason that you can no longer afford to make your mortgage payments and maintain the property.  If you have loss your job, you have experienced an extended illness or disability, you have a failed business, a divorce has severely reduced your ability to make payments or some other hardship has occurred, you do not have to be behind on payments before our negotiators can begin the short sale negotiation.

Do You Charge For This Short Sale Service? 
No.  You pay us no fees or hidden charges of any kind.  We make our money, when a lender agrees to a short sale discount that is fair and sufficient for us to buy and sell the property for a profit.  Our spread comes from the Lender who agrees to take the short or reduced payoff of the borrower’s debt.

Can The Homeowner Make Any Money On The Short Sale? 
The simply answer is NO.  If a borrower receives any money from a short sale, the parties involved would be engaging in mortgage fraud.  And, we will never make any payments to the short selling homeowner.  What we will do, however, is to negotiate for a complete satisfaction of all of the borrower’s debts; and when we are successful, it will be like the homeowner won the lottery because in those cases the Lender has agreed that the reduced payoff completely satisfies the borrowers debt.  It’s like free money.  And, when it happens, it is a beautiful thing.

Are There Tax Consequences to a Short Sale? 
Generally, if a debt for which you are personally liable is canceled or forgiven, other than as a gift or a bequest, you must include the canceled amount in your income, and the lender who cancels the debt in a short sale reduced payoff should in most cases send a 1099-C.  However, you can exclude canceled debt from income if it is qualified principal residence indebtedness, up to a maximum exclusion of $2 million dollars.  If you are insolvent before the cancellation of debt, you would apply the insolvency exclusion.  So, in most situations, the sale of your primary residence as a short sale will not result in a tax consequence.  And, in most cases, possible tax consequences will be greater in a foreclosure.  In summary, a short sale and the cancellation of primary residence debt does not create a taxable event; there may be tax consequences, but tax consequences also can occur if you win the lottery, you earned income to pay your mortgage or your property goes to foreclosure.  Please note, the statements made here are not intended to be relied on as an analysis of your situation or as tax or legal advice.

Does My House Have To Be In Bad Shape To Do a Short Sale? 
No.  Any Shape.

How Long Does the Short Sale Journey Take? 
The length of time it takes to complete a short sale has almost everything to do with the lender or lenders involved.  We start the process with a Complete Short Sale Package.  The lender will typically order an appraisal of the property in a few weeks; and a short sale approval can be worked out in as short as about 60 days or the lender might be “back logged” and a decision could take 8 months.  This is why we refer to a short sale negotiation as a journey.

Does Listing My House With An Agent Stop Foreclosure? 
No!  Negotiations and the bank’s focus on your house problem does not begin until an offer and complete short sale package is sent to the bank’s loss mitigator.  And, it is the approval of a reduced payoff that stops the foreclosure; Not the listing of the house.

I’m a Licensed Realtor with Short Sale Clients, can we work together? 
Absolutely!  All participating realtors get trained on how to use our forms and documents and we guarantee 6% commissions to realtors involved in our sale of the property, even though lenders typically will not pay as much.