What Is a Real Estate Short Sale?
A Real Estate Short Sale is a form of agreement between the seller of a home in the beginning stages of foreclosure and their lender, allowing the home to be sold for less than the existing loan balance outstanding. The mortgagee (AKA Bank/Lender) would accept less than the amount in order to avoid a foreclosure proceeding. Once a shortsale is approved for Escrow, the buyer and seller would then proceed with the sale of home much the same as a conventional real estate transaction.
Why exactly would a bank agree to a Short Sale?
It is much more cost effective for a bank to do a Short Sale rather than Foreclose on a home. Banks are not interested in owning real estate. Banks make their money from receiving monthly mortgage payments. While banks will take a loss doing a Short Sale, they can often minimize their loss by as much as 10-20% over a Foreclosure.
Top 10 FAQ's about "SHORT SALES"
Number 10
I can't make my house payments but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score…is a short sale right for me?
Probably, not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder) it makes sense for them to work out a repayment plan. The lender will then release the lien and allow the home to close.
Number 9
If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?
The mortgage insurance is not there for your protection, just the mortgage lender's.
Number 8
Do I have to have my home ‘Approved' by the lender prior to offering it for sale as a short sale?
No. Technically speaking there is no such thing as being ‘Short Sale Approved'. The actual approval only happens with an accepted offer.
Number 7
I just missed a payment and I know I will miss more….how long does the foreclosure process take and is there time to do a short sale?
The foreclosure process takes differing times depending on your state. In the Midwest a foreclosure can take over a year. In California its taking 5+ months. Generally speaking a well priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.
Number 6
Will I still have to pay property taxes if I do a short sale?
Property taxes will always have to be paid as part of any accepted short sale. Whether it's you or the lender depends on their policies and the specific agreement you reach while negotiating the short sale.
Number 5
I owe more than my home is worth and I can't make the payment, do I have to somehow qualify for a short sale?
The simple answer is NO. If someone can't make their payment and they are otherwise insolvent they qualify for a short sale. Note: insolvent simply means their total debts are greater than their assets.
Number 4
Do I have to pay income taxes..I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me, the seller, is this true?
Consult your Tax Attorney or Qualified CPA. Very recently the tax law was modified and it is in your best interest to speak with a good tax attorney.
Number 3
How do you, my listing agent get paid, who pays you commission?
The bank will pay the commission along with all the other usual closing costs.
Number 2
Do I have to miss a payment to do a Short Sale?
It depends on your lender. Some lenders started accepting short sale offers from sellers who have never missed a payment.
Number 1
I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender. Most short sales do involve 1st and 2nd lien holder.
As real estate agents, we are not licensed as lawyers nor CPA's and cannot advise on the consequences.
If you are considering buying a short sale or selling "short sale", there could be drawbacks. For your protection, we suggest that you:
* Obtain legal advice from a competent real estate lawyer
* Call an accountant to discuss short sale tax ramifications
* We will explain the Short Sale process
* We are SHORT SALE EXPERTS
Don Orason
Silicon Valley Real Estate Team
Short Sale Specialists
ShortSaleHelp@SVRET.com
408-833-6331
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