#1) What is a Short Sale?
A short sale is when the bank allows you to sell your home for a less than the amount owed on the loan. It is approved or denied on a case-by-case basis after going through the approval process. Not every bank will allow you to do a short sale.
In the past, short sales could take anywhere from 2-12 months (or more in certain cases). Recently the Federal Housing Finance Agency laid out new rules with the intent of speeding up the short sale process, potentially preventing many homes from going to foreclosure. Banks are now required to respond to short sale requests within 30 days and make a final decision within 60 days.
#2) Should We Choose a Short Sale Over a Foreclosure?
In certain cases, it might be easier to let a home go to foreclosure than endure the struggle and stress of a short sale. Whether you should consider foreclosure may depend on the financial and legal consequences of a foreclosure. You should always, without fail, get legal and tax advice because real estate agents, unless licensed to practice law, cannot provide it.
#3) How Can a Seller Get Multiple Offers on a Short Sale?
One sure-fired way to get multiple offers is to price your short sale below market value. There are other ways to get buyers bidding over each other for your home. Beware of pricing your short sale too low because a) the bank is unlikely to take a low bid and b) some buyers might get confused and make lowball offers.
#4) Should We Stop Making Our Mortgage Payments to Do the Short Sale?
It is a myth that you must be in default, behind in your payments, to do a short sale. However, there are certain situations in which your payments must be delinquent. Most of those involve government loans because yes, in some cases, the government wants you to stop making your mortgage payment. Scary, huh?
#5) Will the Bank Come After Us for the Difference?
Yet another reason to get legal advice. One of the main reasons to do a short sale is to get a release of personal liability, yet not every seller is released. Some loans carry a personal guarantee in some states. Some hard-money loans in certain states allow for deficiencies. Absence of verbiage pertaining to a deficiency in an approval letter doesn’t necessarily mean the seller is released.
#6) Will a Short Sale Ruin My Credit Rating?
According to FICO, the biggest hit to your credit rating seems to be when there is a deficiency remaining. With a deficiency, the affect on credit for a short sale is almost identical to that of a foreclosure. Without, it’s less. Lenders typically report a short sale on your credit report as “paid in full for less than agreed,” but there are other reporting options.
#7) How Can We Do a Short Sale With Two Loans?
You do a short sale with two loans the same way as a short sale with 3 loans and / or a bunch of liens. Individually negotiate. Typically, the lender in first position will allocate a small percentage of proceeds to junior lienholders. However, borrowers can also be asked to make a seller contribution.
#8) Do We Need a Lawyer for a Short Sale?
If you have assets to shelter, disposable income and are facing personal liability for a loan, those are 3 excellent reasons to hire a lawyer to do a short sale. Unfortunately, if you ask a lawyer, a lawyer will say, yes, hire a lawyer. You do need legal advice. Whether you need a lawyer to negotiate on your behalf depends on the complexity and particulars of your situation. Ask your agent or CPA and other trusted advisers.
#9) Do We Need a Financial Hardship to Do a Short Sale?
In the beginning of short-sale mania this last go-around — which started at the end of 2005 — a financial hardship was an absolute criterion to qualify for a short sale. Given the astounding number of homes that are underwater and the need to dispose of loans without security, some bank investors will grant a strategic short sale.
#10) Why Would the Bank Reject Our Short Sale?
Banks look for crucial elements to approve a short sale but perhaps the biggest motivator is whether the bank will make more money by granting a short sale over pursuing foreclosure. Sometimes, the bank won’t tell you that it stands to profit far greater through foreclosure. It will simply state a price it wants that no buyer would ever pay. Sort of the chicken way out.
