 1). What is a Short Sale (Short Pay, Pay Off)?
A Short Sale is a process where the lender will look at the loan(s) which you have with them and determine whether or not the house owes more than its Fair Market Value or has such a small amount of equity that if sold, could not cover the agent or closing costs. When they determine that to be true they will then consider discounting the loan(s) to reflect a price which will facilitate the property to sell on the market.
The lender would much rather take a discounted price than have to foreclose on the property and incur all of the costs of a foreclosure and then have to sell the house at auction. This is a very time consuming and costly process for the lenders and they will try to avoid it at all costs.
2) When is the best time for me to start the process for my Short Sale?
It is best to begin the Short Sale process as soon as you realize that you have an unaffordable payment for your budget; you know that your loan owes more than the ‘Fair Market Value’ and cannot sell for what you currently owe; or you have little equity in the property which won’t cover the realtor, closing, or any other associated costs that you need to cover in order to sell the property.
3) Why would my Lender want to allow a Short Sale to help me?
It’s simple really. Often a short sale has a far better return on an investment to the lender than a foreclosure. The average savings a lender sees from a short sale property is far higher than the savings of a foreclosure property. Not only does the lender receive higher savings when they allow a short sale, they also get paid on the loan 6 months earlier than in the foreclosure process. This allows them to collect and cash-out earlier than they would if they foreclosed on the property. Not to mention the costs the lenders have to pay their attorneys to complete the foreclosure process. Lenders created the short sale process as an alternative to foreclosure for those reasons. It is a win-win situation for the banks to allow short sales. They do not look at this as helping you, they look at it as a positive solution to a very costly and time consuming issue.
4) How long does the Short Sale process usually take?
The entire process of a Short Sale generally takes 30 to 90 days (1 to 3 months). All situations are unique and therefore we cannot guarantee a specific amount of time.
5) What is the difference on my Credit between a Foreclosure and a Short Sale?
A Foreclosure will show as A Foreclosure or A Debt NOT PAID. It is a very negative mark on your credit that can stay there for up to seven years! A short sale will show as – Debt Paid or settled. It is a much better mark and will make it easier for you to get credit in the future. Please consult one of the three major creditors for further explanation.
6) What are all of the liabilities when doing a Short Sale?
The most important one to know about is the form 1099. You will most likely receive this form at the end of the year. The lender has the right to submit a 1099 to you at the end of the year for the value he agreed to discount. The IRS can consider this as income to you and you may be taxed on it at the end of the year. But wait…There is a way to work with this. You will need to fill out a government form 982 to state Insolvent statues, please click on the following IRS page link that specify this in full details www.irs.gov/pub/irs-pdf/f982.pdf . On there it explains how you are to fill it out and how it works. Please consult your local CPA for further information on this matter.
It is important to note that if a property should go into foreclosure and is sold at auction the difference in the amount you owe on your loan and the price the lender will get on a foreclosure sale is much higher than the discount they will give at a short sale. Therefore the amount on the 1099 will be higher and the lender has the option to file a Deficiency Judgment against you.
Completing a successful Short Sale will eliminate a Deficiency Judgment from happening and minimize the tax liability you may have. It will also stop you from having a foreclosure on your credit.
7) What is a Deficiency Judgment?
A Deficiency Judgment is what can happen if the bank sells a house in a foreclosure sale auction. The bank has the right to sell the house for an amount less than the debt owed and all other fees they may have. If the house sells for less than the mortgage debt, then a Deficiency Judgment can be placed against you. By this you will be held responsible for the portion of the loan that was unpaid. Example: Initial Mortgage Loan of $400,000. The bank collects $300,000 at a Foreclosure Auction. A Deficiency Judgment is placed against you for $100,000 which is the difference. If this is placed on you it will also show on your credit along with the Foreclosure. Once this is placed as a judgment against you the lender can proceed with further legal actions and garnish your wages to collect on the debt. Some states have regulations and restrictions on Deficiency Judgments, but unfortunately MOST DO NOT.
Once again, this is where our presence in a short sale negotiation is invaluable as we will negotiate with the lender to agree on a “release” and “satisfy” position, which mean no deficiency judgment to consequence the short sale.
8) Why hire a Real Estate agent to help me with my Short Pay?
Because we are experienced in handeling Short Sales, selecting us as your Real Estate Agents can be of tremendous help in successfully negotiating an acceptable short pay agreement with your lender(s). Not only do we find a qualified buyer for your property, we will do much of the difficult negotiations with the loss mitigation department representatives on your behalf. This helps to lessen the time demands on you as well as the stress and emotional strain on you and your family. Our knowledgeable staff are experts at short-sale proceedings and we can significantly increase the likelihood of a successful outcome. We are here for you with answers. We want you to feel confident that you are making the right decision for your specific situation. We work with all our clients in top confidentiality, integrity and thoroughness. You will feel confident with us by your side.
9) Do I need to sign a Power of Attorney when processing a Short Sale?
NO! At no time should you have to sign a power of attorney to process a short sale.
10) Can you negotiate a Short Sale when a home has more than one mortgage?
Yes. The process is the same regardless of the number of liens.
11) How much does it cost for you to help us with the Short Sale?
In most cases, nothing. The regular real estate sales commissions cover the cost and are typically absorbed by the lender as part of the short sale negotiations. Due to the nature of the current market, we have chosen to take on the additional workload as part of our normal sales commission.
12) Can you guarantee that my short sale will be successful?
We can guarantee that we will do all that is required to complete a successful short sale. Unfortunately we cannot guarantee what the lenders will make as their decision. We know what the lenders require and are looking for as a discounted price. This makes our chances for success much higher.
13) Which communities do you service?
Our primary service area is the Santa Clarita Valley area of Los Angeles County. If you are located outside Santa Clarita, we will refer you to a Realtor who is a Short Sale specialist in your specific area. We believe you should only work with an agent that is not only an expert in Short Sales, but an agent that is an expert in your local community as well. To often sellers hire agents based outside their specific communities and this can significantly lessen the chances for a successful outcome.
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