SHORT SALE 101 ~ Simple Qs and As to Get you Started.

By
Real Estate Broker/Owner with BROKER of Green Realty Properties® - 954-667-7253 BK3175566
http://actvra.in/Bfc

As a South Florida Listing Broker, I am often asked questions by Sellers considering listing their home as a short sale, so I thought that I would post a short Q&A with very basic answers. By no means is this an all inclusive, but I believe it’s a good starting point. Below find Green Realty's answers to the most frequently asked short sale questions.

 

Q. What is a short sale?

 

A. In a short sale the seller’s lender(s) agrees to accept less than what is owed on the loan for the property, and therefore it is contingent on the lender(s)’s agreement called a Third Party Approval.

 

Q. How do I know if I qualify for a short sale?

 

A. The three basic requirements to qualify for a short sale: Hardship, Monthly Shortfall and Insolvency:

1. Hardship examples: Divorce, death, disease, disability, job loss, reductions of hours/salary, forced relocation, etc.

2. Monthly shortfall: Monthly income is less than monthly obligations.

3. Insolvency: Seller cannot have assets that can be liquidated or used to cure the debt or monthly short fall.

 

Q. I have a little bit of money still left in my account. Will I qualify for a short sale if I have a hardship and a monthly short fall?

 

A. Yes. You don’t have to be completely broke to qualify for a short sale, but if there is a good amount of money on the distressed homeowner’s possession, the mortgage holder is likely to ask for some (or all) of the amount in exchange of releasing the mortgage and the note.

 

Q. I have no hardship, but need to sell. Will I qualify for a short sale?

A. Yes, you can try. However, take into consideration that the lender will see that you have the means to keep the home, so they are very likely to ask for a financial contribution to approve the short sale. You can argue that it’s better for you to short sell than allow the home to go into foreclosure. In my experience, having just one loan or short selling an owner occupied home is easier to do, and with less financial consequences; a 2nd mortgage or an investment property may complicates the situation.

 

Q. How long does a short sale take?

 

A. There is no standard short sale process used by lenders, and each lender has their own method and timeline to process a short sale. After the lender receives a complete short sale packet with an offer to purchase the home, the lender usually requires anywhere from 30 to 120 days to process the short sale. The sale must close within 30 days from the date the lenders issue the demand letter (aka approval letter).

 

 

Q. Is the seller’s lender involved in the offer/contract on a short sale?

 

A. No. The Contract is between the buyer and the seller. The seller still owns the home, so the seller is the only person who can accept an offer (execute). The lender isn’t part of the offer discussions, isn’t in a position to negotiate the terms of the contract (down payment amount, number of days for inspection, closing day, etc.). The seller's lender approval to let seller sells the home for less than what is owed is a contingency that must be met in order for the sale to go through. The seller's lender only verifies that the seller is a candidate for a short sale, and accept, counter, or reject an offer, terms of the approval in exchange for releasing the mortgage and the note of the home. No offers are sent to the lender, just executed contracts that have been accepted by the seller.

 

Q. Should the seller sign multiple offers and submit multiple offers to the lender?

 

A. No. It is very common for my listings to receive multiple offers. When that happens, I ask the buyers to sign a multiple offer disclosure divulging that there is more than one offer being presented to the SELLER. The disclosure provides the buyer with deadline to submit their best and highest offer. On the deadline date, I present all offers to the seller, and the seller chooses the best and highest offer. The seller then executes the offer, and that contract is then sent the seller's lender for approval. The remaining offers can remain as a back up offer if the buyer chooses so. I’m aware that some agents do submit multiple contracts to the lender to see which one they would choose. I would never advise my seller to do so, as a home cannot be sold to more than one purchaser. Submitting multiple offers to the lender leave the seller open to a lot of liability if another buyer chooses to enforce their contract.

 

Q. How do lenders view multiple offers submitted on a short sale?

 

A. As mentioned above, there is not one set of rules that all lenders follow. However, it is my opinion that asking a lender to take a huge loss while submitting multiple contracts (which shows enormous interest on the home) is contradictory in fact. I have had this conversation with many loss mitigators, some supervisors, and loss mitigation department directors, and I can share that many, MANY loss mitigators will NOT work on multiple offers. To quote one mitigator I spoke to, "I am not a Realtor nor am I the owner of the home, and I should not be doing their jobs". He followed that sentence with, "If I receive more than one offer, I do not know which offer to work on, and I have to close the file". It makes no sense, in my opinion, to waste time while opening up the Seller to liability. The most effective strategy is to send the best and highest offer to the lender for approval.

 

Q. Will my lender require me to sign a note making me responsible for the remainder of the loan?

 

A. It is my experience that if there is only on loan on the home, the sellers have not been asked for a note. If the seller has a second mortgage on the property, it is likely that the lender holding the junior note (loan) is going to ask for a contribution from the seller. As the number of short sale listings rise rapidly, the second mortgage holders are getting tougher to deal with. The seconds are requiring as much as 10% of the loan amount at closing, and sometimes are asking for a lump sum or an unsecured note for the difference of what the first lien holder is giving them and what they’re asking for. If the lenders see that the seller can contribute to their loss financially, they may ask for a contribution. This is honestly changes case by case, lender by lender.

 

Q. Can the note be negotiated or waived?

 

A. Yes. This is determined on a case by case basis and not guaranteed. The note may be waived without any financial contribution from the seller, or the lender may ask for cash at closing to waive the note, or a promissory note (usually 0% interest), or a combination of cash at closing and a promissory note. This truly is depends on your investor and your financial circumstances.

 

Q. Are there tax consequences between the amount that is owed and what the house sold for or are the sellers forgiven?

 

A. On primary residence, the seller will receive a 1099C (C = Cancellation of Debt). Congress passed a law on December 2007 that will absolve that 1099C amount (up to 2 Million Dollars) on the short sale seller of a primary residence. The seller does not have to pay income taxes on the difference between the acquisition costs of the home and the short sale amount This law expires at the end of 2012. Please visit this link for more information: http://www.irs.gov/individuals/article/0,,id=179414,00.html I strongly recommend that my sellers consult with a CPA or a Tax Attorney to examine their particular situation, as I am not a tax expert.

 

As a final note, there are programs aimed at helping distressed homeowners close as a short sale instead of letting the home foreclose. The government has something called the HAFA program, FHA has their own program, and many lenders now have proprietary programs to help homeowners. They all have different requirements and timelines, and can be discussed further with your Agent.

If your or anyone you need need help, please do not hesitate to call me.

Posted by

If you or anyone you know need help Selling or Buying a Home in Broward & Miami-Dade Counties, please don't hesitate to call me at 954.667.7253

 

Help lots of people and have a great day!

Patty Da Silva, CDPE©, RESS®, AHWD®, e-PRO®, GREEN, CFS, TRC, RSPS

BROKER - REALTOR® Serving South Florida ::: 954. 667. SALE (7253) ::: Green Realty Properties®

Visit www.WeLoveSouthFlorida.com for SouthEast Florida's best properties.

 

 

Copyright © 2008 - 2014 By Patty Da Silva, CDPE©. All Rights Reserved.

Legal Stuff: This article (Contents) reflects the opinion of the author and it is not to be considered legal advice. The author is not an attorney or a CPA. If you are in need of legal or tax advice, it is recommended that you to contact a trusted professional advisor.

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Re-Blogged 7 times:

Re-Blogged By Re-Blogged At
  1. Gina Tufano 05/17/2012 10:30 AM
  2. Erica Ramus 05/17/2012 05:06 PM
  3. Terry McCarley 05/18/2012 09:47 AM
  4. Paula Bradfield 05/20/2012 08:58 AM
  5. Gene Riemenschneider 05/20/2012 04:46 PM
  6. Charles Stallions 05/26/2012 08:36 PM
  7. Winston Heverly 10/26/2012 07:14 PM
Topic:
Home Selling
Location:
Florida Broward County
Groups:
Advice for Sellers
Certified Distressed Property Expert
Americana
Real Estate Questions & Answers
BananaTude
Tags:
patty da silva
short sale q and a
short sale advice
short sale seller
short sale education

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Rainmaker
85,146
Mike Kozlow, CFP®, MS-FP, GRI®, ABR®
Keller Williams Elite Realty - Bonita Springs, FL
Broker Associate

Thank you Patty for an excellent post. I think sharing this with buyers is as valuable as giving it to sellers. Too often the buyer doesn't understand the process and wastes a lot of time searching for a "deal".

May 18, 2012 07:12 AM #23
Rainer
22,137
Maggie Clemens
Keller Williams - SD Metro - San Diego, CA
Thank you Patty! I like the way took complex situation and explained it in a very easy to read and understand manner.
May 18, 2012 07:42 AM #24
Rainer
298,687
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Kimo's Lifestyle Solutions

All good stuff, simple and concise. Good post.

May 18, 2012 07:51 AM #25
Rainer
136,932
Gretchen Bradley
Meridian Capital-Giving Back 4 Homes - Roseville, CA

This was a fantastic and informative blog. Thanks so much for the information & for breaking it down.

May 18, 2012 07:56 AM #26
Rainmaker
331,658
Terry McCarley
Right Choice Realty - Cape Coral & Fort Myers, FL - Cape Coral, FL
REALTOR, SRES, CDPE - Cape Coral, FL

Excellent list Patty - very good and simple explanation to common questions from upside down homeowners!

May 18, 2012 09:45 AM #27
Rainmaker
486,088
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

Gina, The South Florida market is very active, specially short sales. I hope things are good for you in Ashburn, VA.

Kevin, please do come back and share. I hope this info helps a lot of folks.

Kathy, most short sale sellers are overwhelmed and finding good information is not always easy.

Debbie W. I'm happy to do everything that I can do to help distressed seller.

May 18, 2012 10:44 AM #28
Rainmaker
486,088
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

Barbara, Absolutely! Hiring the an experienced Realtor is extremely important. Short Sales are complicated, complex transaction that need extra attention.

Erica, funny and true... it takes are long as it takes so hang in there and enjoy the ride!

Christine, Every bit of information helps.

Sally, thank you my friend :)

Page, please do use and share with anyone who can benefit from it. :)

 

May 18, 2012 11:07 AM #29
Rainmaker
486,088
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

 

Travis, I am glad you stopped by!

Clay, great questions. To offer my opinion, the seller examines all offers and picks the best and highest, executes it and only the executed offer go to the lender for review and approval. All other offers stay as back ups if the buyers are willing to wait. Our market is super active!!

Dagny, glad you enjoy reading it.. I wanted to write so everyone would understand, regardless if they had any previous knowledge of short sale or not.

Mike, I agree with you fully! Buyers need to understand the short sale process if they are in the market to buy one.. otherwise they will lose a lot of time and accumulate a lot of frustration.

If you liked this post, you may also like:  

SURVIVOR GUIDE FOR REAL ESTATE BUYERS IN 2012 ~ PART 1


SURVIVOR GUIDE FOR REAL ESTATE BUYERS IN 2012 ~ PART 2
 

 

May 18, 2012 11:18 AM #30
Rainmaker
387,532
John DL Arendsen
ON THE LEVEL General Contractor, Crest Homes Factory Built Housing Dealer & Developer & TAG Real Estate Sales & Inves... - Leucadia, CA
Contractor, RE Brk, Factory Built Home Dealer/Devl

Very concise overview and lot's of good information. Thanks

May 18, 2012 01:28 PM #31
Rainmaker
79,603
Manny Rosa
Rosa Agency - Belleville, NJ
New Construction - Union & Essex Counties, NJ

Good point on multiple offers, and the way the loss mitigator stated it is 100% correct.  The seller still owns the house and ultimately it is his/her decision on which offer to accept, sign and then present to the short sale lender.  The offer the seller chooses does not necessarily have to be the highest offer, but the one which has the best chance of being approved and closing.

May 18, 2012 04:26 PM #32
Rainmaker
54,827
Alyse "Aly" Sands
Village Real Estate Services - Nashville, TN

Excellent explanation.  I've heard so many agents refer to it as an "offer" to the lender.  You've touched on so many points that we don't think about explaining to our clients, as well.  Thank you.

May 18, 2012 05:53 PM #33
Ambassador
1,113,659
Bob Crane
Woodland Management Service - Stevens Point, WI
Forestland Experts! 715-204-9663

Thanks Patty, great information, and I like the way you broke it up and simplified it.

May 18, 2012 08:31 PM #34
Rainmaker
1,286,052
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Great primer on Short Sales.  Thanks for the post and you have addressed just about all the big issues.

May 18, 2012 09:33 PM #35
Rainmaker
45,908
Jairo Arreola
Lotus Group Realty - San Jose, CA
VA Home Loan Specialist - SF Bay Area - South Bay

I am bookmarking this post! Great Job-

May 19, 2012 01:39 AM #36
Rainmaker
650,237
Stephanie/Bob The Ruiz/Miller Team
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Patty, great summary.  I amazed after how long short sales have been around, how many buyers still do not understand them.

May 19, 2012 05:20 AM #37
Rainmaker
843,163
Lyn Sims
RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago - Schaumburg, IL
Schaumburg Homes

Good post that answers the basic short sale questions from sellers.

May 19, 2012 09:13 AM #38
Rainmaker
486,088
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

John, thanks you for stopping by and please use it if you need it.

Manuel, best is not always highest when it comes to short sales. Buyer's temperament and williness to wait and very important.

Alyse, there is so much confusion still.. but it is simple.. seller review offers, picks ONE and the executed contract goes to the lender. Any other offer that comes is (or wants to wait) is a back-up offer.

Bob, I am glad you like the content and the format. :D

 

 

May 20, 2012 05:37 PM #39
Rainmaker
486,088
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

Gene, Primer.. lol love it.

Jairo, use as often as you like. Glad to be able to help.

Bob, it has been four years and there is still so much confusion.

Lyn, thank you so much

 

May 20, 2012 05:42 PM #40
Anonymous
Anonymous

Howdy and evening Patty

Patty my friend, don't know how I missed this here outstanding Q's and A's blog post on Short Sales.

Have a good one
Dale in New Hampshire

May 21, 2012 07:43 PM #41
Rainmaker
62,913
Dolores Mauriello
CENTURY 21 Gemini LLC Realty - Wayne, NJ
Realtor, Homes For Sale Wayne NJ

Patty, this post is simple yet touches many misunderstood ideas....terrific explanation for someone considering a short sale.

May 24, 2012 05:36 AM #42
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Rainmaker
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Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR

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