Short Sale FAQ's

Short Sale Question and Answers

1. What is a short sale?

a. A short sale, or short payoff, occurs when a lienholder (bank) agrees to accept less than what is owed on the property in exchange for releasing the lien and satisfying the debt.

                                                

2. Why would a bank accept less than what is owed to them?

a. The banking industry is too complicated to explain in one paragraph, but the biggest reason   for granting a short sale is that it may be better for them than letting a home go through foreclosure. The entire foreclosure process can be extremely expensive for a bank, and at the end of the day, the home will still sell for much less than the amount owed. Granting short sales allows them to bypass most of this process and net more from the sale.

3. How do I know if a short sale is right for me?

a. Speak to professionals:

i. Real Estate Attorney – within a 30 minute consultation, a good real estate attorney can determine if you should try a loan modification, short sale, bankruptcy, deed-in-lieu, or foreclosure.

ii. Tax Attorney – many offer a free consultation over the phone to determine if you’ll have any

tax liability.

iii. Your lender - If you desire to stay in the home and simply need interest rate reduced (due to an ARM adjustment), loan modification directly through your lender may be the best choice.

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

a. Link Consulting provides a homeowner’s package with various forms to fill out (including a

financial analysis). This package is submitted to your lender(s) for approval. It is very similar to

applying for a mortgage…only in reverse. There must be evidence of a hardship. This may not

necessarily be a financial hardship in the traditional sense. It could stem from medical issues,

family reasons or military reassignments.

5. Will I have any out-of-pocket expenses?

a. The bank will pay your closing costs as well as your Realtor’s commissions. We do ask, however, that you pay your HOA dues and keep the electric and water on at the property. Per the Arizona Purchase Contract, it is required that these utilities be kept on so that the buyer may perform their inspections.

b. If you have a HELOC (home equity line of credit) or Mortgage Insurance, you may be asked to pay a settlement fee or sign a Promissory Note at closing. Depending on the amount owed, this could be anything from a $3000 total payoff or $20,000 paid over 10 years at 0% interest.

It all depends on the lender and the circumstances. Some HELOCs will not discuss your options with you until after the sale has closed. HELOCs are not considered second mortgages under these circumstances, and they do reserve the right to file a deficiency judgment against you EVEN if they agree to a short sale.

c. If you have a second mortgage that was refinanced at any point, and you did a “cash-out” option, this may not be protected against a deficiency judgment.

6. How will my home be marketed?

a. The same way it would if it were not being short sold…only all marketing materials must disclose that “all terms of offers are subject to lender approval.” Many sellers prefer a more discreet approach, and we are happy to leave the sign out of the yard.

7. My Realtor put my home on the market. Now what?

a. Agents will show prospective buyers your home, and we wait for an offer to come in from one of them. We try to price within the bottom 10% of the active listings to get plenty of activity and receive an offer within the first 30 days on market.

8. What will happen after we receive an offer?

a. The offer is submitted to the bank along with supporting documentation from your broker.   The “loss mitigator” is our point of contact during the entire process. He or she will review the package in its entirety before ordering a BPO (Broker Pricing Opinion). This BPO is similar to an appraisal and will require a third-party agent to come to your house and take photos of every room…even the garage. They will then create a report for the bank that reveals the current value of the home.

9. What are the consequences of doing a short sale?

a. Your credit WILL BE impacted. Some banks will report that it was “satisfied in full” while others may say that it was “settled for less than owed.” We have no control over how the bank reports the sale. The number of late payments accounts for the majority of the lost credit points. It may be in your best interest, whenever possible, to continue making payments on your home.

b. You will receive a 1099-C at the end of the year showing that you made extra income. This extra income is the amount that the bank was shorted, or the deficiency. For example, if you owed $250,000 on your home and you short sold it for $150,000, you will receive a 1099-C at the end of the    year stating you made $100,000. The Mortgage Forgiveness Debt Relief Act will protect many sellers in a short sale situation and make them exempt from paying the taxes on the deficiency. An IRS 982 form should take care of the remaining situations. Individual circumstances do vary, and we recommend that you speak to a tax attorney to see if you will qualify for this exemption or any others.

c. Although Arizona has anti-deficiency laws in place for homes that are foreclosed on, these same laws may not apply to all short sale situations. For this reason, my processor and I request that the bank puts in writing that they will “release the lien AND SATISFY THE DEBT.” Please understand that they may not agree. HELOCs (Home Equity Lines of Credit) will not put this verbiage into their approval letters because, in most cases, they can ALWAYS come after you     if they so choose…even if your home forecloses.

10. How do I get started?

a. Request a short sale package. Some are bank specific, so be sure to provide your agent with  all of your loan information as well as an authorization form that allows them to speak to the bank on your behalf.

b. We ask that you reduce communication with your bank after the short sale process is started. We will work directly with the loss mitigation department and discussions with other departments may hinder our efforts. If we need you to speak to the bank, we’ll let you know.

c. Sit back, relax, and let the professionals handle the details for you.

Short Sales change daily!

Please contact The Burkhardt Team for the most updated information