Sacramento Real Estate Views

Short Sale Frequently Asked Questions

Short Sales Are A Very Popular Topic

Short sales have always been around.  I was speaking with my office manager this morning who told me that our office short sale staff has been working short sales for the last 8 years.  That’s before the downturn even started.

Short sales have tripled over the last 2 years.  With the majority of Rocklin homeowners underwater without much of a prospect of their homes being worth what they owe, people are choosing to sell short rather than go through the foreclosure process for a myriad of reasons.

One of which is that lenders are more cooperative than ever to approve short sales in our area.

Below is a list of answers to questions we hear regarding short sales.  If you have your own question not covered here, please call, text, email or simply fill out the form in various places on this page.  I’ll get back to you promptly.

1. What is a short sale

A short sale is the sale of a home where the proceeds of the sale aren’t enough pay off the existing mortgage.  The lender must approve the sale, and they do, before the sale may be transacted.

A short sale costs the seller nothing as the lender pays, out of the proceeds of the sale, all costs incurred during the sale.

The benefit to selling your home short versus going through foreclosure is that, although the credit “ding” is similar, you’ll be able to purchase a home sooner than you would have if you’d gone through a foreclosure.  (unless you’re a veteran and haven’t used your VA loan benefit)

2.  When Will I Be Able To Purchase Another Home?

The prevailing wisdom is after a short sale, it will be at least 3 years before you’ll be able to purchase another home.  After a foreclosure, it could be 5 to 7 years before someone who has gone through a foreclosure will be able to purchase again.

It is my feeling that this will begin to shift as there are MILLIONS of people nationwide who have been taken out of the market although they could afford to purchase due to lender policies.  These policies are already affecting the economy adversely.

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3.  Should I Sell My Home Short?

This is a tough question as all situations are different.  The best advice is to consult an accountant or other financial adviser prior to making the decision to sell your home short.

My view:  The ramifications for selling short are short term issues that will be resolved in a few years.  Keeping a home that won’t be worth what you owe on it for YEARS to come is a long term problem that will take much longer to resolve.

As of this writing, most economists are saying that we won’t see anything in terms of a housing recovery until 2014.  That’s when it starts. Home values be bumping along the bottom for much longer in our region due to the economy being very poor according to most economists.

4.  What Will It Cost Me To Sell My Home Short?

There is no cost to the seller for selling short.  All commissions, title fees, escrow fees, repair costs (if approved by the lender) cost the seller nothing.  If a lender approves the short sale, they accept the loss that comes along with that approval.

5.  What’s The First Step In The Short Sale Process?

The first step in the short sale process is to get all the information possible from professionals who have experience in short sales.  I recommend you contact an accountant or other financial adviser, a real estate professional (aka Robert Saxe) and possibly an attorney depending on the complexity of your situation.

There are ramifications to selling short but the government, both state and federal, have made it as ramification free as possible without creating a wholesale exodus from underwater mortgages.

6.  What Hardships Qualify For A Short Sale?

The economy is tough right now.  Financial hardships are the most common.  Medical hardships are also valid reasons to sell short.   We provide information on how to construct a hardship letter so that it is accepted by the lender.

In the last 2 years, short sales have been viewed differently by lenders.  To that point, I haven’t seen, although I’m sure it’s happened, a hardship turned down by a lender in over 2 years.

Think about it:  You’re contacting your lender to sell short.  You haven’t made a mortgage payment for at least a month indicating that you’re serious about letting your home go either in a short sale or foreclosure.  A short sale costs a lender less than going through the foreclosure process.  As the lender, which choice would you make?

Please keep in mind, all lenders policies are different and consistency between them is non existent.

Here is a partial list of hardships that have been accepted by lenders:

• Unforeseen increases in household expenses
• Decreases in household income
• Divorce
• Job relocation when the mortgage amount exceeds the home value
• Illness or injury

7.  Will My Lender Approve My Short Sale If I’m Current On My Mortgage?

I’ve never seen a lender approve a short sale while the borrower is current.  Most lenders will tell the borrower that they need to be delinquent on their mortgage before a loan modification or short sale conversation will be entertained.

That said, I have heard of cases where borrowers who are current get approved by their lender for a short sale but it’s very rare.

To know whether or not your lender will accept your request your short sale packet it must be submitted to them.  We help sellers to prepare short sale packets every week at no cost to the seller.

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8.  Why Would A Lender Accept Less Than What I Owe?

There are several reasons why a lender would accept less than what is owed on a loan.  Some are:

• Government Pressure – While virtually every program that the government has put in place to stave off the foreclosure crisis has failed, banks are under more pressure than ever to work with homeowners to find an alternative to foreclosure.   A short sale is just that solution.
• Cost – Statistics have come out recently that cites that a short sale costs the lender $27,000 less than a foreclosure.
• Short Sales Are Simpler – Generally, the loss mitigation department of each bank handles their short sales.  Foreclosures are typically farmed out to asset management companies costing the bank thousands more as well as making coordination between the bank and outside parties difficult.

For all parties concerned, a short sale is a better solution.

9.  I Have A First And A Second Mortgage.  Can I Still Sell Short?

Yes.  We will negotiate with the first and second mortgage holder to get your short sale approved as quickly as possible.  The first mortgage holder will dictate to the second mortgage holder how much they will settle for.   The second mortgage holder could then come back to the seller with a request for a promissory note for the difference to close the short sale if the amount the first mortgage offers is unacceptable to the second.

We will negotiate with all lenders to settle the short sale at no cost to the seller.

10.  Will I Get A 1099 From My Lender?

Your lender is required to notify the IRS that your property sold for less than what was owed.  The IRS considers the difference between what the property is sold for and what is owed as income.

If you have a hardship and are earning less than what you need to pay your bills, you’re considered insolvent and the IRS, with proper filing, will absolve you of the taxes associated with the 1099.

Concerning this topic I must advise that you consult with a certified public accountant to confirm that your situation will fall into the “insolvency test”.

11.  What is California Civil Code of Procedure 580e?

580e, a section of SB 931, stops deficiency judgments on short sales and foreclosures in California on all first mortgages whether they were purchase money loans, your original loan on your home, or a refinanced loan.

This clears the way for more homeowners to get relief from their underwater mortgages.

Click here for more information on this important legislation.

12.  I own multiple homes.  Will my lenders agree to a short sale on all properties?

Every lender is different and the only way to know is to submit your short sale packet to all lenders concerned.  If you have a genuine hardship, your packet will be considered by all lenders.

Have more questions that haven’t been addressed here or clarification for one that has been addressed?  Please fill out the form below and I’ll get back to you as soon as possible.

Thanks for visiting!

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