Pre foreclosure Short Sale - What you need to know NOW.
During the rush to buy residential real estate from 2000 to 2005, homeowners who fell behind on monthly payments as their adjustable-rate mortgages rose simply refinanced or sold the properties, pocketing thousands of dollars in the process as home values soared. Today, for many, neither of those options are easy or for some, may not be available at all. Not only are banks tightening credit standards, but increased inventories and softening prices are preventing many recent buyers from selling quickly, making a profit or breaking even. Enter the Short Sale.
Real estate agents can negotiate on behalf of their clients and find out whether the lenders will accept short sales. But most banks won't agree in writing to a ‘short sale figure’ until the seller presents a signed contract from a potential buyer.
Read the following Top 10 most frequently asked short sale questions.
1. What does Short Sale mean?
A short sale simply means the amount of the existing mortgage is greater than the sales price of the home. A short sale would result. The mortgagee would accept the lesser amount and avoid the foreclosure proceedings. The balance of the loan would be forgiven by the lender.
2. If I have equity in my home, will my lender allow a short sale?
Depending on the amount of equity, lenders may choose the traditional means of foreclosure. This may allow the lender to recapture some of the expense of the proceedings. Though on the other had, the home may be encumbered by other liens, and the inventory of homes may disuade lender from wanting to take title.
3. Can I still profit on a short sale?
Though the seller may have used the equity on a previous refinace or equity line, the current loan balance will be higher than the selling price of the home.
4.How much time do I have to start a short sale?
In a Pre-forclosure "Time is of the essence". Timelines starts from the date the notice to the borrower is filed. Each state has individual foreclosure laws and regulations. In some states a foreclosure can proceed as quickly as 35 days. Do not delay. In most cases you have no more than 60 days from the date of the notice, to contact lender to effectuate a lender approved short sale.
5. Is there an application process to start a short sale?
The individual short sale process will depend on the lender. Be prepared to submit a hardship letter detailing the circumstances behind the short sale. They may request addtional detailed information on the financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement. Additional, they may require a monthly budget assessment. Lastly, a signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender.
6. How will a short sale affect my credit rating?
Each individual lender to decide what to report. Often it will note loan as "paid" on their credit report, while in the footnote it may reference "settled for less than amount owed". Though it is a mark on the credit report, it is more favorable that "foreclosed".
7. I have filed for bankruptcy, can I still do a short sale?
Most lender would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. A short sale by nature is a collection activity which is prohibited in a bankruptcy.
8. WIll I need an appraisal for a short sale?
Lenders vary on whether they will use a full appraisal or real estate brokers price comparison to be submitted in the short sale package. All lenders will require a formal assessment of value of the home.
9. What are the tax implications in the short of real estate?
Taxes are reported as a lose to the lender and a gain to the buyer. If the lender forgives 20K on your mortgage, you would recieve a form 1099 in that amount as income, and responsible for paying the tax.
10.Why do lenders allow a short sale?
Simple. The seller is out of the home the cannot afford and the lender avoids the costly foreclosure proceedings.
As a homeowner -
- Speak with your lender regularly.
- Call customer service to locate the loss mitigation department and ask to speak with the manager. It is your money and your home. Speak with the individual that will have the most accurate information.
- Make professional contact and give a brief summary of your situation.
- Follow up, follow up and follow up.
Above all Understand what your lender wants and their procedures for a short sale. Does the lender have any alternatives? Are they willing to work with you? Can you modifying your existing loan? Know is not a time to be shy. Ask the questions. It is extremely important to find out their position up front in order to increase the likelihood that the short sale will occur.
Don't delay. In a pre foreclosure, the clock is ticking. Know your timelines and stick to them. Communicate any delays to your lender and all parties involved.