When Does it Make Sense to Short Sell My Home?
That’s a tough question. There is really no easy answer. Emotions play a big part of this decision but when the negative equity in the home reaches a level that justifies the potential damage to credit or when the homeowner is simply unable or unwilling to continue making payments, the decision becomes easier. It is important to have all the facts before making your decision. An experienced REALTOR and/or real estate attorney can help you determine the value of your property and which options will best fit your situation so you can make an informed decision for you and your family.
Who Pays The Fees In A Short Sale?
The lender may pay some or all of the fees associated with the short sale of a property. However, it is not unusual for either a 1st/2nd lien holder or MI Company to require a contribution to closing or a promissory note from the homeowner prior to close. It is important for the homeowner to know their obligations prior to listing a home for a short sale.
How Does A Short Sale Work AND How Do I Get Started?
Typically this is a difficult process, however, lenders have stream lined the process and lenders are reaching decisions quicker. The lender has to approve any offer, but the decision also lies with the homeowner. An experienced REALTOR can help you get started and simplify this process by taking on much of the work with the lender. The process will still require assistance from the homeowner.
Do I Need To Be Delinquent On My Mortgage To Short Sale My Home?
No! In most cases if the homeowner is unable to continue making payments due to a hardship such as a job loss, income reduction or illness in the family – a lender will accept short sale offers for consideration of approval without the loan being in default. Some homeowners are in a position to continue to make their mortgage payments and make the financial decision to continue making their payments until the home’s sale transaction is closed.
According to the new FHA guideline on short sales, those homeowners who keep their payments current during a short sale may qualify to buy a new home through FHA immediately after closing. Remember – If you stop paying your mortgage, you could lose your home and damage your credit rating.
Must I Have A Hardship To Qualify For A Short Sale?
No! Lenders often approve short sales for homeowners that do not have a hardship simply because the alternative is to take the home back in a foreclosure, which would only increase the lender’s losses.
How will a Short Sale affect my credit score?
Typically, a Short Sale is better on your credit than a foreclosure and allows the homeowner to exit the property with dignity. But there are a lot of factors that go into calculating your credit score. A credit counseling agency can give you more information.
How long will the Short Sale take?
The time that it takes to complete a Short Sale varies because each seller’s situation different. Some may have a financial hardship, others may be relocating and still others have decided to walk away from the property because loss of equity in the home. You should be prepared for your short sale transaction to take approximately 90 – 180 days to complete. The time frame varies by banks. But some banks have adapted very streamlined processes or outsourced to third parties to assist in faster approvals. Such as:
- Bank of America, WellsFargo, Wachovia, BankUnited
- Litton Loan Servings, Greentree, OneWest (Indymac), EMC
What Is A Hardship?
- Death Of Income Earner
- Medical Expenses
- Military Service
- Loss Of Job
- Reduction of Income
Will I Still Owe The Bank After A Short Sale?
It is commonly misstated that Arizona is a non-recourse or anti-deficiency state. Although Arizona has strong anti-deficiency statutes, there are circumstances in which a lender COULD pursue a deficiency judgment against the homeowner. There are statutes to protect homeowners from deficiency liability in a foreclosure that may not apply in a short sale. The upside to a short sale is it will typically reduce the potential tax obligation when a 1099 is filed after the lender takes a loss. This is why it is very important to consult an attorney before signing any documents or even listing the home for a short sale.
Can I Stay In My Home If I Am Not Making My Mortgage Payments?
Typically, when a homeowner stops making their payments for a period of 90 days – they are will receive a notice of default followed by a notice of Trustee Sale. The notice of Trustee Sale must give the homeowner 90 days notice. So from the time a homeowner stops making payments, the minimum time before the home could be sold at Trustee Sale and the homeowner is forced to move out is 6 months.
Many lenders are extending these times in order to slow the number of foreclosures. Additionally, lenders will usually extend Trustee Sale dates to accommodate a short sale.
What Is Required From The Property Owner?
The homeowner must provide a listing agreement with a qualified REALTOR, provide the lender with requested documents and allow access to show the property to prospective buyers.
Short Sale VS Foreclosure?
- A Foreclosure is typically more damaging to the credit than a short sale or deed-in-lieu.
- A Foreclosure can create more of a tax liability for the homeowner than a short sale, since a short sale is likely to result in a higher payout to the lender.
- Once a foreclosure is complete, the borrower has no bargaining power if the lender decides to pursue a deficiency lawsuit. If a short sale is completed on a property that may present deficiency risk, it may be possible for an attorney to negotiate language that minimizes that risk.
- A Foreclosure can provide additional anti-deficiency protection to the homeowner that may not apply in a short sale.
Know your options – always discuss your situation with an Attorney and a tax professional before you enter into any agreement to sell.
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