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What is a Short Sale?, www.Reno-ShortSales.com


What is a Short Sale?

A short sale is a work out option that allows the homeowner (mortgagor) to sell the home for less than the total amount owed on the mortgage. Upon final approval, a short sale can help mortgagors avoid a foreclosure action.

In a short sale, the offer is negotiated with the seller, just as in a traditional sale. The offer is then submitted to the lender, not for an "acceptance" but for approval of the terms and net proceeds.

The elements of a successful short sale are generally these:

  • The property is worth less than is owed. I can determine this by doing a current Comparative Market Analysis to determine the value.
  • The seller has some hardship that makes it impossible or extremely impractical for the seller to keep the property. What are hardships as defined by most lenders? Most lenders focus on and require "changed financial circumstances". Loss of job, unusual medical costs, death of an owner, natural disasters, can be hardships. Lenders do not consider a decline in value alone to be a hardship.
  • The seller is cooperative and willing to work with a real estate broker to package the short sale.  If there is a formal short sale application, the seller is going to have to complete it. The seller must write a narrative of the hardship involved.
  • The lender is contacted and expresses willingness to entertain a short sale. Contact the lenders loss mitigation department. Ask for the person who will be responsible for processing a short sale application.
  • The property is listed with appropriate caveats and protections for the seller, properly priced, and effectively marketed. The listing agreement should state that the seller's acceptance of any offer will be subject to the lender's approval of the offer.
  • The lender is presented with an offer, accepted by the seller, along with a completed short sale package and narrative explaining why the short sale is necessary and desirable.
  • The lender approves the offer and escrow closes. No proceeds go to the seller.

The required documents to complete a short sale may include the following:

  • Completed Hardship Letter (examples are attached below)
  • Signed Third party Authorization (form attached below)
  • Copy of last mortgage or loan statement
  • Signed IRS Form 4506 From the seller, ("Request for copy of Tax Form")
  • Copy of Tax Returns-2 most current
  • Financial Statement Worksheet-Dated and Signed (form attached below)
  • Copy of paycheck stubs, 1 months worth per Borrower
  • Profit and loss statement if self employed
  • Copy of Bank Statements, (2 months worth) 

For the Owner:

A short sale could help everyone involved. You watch and read every day where people insist that the right option is just to walk away. Some people even think this is their only option, and it is not. You may not be able to afford your home anymore, or the value is now worth less than what you owe, but there may be a better option. Walking away may seem like the best option, but doing that may cause lots of problems. The important thing to remember, is that there is more than one option, and discussing the pros and cons to each will help make that decision.

For the Bank:

Banks are in the money business, not the real estate business, although that might be hard to believe these days. A short sale can result in the bank receiving more money for the property than in an auction or going through foreclosure.

Best of all, all typical real estate transaction fees are paid by the lender. Real estate commissions, and closing costs are all paid by the lender. The bank may require some payment from the seller at closing, this is where it is important to know your options, to be able to make the proper decision that fits your particular circumstance.

Short selling may be less destructive than foreclosure or bankruptcy to your credit scores, but your lender may report the short sale which can affect your scores and slow your financial recovery. In addition, you may have some tax complications.  Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your personal residence from income. The act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition the debt must be secured by the home. This is known as qualified principal residence indebtedness. This provision also applies to debt forgiven through 2013. Check with your tax advisor and/or attorney to see if these provisions apply to your situation. There could also be deficiency issues after a short sale, so consulting with a knowledgeable agent, such as myself, along with a tax advisor and/or attorney is highly recommended.

In my experience with short sales, I would say the biggest factor that will ultimately end up with a successful outcome, a completed short sale, IS THE DILIGENCE AND COOPERATION OF THE SELLER. I have emphasized this because, if the seller does not provide the necessary documenation, in a timely manner to the underlying lender, the short sale is doomed before it has a chance to progress. It is vitally important to submit all documents as promptly as possible to keep the short sale moving toward an approval.

In the event the short sale is successful, your lender(s) may exercise their right to pursue a deficiency judgment against you and/or the discount received may become a taxable event to you. This may or may not be disclosed or followed through by your lender(s).  You should contact the appropriate real estate attorney and/or certified public accountant to obtain qualified counsel relating to implications of selling the property in a short sale.

I have provided informational documents below that I think will be helpful to you in learning about short sales, and the process that is involved.

IMPORTANT NOTICE: Capurro & Reid Real Estate, LLC. is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit

If you think you may qualify for a short sale, or simply have questions about the process, please contact me as soon as possible. It is a very lengthy process. Contact me today, Kreid@KevinReid-Reno.com

 

 

 

 


Seller Short Sale Documents


Hardship Letter Sample #1
This has a few examples of what to include in a Hardship Letter
Hardship Letter Sample #2
Additional Hardship Letter Samples
Borrower Financial Worksheet
This is a sample of a financial worksheet that a lender is going to require. The lender may have their specific form, this will be a good reference as to what will be required to fill out.
Third Party Authorization
This is a form that must be filled out, which authorizes me to speak to the lender on your behalf.
Short Sale Seller's Questionnaire provided by Ticor Title
This is a questionnaire that the seller/borrower shoud answer and fill out that will help provide information to me when I am preparing a listing package and acquiring information needed to procure a short sale on behalf of the seller/borrower.
Foreclosure vs. Short Sale provided by 1st. Centennial Title
This document provides information for issues pertaining to short sales and foreclosures and the potential outcomes for each.