Frequently Asked Questions - Short Sales

Do I qualify for a Short Sale?
In the case of most short sale negotiations, the lender will be looking for a statement of hardship from the homeowners which explains why they need relief and more specifically why the homeowners cannot pay the difference still due on the mortgage after the short sale. Declining property values coupled with a need to relocate or upwardly adjusting mortgages and inability to refinance are the beginning, in many cases, of the financial hardship picture. The declining home property value, increasing adjustable rate mortgages coupled with unemployment greatly defines the downward spiral leaving many homeowners in desperate need to sell their homes. A short sale is often the best option for the homeowner and the lender.

What is "financial hardship" and why is it so important?
"Financial hardship" is a critical part of the short sale equation. No matter what you hear about banks "not being in the business of owning real estate," they do not easily give homeowners a break. They require good reason to give a discount for a short sale.

The only reason a lender will agree to a short sale is if they determine that a short sale will net them more money than proceeding with the foreclosure. Understanding the homeowner's financial hardship plays a major role in the lender's estimation of whether or not the mortgage will be paid in full. Lenders may make the borrower pay the shortfall if there is no hardship.

My home is really nice, why is the short sale offer price so low?
Sellers often have an emotional attachment to their home and may feel a short sale offer is too low. It is important to remember a few things. First, the seller in a short sale can never receive any money in the transaction. It should therefore be of little concern what price is offered as long as the short sale is done. The only real exception is when the seller has tax liability concerns. (If there is tax liability, a lower sale price means a larger mortgage relief and a greater tax liability.) Otherwise, the price should not matter to the seller. The important factor in a short sale is whether the lender will accept the price offered. Lenders often accept prices for short sales which may be surprising to normal homeowners or Realtors.

Who pays the real estate commission on a short sale?
The commissions are paid from the funds the buyer places in escrow. Since there is no equity in the house, the lender ultimately is the one paying the entire sales commission.

How long does a short sale take?
From the point that the lender is contacted to the buyer settling on the property, it can take 90-120 days. Utilizing an attorney to communicate with the lender on your behalf will enable the process to move along without hold ups or delays. The seller must submit a "Buyers Authorization" to the lender, so they can communicate the short sale on the sellers behalf.

Why do I have to sign a Borrower's Authorization?
The Borrower's Authorization gives the lender permission to speak to your representative about your loan. That's all it does, but it is necessary. An authorization must be filled out for each mortgage and for each Attorney or Realtor authorized to act on your behalf.

What is going to happen to my credit score?
Selling a property by short sale will cause a hit on the sellers' credit report and in many cases the affect on credit and FICO scores could be the same as a foreclosure. As such, a short sale should only be considered, and in most cases will only be considered by your lender, to avoid a foreclosure. The good news for short sale sellers is that in most circumstances the wait involved before qualifying for a loan to buy another home is much shorter than if a foreclosure occurs.

Who pays the difference between the loan amount and the amount collected at short sale?
This is known as a deficiency judgment. In most cases, it is up to the lender to decide whether to require a payback of some or all of the deficiency and as such the seller should discuss this matter with a real estate lawyer prior to finalizing a short sale. A lender's position regarding pursuing a deficiency varies from institution to institution and is greatly impacted by the hardship circumstance, as well as the seller's income and assets. In many cases, a good attorney can present the case to a lender and reach some agreement that is acceptable with regard to the deficiency.

Short Sale Information