Short Sale
2022 – A (Florida) short sale is a transaction in which the proceeds of a home sale fall short of what the owner still owes on the mortgage. The seller of property and their mortgage lender(s) must consent to the short sale process. Many lenders will agree to accept less than what is owed to them and release their lien interest. This agreement does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency. Typically, on a purchase money mortgage (first lien interests); lenders will be willing to release the lien and release the borrower from deficiency liability.
For second mortgages or home equity lines, lenders will accept a “pennies on the dollar” contribution to release the lien.
By accepting a short sale, lenders can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what is owed. We recommend that you check out some alternatives to foreclosure and the ramifications of a short sale vs. foreclosure before making your final decision.
Olympia Title has helped many clients successfully navigate the process of selling their home through short sale. Call us at 888-412-5674 to discuss your options!
Benefits of a Short Sale
Damage To Your Credit Is Reduced
A short sale has a reduced impact on your immediate score and a reduced impact over time to your credit score. Although your credit “score” is important your “creditworthiness” and ability to obtain credit is more than just your credit score. For instance, you will be eligible for Fannie Mae & Freddie Mac home financing after 2 years if you short sale your home. You will not be eligible for Fannie Mae & Freddie Mac financing for a minimum of 5 years if your home is foreclosed on. This has nothing to do with your credit score and everything to do with the way the financial crisis has altered mortgage underwriting guidelines.
No Out Of Pocket Expenses & Cash Back
Virtually all short sales are sold “as-is”. You won’t have to bother spending time and money on home repairs. Your lender pays all fees, services, and commissions on both sides of the transaction. Lenders are also offering homeowner relocation assistance from $3,000-$15,000 to motivate and cushion the seller’s transition out of their home.
Get A Fresh Start
A short sale provides a clean break from your mortgage hardship. More than half of homeowners that have obtained a successful loan modification wind up in default again. The scope of loan modifications at present time is such that the relief provided isn’t providing a long-term solution for homeowners. The interest rate may be lowered and/or the debt can be amortized over a longer period of time, but the negative equity says. For homeowners who are upside down $100,000+, this means the break even sale point is years down the road.
Maintain Your Dignity
A short sale allows you to stay in your home during the negotiation process and leave at the close of escrow just like a traditional sale. The foreclosure process involves bank representatives making periodic property inspections and the formal posting of a sale notice right on your home itself. The last stage even brings the local Sheriff to your property to have you forcibly evicted.
Sale Dates can be Negotiated
If you are in active foreclosure, your lender will eventually schedule a sale date of your property at the hearing for Summary Final Judgment. It is very important to show up for this hearing with proof of short sale transaction. If you have your realtor or attorney show up with the MLS printout, contract for sale, and some form of lender contact – they will push the sale date out to a maximum of 120 day. This buys you time in the home and time for the short sale to be fully negotiated.
Reduce Your Exposure to Loss
The recent enactment of the Making Homes Affordable guidelines in April 2010 (and extended thru 2013) encourages lenders to accept short sale and deed-in-lieu transactions with no deficiency against the borrower. Read up on the HAFA Program eligibility requirements to see if you quality. HAFA short sale guidelines also call for a maximum of $8,500 to be paid toward second liens on the property with deficiency waiver.
You Will Have An Easier Time Renting
A foreclosure and/or eviction are red flags to potential landlords who may decide not to accept you as a renter or increase the security deposit required. While a short sale is being negotiated you can take your time to select a new place to live and landlords generally apply more lenient requirements on short sellers vs. those who have been foreclosed upon. Landlords are creditors too. It’s common sense… they can see that you made every effort to do the right thing with your previous obligation rather than tuck your tail and run leaving the creditor (your mortgage lender) high and dry.
The Short Sale Process
Keep in mind that you will need to prove to your lender that you have an actual financial hardship. They will want to look at bank statements, tax returns, and pay stubs to verify that you qualify. With that said, here is an outline of what you can expect on your short sale journey:
Stop Making Payments
The day will come when you will be faced with the decision whether to stop paying your mortgage. If your credit is good, this can be a mental hurdle to get over. It is possible to negotiate a successful short sale while remaining current on your payment, but some homeowners choose to or simply cannot continue paying. Some lenders require that you be delinquent on your payment before they will consider a short sale option. Be sure to print and retain a copy of your credit report while it is still pristine. This will help you in the future when you go to rent a home or negotiate with future creditors. Use your good credit to obtain any important items (automobile purchase) before it goes south. **If certain criteria are met, you may not need to stop making payments**
Find a Realtor and List the Home for Sale
Your Realtor will place your property on the local MLS to locate a buyer for the property. Price your property right – make your home the cheapest of the comparable properties in you area. Remember, this is a short sale transaction and you are not making any money. If this is your homestead property, you will not have to pay any tax on the loss by your lender – so price your home to sell. Although you will have to sign a listing agreement with the real estate agent, all the terms of the listing agreement are contingent upon the lender approving a short sale. You can stay in the home until it is sold.
**Call us at <a href=”tel:8884125674″>(888) 412-5674</a> or email at <a href=”mailto:info@olympiatitle.org “>info@olympiatitle.org</a> – We work closely with real estate professionals versed in the short sale game.
Submit Letter of Authorization
Lenders will not disclose any of your personal account information without written authorization. When you work with us you will need to provide an authorization to release information form. This will give your Realtor and Title Company permission to speak with the lender on your behalf and find out what they require to consider the short sale.
Gather Required Documents
There are many lenders out there, but they all require similar information from you to consider your short sale. Here is a list of the documents that you should expect to be asked for and samples of each:
- Hardship Letter: This is a letter written by you stating how you got into this financial situation and why you have not or cannot continue to make your mortgage payments. Here is a sample hardship letter.
- Financial Form: All lenders will have a financial form that needs to be filled out, which captures your financial situation. Each lender’s is a bit different, and can be obtained by contacting the loss mitigation department.
- Proof of Income and Assets: Be prepared to supply your lender with 2 months of current bank statements, 2 years of tax returns, pay stubs, stock/bond statements, and any other assets in your name. **This requirement can be waived if certain criteria are met**
Sales Contract
Hopefully you will receive multiple offers on your property. Don’t just consider the highest offer. Try to select a cash buyer if possible, or the best pre-approved buyer. Once you secure a short sale contract on your property it can be sent to the lender(s) for consideration, along with a preliminary settlement statement and the documents in section (d) above. **Once you have a contract for sale, call us to prepare a settlement statement for submission to your lender**
BPO (Broker Price Opinion
With a complete short sale package submitted to you lender, a negotiator will be assigned to your case. Upon confirming you are a candidate for short sale, they will order a B.P.O “Broker Price Opinion” (appraisal) to determine the property value. The broker performing the appraisal will need to enter your home to take photographs, so be sure things are looking tidy.
Acceptance or Counter-Offer
Your lender will now either accept the short sale offer or make a counter-offer. If they accept the offer, they will issue a “Demand Letter” which is basically a short sale payoff outlining the terms of the transaction. The best possible scenario is for your lender(s) to release the mortgage lien and not pursue you for a deficiency judgment. There is a better chance of this happening on first mortgage liens opposed to 2nd mortgages or equity lines of credit (especially if not approved by the HAFA program). Some lenders will require you to make a cash contribution or sign a promissory note at closing to release you from deficiency liability. This may or may not be worth it to you depending on your situation. The key is to negotiate the best possible deal with your lender(s) and run a cost-to-benefit analysis.
Closing and Moving On
Now that you have signed and closed on the home, you can focus on moving forward with your life. You can feel good knowing that you made the best decision in your situation to minimize the loss for your lender and your credit score. It is good to understand the ramifications of a short-sale vs. foreclosure. We look forward to helping you through this process.
Call us today at (954) 695-7598 or email questions to: info@olympiatitle.org
OLYMPIA
TITLE INSURANCE / CLOSINGS / ESCROW - ALL FLORIDA COUNTIES
