Short Sales Analyzed
A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to short sale transactions. Recent changes in corporate policy and economic policy have also improved the chances of getting a short sale approved. The Short Sale Lenders are also offering Incentive dollars to the selling home owner. These incentives range from $1,500 to $30,000 depending on the Lender and program.
Short Sale Defined
A Short Sale is simply when Your Lender agrees to accept less, a discount, on the outstanding balance of your mortgage as payment in full and releases the mortgage lien on the property. The lender approved Short Sale will allow the property to be sold and the home owner, seller, to move on in life.
The Homeowner /seller should be able to show the following:
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage. Loss of employment, reduction of income, medical hardships, death in the family, divorce, etc..
- Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
These are general guidelines and it is important to note that each property and homeowner is evaluated on their own merits. We have successfully closed short sales in which our clients;
- Were Current on their mortgage(s)
- Have had no financial hardships
- Had multiple assets and other properties
Short Sale Timeframe
How long does the short sale process take? Once an offer is received it will be submitted to your lender for review and approval. Most Lenders are quoting a 30 day turn around response time from offer submission. We have received Lender responses within 2 business days. Prior to receiving an offer, your home is being marketed at a competitive market price to receive an offer within the first 30 days of listing.
The amount owed to the lender but not paid back after the short sale is called deficiency. The lender has the right and option to pursue a deficiency balance and may or may not. During the short sale process there is the opportunity to minimize the deficiency or have it waived. When a deficiency is waived it is called Debt Forgiveness. There may also be tax consequences on any forgiven debt. We suggest you consult a Tax Advisor. Recent Government Acts have limited and even waived tax liability on distressed property sales.
If you choose to let your property go to foreclosure, the Lender(s) still have the right to pursue you for the full deficiency up to 20 years.
In general, anytime you fall behind on a financial obligation your credit is negatively affected. The Short Sale effect varies but the range seems to be between 80 to 200 points. If you have other past due accounts these will also negatively affect your credit by even more.
The Foreclosure impact is generally between 300 to 400 points and long term.
Have more questions about the Short Sale Process? Call us now at (727) 644-3370