SHORT SALE FAQ'S FOR SELLERS
IMPORTANT NOTICE: AZ Homes Group and Solutions Real Estate 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 the questions below don't answer all of your questions, or if you have any additional concerns about the short sales process or what paperwork is required, please feel free to call us or email anytime. We will be more than happy to answer any of your questions. But please remember, without specific information as to your circumstances, we can only provide general answers - each sale and situation is unique. If you are considering a short sale, this can be an extremely stressful time in your life. We would like to help you in making the process as stress-free as possible.
What is a Short Sale?
Basically, a short sale is used to describe the sale of a home in which the homeowner owes the bank more than the home is worth. The bank agrees to allow the home to be sold for less than what is owed.
Would I qualify for a Short Sale?
A short sale candidate is a homeowner who is behind on their mortgage payment and is unable to keep up with all of their monthly obligations. Some of the reasons for falling behind on their mortgage payment may include sudden change in monthly household income, loss of job, divorce, and more. Another candidate is homeowner who is not behind on the payments but is being required to relocate (ie: military personnel).
Should I consult an attorney before placing my home for sale?
ABSOLUTELY! In fact, we require that you consult an attorney to make sure that a short sale is what is best for you. Sometimes, depending on your circumstances, a short sale is not in your best interest.
What if I have more than 1 mortgage?
Yes, we can work together even if you have more than one mortgage on the home.
When should we begin working on the together?
As soon as you realize that you will be unable to make your regular mortgage payments, we should be working together. The sooner we begin the better chance we have of successfully completing the short sale.
How do I choose the right agent?
Before hiring an agent to assist you in a short sale, make sure they are qualified and understand all the work that is required to see you through to the end. An agent who has a good understanding of the short sale process will be able to explain the process and be able to advise you what type of documents you will need to provide to the bank in order to facilitate the short sale. Additionally, a good agent will never try to advise you on the tax consequences or legal ramifications of a short sale. This is best left up to a qualified tax advisor or real estate attorney.
How long does the process take?
The length of time to complete a short sale varies. It can be as short of a process as 60 days to 5 months.
There are several stages that are involved with the Short Sale process...
(1) The first stage involves working with the homeowner to get all of the required documentation that your bank will require. Some lenders will accept the paperwork provided by you, the homeowner, but other lenders require their own forms to be filled out. If you are considering a short sale, ask your lender(s) if they have a short sale packet that they will provide to you. If they do not have a packet, your agent will know what paperwork is required by the lenders.
(2) The next stage entails properly pricing and marketing your home for sale to produce a buyer. This stage can take as little as a few days or as long as a few months.
(3) Once a buyer is secured for your home, the next stage is the submission of the offer to your bank. This is where expertise and experience in negotiating Short Sales takes place. The actual negotiation/approval process can take as little as 2 weeks or as much as 3 months. On average most short sales take between 60-120 days from the date the offer is presented to the lender to the date of the Short Sale approval.
(4) Finally, once the lender approves the short sale, the time to closing can taken anywhere from 21-45 days.
What if I don’t have money to pay the commissions or closing costs?
Realtor commissions and closing costs are not usually paid for by the seller. However, there are costs associated with closing the sale that the lender will not always cover, such as HOA liens or other liens not related to taxes. Unless those costs are covered by the buyer, then you, the seller, will be liable to pay them in order for the sale to successfully close. If you know that there are liens against the property or that the HOA fee hasn't been paid or kept current, please let the agent who is handling your property know as soon as possible. This can alleviate any surprises at the closing for all parties.
Are there any other fees associated with a short sale?
Unlike some other agents, we do not believe in charging any fees beyond what is normal and customary for a "traditional" transaction. We do not charge a "retainer fee" or a "cancellation fee". This means that we will get paid a commision upon the successful closing of the sale, nothing more.
Are there any tax consequences to a Short Sale?
Again, the best qualified person to answer this question is a tax advisor or CPA.
What occurs if you do a short sale is you will receive a 1099 from your bank. Generally speaking, this is for the amount of money that is being shorted to the bank. Say you owe $250,000 on your home, but short sale the house for $200,000. There is a difference of $50,000 that the lender is not receiving. The IRS generally considers this amount of money to be taxable, even if you did not receive any actually cash. Due to the Mortgage Forgiveness Debt Relief Act of 2007, some or all of the tax consequences may be excluded. For more information on the act, please go to http://www.irs.gov/newsroom/article/0,,id=174034,00.html.
Also, be aware that while there may be no tax consequences on a first or even second mortgage (as long as both mortgages were for purchase money only), quite often this does not apply to a Home Equity Line of Credit (HELOC) or a refinanced mortgage where money was taken out for items other than the purchase of the home.
What about my credit?
The best answer to this question at this time is yes, there will be an effect on your credit. Mainly, this is because of the late payments to the mortgage.
Once the short sale is completed, some banks will report to your credit report that your account has been “paid in full for less than the full amount" or it may also be marked as "settled" or even "paid as agreed". However, I cannot tell you how much your credit will be affected.** If you are concerned about what your FICO score will be after a short sale, please seek the advice of a professional consultant.
Here is a possibility of what type of “hit” your credit may take:
**Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines following mortgage delinquency problems.
Here are the average hit your credit will take:
30 days late: 40 - 110 points
90 days late: 70 - 135 points
Foreclosure, short sale or deed-in-lieu: 85 - 160
Bankruptcy: 130 - 240
** Information Courtesy of CNN Money. For the full article, here’s the link:
Why exactly would a bank agree to a Short Sale?
It is much more cost effective for a bank to do a Short Sale rather than Foreclose on a home. Banks are not interested in owning real estate. Banks make their money from receiving monthly mortgage payments. While banks will take a loss doing a short sale, it is generally more financially feasible than foreclosing on a property. Once a home goes into foreclosure, there are additional costs to the bank such as attorney fees, etc.
Can the bank sue me for the difference?
Although Arizona is what most people refer to as a “Non-Judgment Deficiency” state, there have been cases where the lender has attempted collection of the balance due. Alot depends on how the short sale approval letter is worded and if the lender requires a promissory note in order to complete the sale. It is always best to consult a real estate attorney prior to agreeing to the lenders terms in a short sale to make sure you are protected legally from further action.
