SHORT SALE FAQs

Will I be responsible for the difference between what I owe and what the house sells for?

California is a non deficiency state; however there are specific requirements in order to qualify. Most lenders will put the following verbiage on the short sale approval letter (or something similar) “Lender will not seek a deficiency judgment against borrower.” In most cases if a lender accepts a short sale they are going to write off the loss, show the debt as settled and you are able to walk away from the debt without having to worry about the lender coming after you. There are a few lenders who are potentially pursuing borrowers after a short sale. Contact us to find out which ones.

Will I owe taxes on the amount of loss that the bank takes on my short sale?

In both cases, with short sales and foreclosures the difference between what you owe and what the lender receives may be reported to the IRS and you will be taxed on that amount at the end of the year (1099C). The good news is there are several ways to avoid this tax including legislation. You can research the Mortgage Forgiveness Act of 2007 or see if you qualify for “insolvency”. Contact your tax advisor.

What is a “hardship” to the lender in order to qualify for a short sale?

There are numerous ways to qualify for a short sale and a borrower does not have to be behind on payments. If a borrower can show they are struggling to make payments or are facing some other type of hardship such as divorce, tenant moving, job transfer, medical emergency, decrease in pay, etc, then a bank will consider approving a short sale.

How long does it take to complete a short sale?

A short sale takes on an average 4 to 6 months from beginning to end.

Do I need to keep showing the home during the entire process?

No, once we have received the first offer and perhaps one or two ‘back up offers” it is not required to constantly keep showing the house, allowing you to resume a normal living pattern.

How difficult will it be for me to rent a house after a short sale?

You are not alone, since the beginning of the housing collapse many landlords have rented to many well qualified homeowners who have had a short sale or foreclosure. As rule there are several factors that a future landlord will consider including: your credit, your current monthly income, and your rental history. All of our past short sale clients have been able to find rental units, but the quality and cost varies depending on your overall financial picture.

Do I need to do any “fix up” or preparation to the property?

The property is being sold “as is’ and no improvements are required from you the Seller. The current condition of the property is reflected in the selling price of the property.

What are some of the seller benefits of a short sale?

With a short sale, sellers avoid having to go through a lengthy foreclosure process and prevent the impact of a foreclosure on their record. A foreclosure can cause a deduction between 200-300 points and stays on a report for around 7 years. Home loans and car loans will become difficult for a long time and/or future interest rates will be extremely high. A short sale on a credit score can be as little as 100 points and several ‘strikes’ for the months of missed payments. But once the property is sold and the debt is considered satisfied, a person can immediately begin rebuilding credit, so in as little as 2 years they can be eligible of another loan. In the mean time they may still have the credit to satisfy a credit check for a job, a home, a rental, insurance, etc.

What are some of the risks of a short sale?

There is no guarantee all the lien holders will accept the short sale. Also, the short sale of a non-primary residence may be required to pay income taxes on the short sale amount forgiven. When the lender decides to forgive all or a portion of a borrower’s debt, the forgiven amount is considered (taxable) income to the borrower. Since each homeowner has circumstances that make their liability different, it is usually necessary to get legal advice on all the possible risks.

Does a homeowner need to be delinquent on their mortgage for a lender to consider a short sale?

Some lenders will accept a short sale file for approval without the loan being delinquent. Other lenders will not accept the file until the loan is delinquent. It will depend on the lender.

What options other than a short sale might a homeowner have?

There are lots of available options, but here is a list of the most common:
1. Cure the mortgage default (bring the payments current);
2. Attempt a loan modification that adjusts the terms of the existing loan;
3. Refinance the mortgage with another lender;
4. Try to sell the home through normal channels/bring cash to the closing;
5. Attempt to get the lender to accept a deed in lieu of a foreclosure; and/or
6. File for bankruptcy.

What does a lender consider a “financial hardship?”

To some extent, that will depend upon the lender who is considering the short sale request. Generally, so long as the hardship is real and the lender believes the loan is likely to become delinquent as a result, the short sale request will be processed by the lender. A big key to getting lenders to accept a hardship is to submit a h5 hardship letter. The hardship letter sets the tone for the entire file. Below you will find a list of “hardships” that are common and frequently accepted by mortgage lenders.

1. Immediate family illness or injury
2. Illness or injury in the extended family – particularly if it forces relocation
3. Job relocation when the property is equity deficient
4. Job loss or significant income loss
5. Divorce or split of domestic partners
6. Adjustment in mortgage payment or unforeseen increase in living expenses

How does a bank determine the price it will accept on a short sale?

The estimated value of a property as determined by a real estate broker or other qualified individual or firm. A Broker Price Opinion (BPO) is based on the characteristics of the property being considered for short sale. Some of the factors a broker will consider when pricing a property include: the value of similar surrounding properties, sales trends in the neighborhood, an estimate of any of the costs associated with getting the property ready for sale and/or the cost of any needed repairs. It is important to note that a BPO is not the same as an appraisal. The bank will use the BPO to determine the price it will accept on the short sale of a property.

Will a lender postpone a trustee sale to complete a short sale?

Generally, yes. Depending on the lender and the time frame the purchase contract was submitted to the lender(s) for approval, a lender will often postpone the trustee sale. However, it can be held on schedule even if there is a contract being considered by the lender.