Imperial Valley REO

Short Sale Answers Home Sellers Short Sale help in Imperial Valley

Selling a property as a short sale may seem complicated however, this entry will answer some of the most common and frequently asked questions regarding Short Sales. This information was gathered from various sources, homeower questions, and my experience as a REALTOR(R) within the industry.

One BIG distinction

Short Sale = AVOID Foreclosure and preserve your credit history now and into the future

Foreclosure = the legal process the bank uses to get their money back by selling the home… YOU DO NOT WANT THIS ON YOUR RECORD.

What is a short sale?
A short sale is a process in which a homeowner sells their home for less than what they owe on the outstanding mortgage or mortgages. This process requires specific documentation that is gathered early in the process and is presented to the lenders in an attempt to convince them to discount the mortgage balance in order to allow a sale of the home to occur. If the sale is approved by the lender, they will take a loss on the mortgage. This process, if approved, will allow the homeowner to get out from under the mortgage and not have to repay the difference from what was owed to what the sales price was. As well, this process stops the foreclosure action and acts as satisfaction for the mortgage balance.

What are the steps the bank takes to decide what the sales price on the home should be?Each bank has different criteria they review to decide on the selling price of the home with regard to a short sale.

Which types of situations benefit most from using a short sale?Short sales are known as sales in pre-foreclosure, meaning they have some type of default or possibility of default looming over them. Typically a homeowner who is in default is at least 3 months or more past due on their mortgage payment and more than likely the foreclosure process has already been started, however more lenders are carefully considering mortgages that are only behind a few months or those which are current as prospects for short sales without fully being in foreclosures as a means of helping to avoid further losses.

Aside from the delinquency (being past due) which must be present, the homeowner will more than likely have no equity in their home. This means the total amount owed to payoff the mortgages is more than the home price need for it to be sold.

The homeowner who is past due must have some type of hardship involving their finances which has caused them to fall past due. Typically the reasons for hardship will vary, however proof must be documented before the hardship will be considered by the bank.

How does a homeowner benefit from a short sale?
The homeowner is more than likely suffering from a financial hardship and the opportunity to get out from under a burdensome monthly mortgage payment is a huge benefit for the homeowner. Once the short sale is approved and underway, the foreclosure process stops which also removes any anxiety the homeowner may have been feeling, which will offer them a fresh start. A short sale will also prove to be most favorable on your credit report should you buy another home in the hear future.

From a credit reporting perspective, a short sale will more than likely be listed on the homeowners credit history as a “paid” or “settled” account, along with any late payments after being past due on the mortgage, however these blemishes are nothing compared to having a full blown foreclosure on your credit report will be reported as a public record for 10 years, just the same as a bankruptcy filing which causes huge damage to your credit report.

Are short sale remedies offered to me as an investor homeowner?
They certainly are, however remember in order to complete a successful short sale a hardship has to be demonstrated. As an investor you may have other considerations or implications to consider, therefore it is recommended that you seek advice regarding tax consequences from your tax adviser or CPA.

Are certain loan types considered over others with regard to short sale?Maybe, however there may be other implications which may pose a risk such as a deficiency judgment, or lawsuit on loan or mortgage contract, which differ from a judicial foreclosure.

If you have questions, please contact me to discuss your specific situation. I have a network of investors who will buy your house for cash.

I’m facing foreclosure, is a short sale the right solution for me?Every situation and circumstance is different and therefore requires to be looked at individually. Here are some important factors related to short sales:
* Your property is in default (past due) or foreclosure (several months past due)
* You have evidence of a documented financial hardship
* You have little or no equity in the property, more than likely you have negative equity
* Your homes value has dropped below the amount you owe on your mortgages

I have a FHA, VA, or other government back loan, does this matter?
Every loan type has different characteristics the banks look at, therefore a short sale may still be possible.

Are there other options besides a short sale I could look into?
Yes, there are many different options to consider aside from a short sale, such as:
* Bringing your loan current, paying all past due payments up to date, also known as curing your delinquency
* If you feel your hardship is only a temporary setback, you could try a loan modification which changes the terms of your existing loan(s). Note: I work with skilled negotiators who will guarantee a modification result or your money back, ask me for details
* If you have equity, you could refinance your mortgage with another lender
* If you have equity, you could try to sell your home through a normal means
* You could try to have you lender take the deed to your home, which is known as a “deed in lieu of foreclosure”, however you must be aware that taking this action will cause your credit report to reflect a foreclosure just the same as if you lost your home to foreclosure
* You could file for Bankruptcy, however you should know that simply filing bankruptcy does not stop the foreclosure action, it merely delays action taken

You keep talking about a financial hardship, why do you discuss this so often?The reason I keep coming back to a financial hardship is because the lenders will not agree to allow you to sell your home for less than what is owed without having a good reason. Quite simply, a good reason is proving that you’re in a financial bind and cannot come out of it quickly enough to bring your mortgage payments current and you will more than likely not continue to keep making payments either.

Lenders want to lose the least amount of money when considering a foreclosure and it has been said that lenders expect to lose up to 40% or more of the amount of the mortgage owed if they go through the foreclosure process, therefore if they can see someone willing to buy your home for less than what is owed, they’ll will gain more than if they continue with the foreclosure sale, then you have a strong chance at getting your short sale approved.

Please exercise caution if you are attempting to use a short sale as a means of selling a poor investment, or if you have simply lost value in your home and want out, but are employed and have assets (savings, investments, etc). If you are current on your mortgage payments, it is nearly impossible to short sale your home, unless you can document a hardship such as a layoff notice, a transfer, a medical procedure which puts you out of work, etc. Lenders need to see that you cannot pay your mortgage before they will agree to allowing you to do a short sale.

After the short sale is completed, who owns the home?Just like a regular home sale, the buyer of the home is the owner. The loans are paid off and satisfied, the previous owner moves out and the new owner moves in.

How does a short sale affect my past due property taxes?
Similar to a normal sale, property taxes are the responsibility of the homeowner up until the close of escrow, then the new owner takes responsibility of them. If your property taxes have not been paid, this fact will affect the negotiations of the short sale since the lender will ultimately have to pay those off to transfer title to the new owner. This fact will affect the outcome of negotiations between the bank and buyer, please let me know if you’re behind in your property taxes in any way.

What areas do you cover and list short sale homes?
I work locally in the Imperial Valley (Imperial County) area of Southern California, however depending on the circumstances I will review requests for listings outside of Imperial County. I network and work with other agents who are experienced in short sales in California and will refer you to another real estate broker who can best serve your needs.

What types of properties do you work with on short sales?
My focus is on residential properties, such as single family homes, duplexes and apartments up to four units, however I currently do not handle any commercial properties.

How do things change if my home is already listed on the MLS but its not selling, can I do a short sale?
Absolutely. Lenders may actually want the home listed to show proof that a reduction or discount is required in order to sell the home before approving a short sale. (** this is a myth & tall tale)

My home is very well taken care of, the short sale price seems very low, why?Most often homeowners who are facing the possibility of selling through a short sale are attached to their homes emotionally. You must keep a few things in perspective, such as a home seller can never receive any money through a short sale. The price of a home is of little concern and the goal is to sell the home and remove the burden of the mortgage from the homeowner who is facing a hardship.

There are a few possible concerns for a home seller, such as possible tax consequences, since a large discount provides a larger amount of mortgage relief and the possibility of a great tax liability.

The key point is to ensure the lender will accept the sale price and agree to the short sale in a fashion that will sell the home. Discounts of 25% to 30% or more from current market value are not uncommon. These facts happen for a variety of reasons, such as a) home sellers are in denial about how far the market has turned down and are uneducated regarding declining property values, b) lenders do not like the foreclosure process, perhaps even more than homeowners since lenders know a foreclosure process can take up to twelve months go from start to finish. Lenders have tremendous expenses from attorney costs, publication costs, lost interest, money tied up in the home, past due property taxes, inspection costs, maintenance costs, vandalism threats, etc.

All of these expenses come before the bank tries to sell the home as a bank owned or REO property and pay a sales commission to sell it. A short sale is a way to avoid some or most of these costs. Let’s say a lender calculates their cost of taking possession of the home or eviction at $50,000 for a home, then by doing a short sale and only spending $35,000 or $40,000 the lender is better off approving a short sale than going to foreclosure.

With a short sale, who pays the real estate sales commission?
Typically commissions are paid for from the funds the buyer places in escrow but since there is no equity in the home, the lender ends up paying the entire real estate sales commission.

Are there any guarantees a short sale will work?
No, there are no guarantees a short sale will work. A complete and thorough short sale package must be provided to your lenders(s) before they will even consider a short sale. Banks and lenders need to be convinced of the property value as well.

Even when all of the paperwork requested is submitted in the perfect order, all complete, the lenders have many requests to consider, therefore a short sale takes time 30-60-90 days are not uncommen. If your short sale is denied, then the existing purchase contract (they buyer who made the offer) is no longer valid however the short sale listing (your home sale) continues on the market. In other words, we will try and try to get the bank to accept your short sale.

When would the for sale sign go up and how long would we be able to stay in the house?
Our goal is to attract clients who are interested in buying your home, therefore there sooner a sign goes up the faster we can find interested buyers.

You can stay in the house until escrow closes with a new buyer.

How long does a short sale take to go through?As discussed previously a short sale may take several weeks to a few months to complete. The process if very involved and complicated and its important to exercise patience, if you have the time to sell, however if you’re facing eviction from your property and expect a short sale to help you, you may have waited too long. Under certain circumstances we can help and stop the eviction, but you have to CALL now and provide ALL documents so we can help you. Please do not wait until the last minute to get help.

One of the forms I have to sign is a borrowers authorization, why is this required?This form, the borrowers authorization, gives us permission to the lender to discuss your loan with them. This form is required by every party who will be discussing your loan with your lender, as it gives permission to talk about your transaction.

Someone told me that I will owe taxes after a short sale, tell me if this true or not?
You could owe taxes, however it’s not that simple as there are many factors involved. A few examples are, is the property an investment or your primary residence? Did you purchase the home with a purchase money loan or did you refinance it recently? If you’re an investor or if your recently refinanced the home, are you technically insolvent? These questions get deep quickly and depending on your actual case, you will need answers from a qualified tax professional or CPA.

Here are some rather simplified descriptions of the questions above:
When a lender writes off part of a mortgage (takes a loss on the loan), the discount or difference is similar to “cash paid to the owner”, even though you saw no cash at all, but in the eyes of the IRS its the same as if you received cash. This mortgage relief is reported to the IRS on form 1099C.

Even if you receive a 1099C form and declare it as income on your taxes, there is a chance you will owe very little if any taxes on the money. Why? Simply because the IRS has a rule about being technically insolvent, which says if you owe more (liabilities) than you are worth (assets), you’re insolvent. Since this happens at the time you did a short sale, your liabilities are greater than your assets, you are insolvent and you don’t have to count the 1099C income. You can learn more about 1099C forms at the IRS website, http://www.irs.gov

Late last year, President Bush signed into law a bill called the “Homeowners Debt Forgiveness Act”, which spells out certain requirements that homeowners can take to not be taxed on mortgage relief.

Make sure you seek advice from a CPA or a qualified tax preparer.

I’m not in foreclosure yet, but I am behind in my payments, can a short sale work for me?
Yes, more and more lenders are open to homeowners who are past due on the mortgage but not yet in foreclosure as a remedy, as long as the hardship requirements are met. The vast majority of lenders are choosing a short sale over taking foreclosure action due to the expenses involved with foreclosure. Lenders also know that as more time passes, the less their home is worth which causes the loss to increase.

My home is in disrepair since I was in the middle of remodel, will a short sale work for me?
Certainly, however this may complicate matters since the bank will have to compensate a much lower price to factor in the repairs. The important piece to accomplishing this is to show the lender’s appraiser all of the repairs that need to be done. If your home fits this description, please contact me for additional specific guidance.

I have a little equity in home, perhaps 10% or a bit more, is a short sale still a viable option for me?
More than likely not, since you have some equity and a regular sale will be in order.

I own the property with other parties who do not want to do a short sale, can I still do one?Yes, but all on the title must agree to the short sale contract, therefore it is necessary for all parties to be in agreement, there are no exceptions. If the other parties cannot agree, then the answer is no, you cannot do a short sale on this type of property.

There are other types of liens on my home, such as Tax liens, Mechanics liens, IRS liens and Judgments on my home, can a short sale work for me?Yes, a short sale can work but having additional liens only complicates matters further. You must be sure to completely list all liens that are outstanding, then each lienhold will have to be negotiated individually. Short sales with these types of liens will take a much longer time to complete.

I cannot afford the mortgage on a property that I inherited, can a short sale help me?
Yes, there are other resources available that discuss these matters. Ask me for a report for California property owners regarding Proposition 13 Preservation of the Base Year.

I have multiple loans on my home, including my first and two 2nds, can I do a short sale?
Yes, each mortgage or home equity loan or line of credit must be negotiated individually. If you’re past due, its important to know which loan has filed or will file the foreclosure first, if more than one mortgage has filed.

I hope this basic overview will help answer some questions if you’re considering selling your home through a short sale. If you have additional questions, please feel free to contact me at your convenience regarding your specific situation. I am here to help you.

Thank you,
Imperial Valley REO

Note: The intent of this article is to provide a general discussion format only and should not be considered legal advice. By using this information, you agree that it does not create an attorney-client relationship.

If you rely or use this information, you do so at your own risk, since any liability that might arise is expressly disclaimed. As I mentioned in the beginning, this blog does not provide legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.