Short sales

A short sale is when the value of your property is less than the current market value and, as a result, the selling price will be less than the balance owed on the property.  In a short sale, the mortgagee(s) or lien holder(s) agrees to accept less than the amount owed.  Any unpaid balance owed is known as a deficiency.  It is important to know that short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties.  Most often, creditors require the borrower to prove there is an economic or financial hardship preventing them from being able to pay the deficiency. 
One of the most important aspects for the borrower in this process is putting together a proper real estate short sale package.  Mary Higgins Colucci is a Certified Short Sale Agent (CSSA) who has completed short sales in Hawaii and has the knowledge and experience to help you understand the complexities of a short sale, to assist in preparing a well organized and complete short sale package, and to successfully negotiate a short sale agreement on your behalf. 
Understanding the short sale process and requirements is imperative. Short sales are complicated and it can take several months for the process from start to finish, often requiring multiple levels of approval.  Please contact us for advice or for help in determining if a short sale would be a viable option for your situation.

Process:
Following is a typical short sale process at the bank:

  • Bank acknowledges receipt of the file. This can take 10 days to a month.
  • A negotiator is assigned. This can take 30 to 60 days.
  • ABPO is ordered. The bank probably will refuse to share the results of the BPO.
  • A second negotiator may be assigned. This can take another 30 days.
  • The file is sent for review. This can take 2 weeks to 30 days.
  • The bank may then request that all parties sign an Arm’s Length Affidavit.
  • The bank issues a short sale approval letter.
  • The buyer cancels.

Banks grant short sales for 2 reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth.
A few examples of a hardship are:

  • Unemployment / reduced income
  • Divorce
  • Medical emergency
  • Job transfer out of town
  • Bankruptcy
  • Death

The seller will need to prepare a financial package for submission to the short sale bank. Each bank has its own guidelines but -- with the exception of Wachovia, which is the best short sale bank in the world -- the basic procedure is similar from bank to bank. The seller's short sale package will most likely consist of:

  • Letter of authorization, which lets your agent speak to the bank.
  • HUD-1 or preliminary net sheet
  • Completed financial statement
  • Seller's hardship letter
  • 2 years of tax returns
  • 2 years of W-2s
  • Recent payroll stubs
  • Last 2 months of bank statements
  • Comparative market analysis or list of recent comparable sales

 

Frequently Asked Questions

Why do lenders allow a short sale?
A short sale allows lenders to avoid costly foreclosure proceedings.

How much time do I have to start a short sale?
Time is of the essence. Foreclosure notices vary by the lender. Some foreclosures can proceed as quickly as 35 days from the date of the notice, while others can take more than 60 days.

If I have received a foreclosure notice, can I still do a short sale?
Yes. Depending on your circumstances, it’s possible to do a short sale up until the day of foreclosure, but the approval process can be lengthy so again time is of the essence. We have been successful in obtaining foreclosure extensions for our clients who have chosen to do a short sale to avoid foreclosure.

What information will I need to provide?
The requirements can vary depending on the lender. Typically, you will be asked to submit a hardship letter detailing the economic or financial hardships causing the short sale; your current financial condition, including the past 2 years of tax returns, 2 years of W2′s, 2 most recent months of bank statements for all accounts, 2 months of paystubs; and they may require a monthly budget assessment.

When will the short sale be initiated with the bank?
As soon as you provide us written authorization to speak to the bank on your behalf we will contact them to initiate the process. A key to short sale success is communications and we are constantly communicating with the bank on the status of your listing. The short sale is initiated with the bank when there is a signed, valid purchase and sales contract at a sales price agreed to by you as the seller. After you accept the buyer’s offer, we will work with a trusted escrow office to obtain a preliminary HUD settlement statement and a preliminary estimate of proceeds to the lender – both required by the bank. The HUD settlement statement and estimate of proceeds must then be sent to the bank for their approval. The bank may accept the offer, or more likely, will counter. The process could be repeated several times before a short sale agreement is accepted by the bank and the buyer.

How long does a traditional short sale take?
Because of the number of people and amount of paperwork involved in a short sale, it can take longer than a traditional home sale. Typically it takes 45 to 90 days after the initial offer is accepted to finalize, although timelines can vary based upon current market conditions and your particular circumstances.

I have filed for bankruptcy; can I still do a short sale?
Most lenders would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding.

Will I need an appraisal for a short sale?
Lenders vary on whether they will use a full appraisal or real estate broker’s price opinion (BPO) to be submitted in the short sale package. All lenders will require a formal assessment of value of the home. This is not an expense to you the seller.

What are the tax implications in the short of real estate?
VERY IMPORTANT - Please consult a tax accountant and/or attorney as each case varies. Generally, any forgiven deficiency would be reported as a loss to the lender and a gain to the seller. If the lender forgives 20K on your mortgage, you would receive a form 1099C in that amount as income, and are responsible for paying the tax unless you can prove insolvency to the IRS. The mortgage forgiveness act of 2007 allows forgiveness of up to $2 million on your principal residence. More information can be found through the IRS website at http://www.irs.gov/individuals/article/0,,id=179414,00.html