What is a Short Sale? A short sale is a real estate transaction in which the seller’s mortgage lender agrees to accept a payoff which is less that the balance due on the loan. This most likely happens when the market is soft and the rate of appreciation is low. Why would a lender agree to a Short Sale? Lenders are not in the business to own properties. It is too expensive to spend time and money to foreclose on a home. It also doesn’t look good to have a bad loan in their portfolio. What will I need in order to do a Short Sale? Call the Lender
This may be one of the hardest steps. It will probably take you many calls to get to the right department with your mortgage company. Once you have found someone to talk to, make sure to document who you’ve spoken to and what was said. Depending on the lender, you will probably want the loss mitigation department, work out dept, short sale department, or foreclosure department. Submit Letter of Authorization
Lenders typically will not disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, you should write a letter to the lender giving the lender permission to talk to your agent on your behalf. You’ll want to include the following things in your letter. - Property Address
- Loan Number
- Your Name and other names on the loan
- The Date
- Your Agent's Name & Contact Information
Preliminary Net Sheet
This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your Real estate agent should be able give this sheet to you. If there is any cash to the seller, you will probably not need a short sale. Hardship Letter
The sadder, the better. This letter describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a family member became very ill. But don’t lie! Lenders will not be sympathetic to situations involving dishonesty or criminal behavior. Proof of Income and Assets
Please be honest about any income or assets you may have. They will want to know about savings accounts, stocks, bonds, or other real estate you may owe. Copies of Bank Statements
If your bank statements show unusual activity, you should probably explain why this is happening. Lenders want to make sure you truly don’t have the money to continue to pay the mortgage. Comparative Market Analysis
With our current market, it is a common factor that house values have dropped. If this is the reason that you cannot sell your home for enough to pay off the lender, you should provide a CMA (Comparative Market Analysis). Your real estate agent can prepare a CMA for you, which will show prices of similar homes · Currently for sale on market · Pending sales · Homes sold from the past six months. Purchase Agreement & Listing Agreement
When you get an offer for your home, a lender will want to see the purchase agreement, as well as the listing agreement with your real estate agent. What happens after I do a short sale? There are tax implications for doing a short sale. The best thing to do is speak with your tax professional BEFORE doing a short sale. You will be sent a 1099 on the difference between your original loan amount and the short sale. The IRS considers the difference income, and you will be taxed! There might also be Capital Gains concerns. The bottom line, please speak to a tax person before you do anything!
Please call or email me today with any questions!
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