What is a
A short sale is when your Lien Holder(s) agree to
accept less than you owe in order for you to sell your home. They agree
to a discount of the mortgage debt owed.
Why do lenders
or banks accept discounts?
A Lender or bank takes a discount or agrees to a
short sale because it saves them money. It gets bad debt off their books
so they can reinvest that money by giving out another loan to a
customer. On average a Lender loses between $30,000 to $80,000 on each
property that they take back as a bank owned property. In many cases a
short sale is necessary in order to get you out from under your mortgage
debt. By doing a short sale, you will be able to take a large bite out
of the money you owe to your mortgage company, so that you are no longer
liable for the entire amount.
lender or bank allow a short sale?
answer is no. The majority of the lenders do short sales however; there
are a select few that do not do short sales.
for a short sale?
Most everyone who is facing a true financial
hardship qualifies for a short sale. However, each Lender and Loan Type
has a different set of requirements specific to them. The general
requirements for a seller to qualify for a short sale are: A provable
financial hardship, behind on payments or facing imminent default, No
equity in the property being shorted, no liquid assets, and a lender or
loan type with a clearly defined short sale process.
How do I know
what type of loan I have?
Knowing what type of loan you have is crucial to
the process. There are often specific short sale requirements unique to
each loan type. You can find this information by looking at your
mortgage statement, the settlement papers from when you originally
purchase the property, or by calling your lender.
or Banks do short sales if the mortgage is current?
Some Lenders will entertain taking a discount when
a homeowner is current on their mortgage however they typically require
the property to be listed for sale by a licensed real estate agent.
How long do I
need to be in default before I can start a short sale?
This depends on the Lender. Some Lenders require a
property to be 90 days in default before they will entertain a short
sale offer; other Lenders will entertain a short sale even if it is not
Can the owner
of the property also be the listing agent?
Good Question! There is absolutely nothing wrong
with that set up. The agent owner or agent spouse is not a financial
beneficiary of the short sale by virtue of her commissions, therefore
there is no conflict. BEWARE however. There is a small chance that
some Lenders could take issue with it and reduce the owner’s side of the
required to process a short sale?
Every Lender or Bank has its own set of required
information and some may even have a set of paperwork specific to them.
But, in general, most banks require at least the following: A
handwritten hardship letter, financial statements, 2 years tax returns,
2 months bank statements, 2 months paystubs, and that you have the
property listed for sale at fair market value. Throughout the process
additional paperwork may be requested. So, be sure to keep everything
Why should I
give you my mortgage information?
That’s understandable. However, it is impossible
for us to negotiate with your Lender without some basic information.
Plus we are willing to put our time and energy into your property in
order to assist you which we cannot do without your help. Rest assured,
the information that you provide us is confidential and will not be
shown to anyone but the foreclosing lender.
Yes. We protect your documents and privacy as we would our own.
Anything run through
our web-based program is also highly protected and secured.
What is the
The steps and process of a short sale can be
broken into 9 main steps. The most important parts of the process for
you are to help in the beginning to gather the paperwork required and to
help list and sell your home. As your short sale is negotiated, you will
be provided regular updates throughout the process.
How long does
a typical short sale take?
on what state you are from, this answer will vary. For example in the
State of Connecticut a short sale typically takes between 2 to
4 months. The short sale time-line is subject to your Lender or Bank.
Many banks are overwhelmed right now with short sale requests. However,
most do have an understandable review process. Delays can be
avoided by sending in complete short sale packages. Incomplete offers
are often passed over or rejected. Your file is then closed and you
would have to start over from the beginning. It is very important to be
sure you provide everything required by your Lender and requested by the
person helping you negotiate.
junior liens be discounted?
Yes, absolutely. In fact, if the first mortgage is
being asked to accept a discount, they will require that all the lien
holders discount as well in order to give short sale acceptance.
Can IRS tax
liens be negotiated?
Yes, absolutely. Tax liens can be released from a
property or reduced and paid at closing. Please consult the appropriate
tax professionals for more information.
Do I need to
call my Lender?
You are not required to call your lender. However, in certain instances
it is often helpful to the process for you to call.
What is an
Authorization to Release?
This gives the people negotiating on your behalf
permission to talk with your lien holder(s).
sale date has been scheduled for my property. Can I still short sale my
Yes, absolutely. However, certain immediate steps may be necessary to
get the foreclosure date postponed. You need to quickly complete the
package of required forms, get your property listed right away, and
cooperate wholly with your agent. A 3-way call to your lender may also
be necessary to speed up authorization. There are no guarantees that
there is enough time to get a postponement.
What is the foreclosure process?
The foreclosure process is different in each state. Be
sure to ask the person assisting you what the process is
in your state.
Will the foreclosure process stop
when we submit a short
sale offer to the lender?
No. The foreclosure clock will continue to tick.
Postponement requests can be made if necessary. Your
Lender will only postpone foreclosure proceedings if
they are certain a buyer will perform.
When should a default property that needs a discount be
Immediately. The Lender typically will not stop or
slow down a foreclosure unless a property is listed for
sale by a licensed real estate agent.
Must a property in default be listed?
Yes and no. Some Lenders require a property to be listed
when they take a short sale or short payoff. Ask the
Foreclosing Lender, at the beginning of your short sale,
whether you need the property listed.
I am not going to list the property that low…my
neighbors’ house just sold 2 years ago for $50,000 more
I understand. However the market has changed and every
property is different. There has been a reduction in the
average value of comparable homes in your area and you
must sell your home right away to avoid a possible
foreclosure. To do this requires that you to list your
home at a price that will sell. Understand that
Buyers will always look for the best deal. If your
property is priced higher than competing homes, Buyers
will pass it by.
I do not want to advertise the home as
a short sale, pending foreclosure, or any other
negative ownership conditions.
I understand. Depending on your circumstances it may not
be necessary to advertise your situation. However, you
need to list the home at a price that is below what you
owe. That means that all offers you receive must be
contingent upon approval of a short sale. Most are an
MLS (Multiple Listing
Service) guideline requiring
that such contingencies be fully disclosed. The remarks
must, at the very least, include that the sale of the
property is “subject to third party approval.”
offers be contingent?
Yes. It is likely necessary to list
your home for an amount that is less than you owe on your mortgage and
not enough to cover all other associated fees. To sell requires short
sale approval from your Lender or Bank. That makes all offers received
subject to your Lien Holder(s) approval of a short sale.
I want my
lender to consider the debt paid in full at closing. Can
I include this request in the contingency?
Yes. However, not all lenders will honor such requests.
If this is important to you, be sure that a special
stipulation clearly defining your request is included in
all purchase offers.
Do we have to have a purchase offer to get short sale
Yes. Most lenders require that a short sale offer
be submitted before they will even accept a short sale
package, order an appraisal, and make their review. They
typically will not spend the time and resources to
review your situation unless they know that a buyer will
How will the short sale of my home affect the
property values of my neighbors?
Should your neighbors have their property appraised in
the next few months, their appraiser will use recently
sold comparables to determine value. Appraisers
generally do not include any ‘distressed’ sales, like
the sale of your home, in their evaluation. In the long
run the average property values in your neighborhood
will not be damaged by the short sale of your home as
much as they would if the property became bank-owned.
Vacant foreclosure listings that sit for long days on
market and then sell at heavily discounted prices are
much more damaging to neighborhood home values.
What do I need to do to help sell the home?
Be sure that you are doing as much as you’re able to
help your agent sell your home. Keep the home show-able,
stay in communication, be available to review or sign
paperwork, support any of your agent’s marketing
efforts, and if possible, keep the utilities on for
I cannot afford to make any repairs…
When you are listing your property make sure your real
estate agent adds the remarks “home to be sold AS-IS”.
By doing this, Buyers will be aware that you cannot or
will not make any improvements on the property. Be sure
that your agent clearly expresses this to the Selling
Agent and protects you in negotiations.
Can an immediate family member buy the home and I stay
Typically not. The foreclosing lender will not allow
anyone to purchase the home through which you could
become a direct beneficiary of the property and
potentially re-sale for a profit. Furthermore, by
allowing you the privilege of a short sale you are
required to relinquish all use and benefit associated
with the property.
My situation has changed and I can afford the monthly
payments. Do I have other options?
Yes. Be sure to research your options. Your agent
may be able to assist you further.
My situation has changed and I am making enough money to
rent but not enough to pay my full mortgage, but I still
need to do a short sale to sell my property. Should I
save the extra money?
Yes, absolutely. You will need money for moving
expenses. Also, in some rare instances you can offer a
good faith payment to your lender to encourage them to
approve your short sale.
Can I make any money on the sale of my property?
A homeowner cannot accept money from the sale of their
home if a Lender accepts a short payoff or a short sale.
However, there are exceptions to this statement; for
example an FHA (Federal Housing Authority) insured loan
will allow a homeowner to receive $1000.00 when taking a
Will I need to bring money to closing?
In most instances you will not. A short sale is designed
to assist the homeowner. All items due and payable will
either be paid by the buyer or else reduce the amount of
the payoff to your lender so you will not be required to
bring any money to closing.
Do I have to pay any processing fees or real estate
commissions if the short sale is not successful?
If a ready, willing and able buyer is not found and the
Foreclosing Lender does not accept “an acceptable offer”
then there will be no expenses due from the
seller/homeowner. Make sure your real estate agent
disclosed that the sale is “subject to lien holder(s)
approval or 3rd party approval” so that you are
I may file bankruptcy. Will this affect the
Yes. If you file for bankruptcy protection your Lender or
Bank will be unable to discuss the terms of your short
sale until the bankruptcy is released or discharged. A
bankruptcy puts an “automatic stay” on any credit/debt
collections which include negotiating a short-pay of
your mortgage(s). Any pending foreclosure sale dates
will be postponed as foreclosure is also a credit
collection. Be sure that you inform your agent
immediately upon making this decision. If you choose to
file, please provide your agent with any paperwork
involving the property that you receive from the Lender
or bankruptcy trustee. For further information, please
consult with a bankruptcy attorney.
What happens if the Bank
or Lender counters the current
The Buyer will need to either increase their offer
to meet that number or your agent will need to find
another buyer that meets your Lender’s requirements.
Will filing bankruptcy STOP foreclosure?
No. Filing bankruptcy will not stop the foreclosure
process, just delay it. The property will eventually be
out of bankruptcy protection and be back in the
foreclosure process where it was when bankruptcy was
filed. For further bankruptcy information, please seek
the advice of legal counsel.
How does a bankruptcy affect my credit?
Bankruptcy will stay in your credit reporting
agency files for ten years. Now, declaring bankruptcy
doesn't necessarily mean that the door to future credit
will be forever closed to you. If you take the proper
steps after declaring bankruptcy and also manage your
credit responsibly, you can rebuild an improved credit
reputation in a few years. Please consult a credit
counselor or a major credit bureau for more information.
Regarding credit: Which is worse, a foreclosure or short
Please consult your own financial advisor or the
credit bureaus directly for the answer to this question.
From experience only, we can say that foreclosure is
much more damaging to your credit. A short sale will
most commonly be listed as “settled debt” and is less
harmful to your credit.
How many years after filing bankruptcy can I buy a
You will not have to wait 10 years to be considered for
a home loan. However, do expect to wait at least five
years and only then will a lender consider your loan
application if you have stayed current on your bills
after the bankruptcy.
How many years after a successful short sale can I buy a
There are new loan programs designed to help
people who have recently had to short sale their home.
You can apply for a home loan in as little as two years
provided you have maintained your credit with good
payment history, kept your debt-to-income ratio within
lending guidelines, and have verifiable income.
If I let the bank foreclose on my house, how long until
I can purchase another property?
Unfortunately, there is no specific answer for it
except to say that it could be a considerable amount of
time (more than the 2 years on a successful short sale).
Most lenders view your financial history as an indicator
of what you will likely do in the future. If you missed
several months of mortgage payments leading up to your
foreclosure, then a lender will see you as a likely
candidate to default on a future loan -- in other words,
you are a big risk.
Will I receive a 1099 if my mortgage lender takes a
Yes it is an IRS code. The IRS code states that “a
reduction of debt is a taxable event.” However, the
Government has passed the Mortgage Debt Forgiveness Act.
It states that for a certain period of time, some
homeowners with primary loans on primary residences may
be exempt from receiving a 1099. Please click here for
or consult a local tax attorney in your area for any
changes or updates in reference to this Bill.
This is an investment property, not a primary residence.
In this situation, will the reduction of debt be a
Yes it is an IRS code. Since the property is not a
primary residence, you may not be eligible for an
exemption. Please see the answer to the previous
Can I do a short sale on more than one property?
Yes. You may short sale more than one property.
Someone told me that I can file as “insolvent” if I
receive a 1099 from my lender?
There are certain tax codes that enable someone in
a financial hardship to be exempt from any tax liability
outside of the exemptions already allowed in the
Mortgage Debt Forgiveness Act. Please consult with a tax
accountant for more information.
Will the Bank or Lender pursue a deficiency judgment for
the amount they lost from the short sale?
Your lender can pursue a deficiency. This does not mean
that they will. You can have your agent request in the
negotiations a full release of lien and that your
lender(s) consider the debt settled or satisfied and
paid in full. The bank could ask you to sign an
unsecured promissory note or to ask you contribute money
at the time of closing. Be sure your agent negotiates
the best outcome for you.
What if my lender requests a promissory note or money at
Your lender can make such requests. Whether or not
you choose to agree must be a personal decision based
upon your financial situation. Keep in mind that any
amount requested by your Lender or Bank will likely be
much less than they could potentially pursue from you as
a deficiency judgment if the property were foreclosed
What about the new federal government Bailout plan?
To determine your eligibility, please visit:
Will I need an accountant?
We always recommend that everyone in your
situation seek the advice of an accountant or other tax
Do I need an attorney to represent me?
It is always important to seek legal counsel when making
these types of decisions.
I am behind on property taxes…
These can be negotiated into the buyers offer and paid
at closing. The payment of taxes owed will simply be
another reduction in the amount paid to your Lender.
Please note: if the Lender forecloses on your property,
this is an expense they will have to pay.
I have not paid my HOA dues…
We will negotiate a discount for all current and
past HOA dues and have them paid at closing from the
funds to your Lender.
Can I rent the property?
We cannot advise you to or not to rent the
property. Keep in mind that if you are not paying the
mortgage payment you should not be profiting from rental
payments. If you chose to rent the property be sure to
keep accurate expense records and put all rents earned
in escrow due to the fact that if you are not paying
your mortgage then those rental payments are owed to the
foreclosing lender (s). Please consult a real estate
attorney before making this decision.
The property is vacant. Do I have to keep the utilities
No. However – it would be very helpful to your
agent to leave all utilities on for Buyer inspections.
If it is winter time, be sure that you have winterized
the home properly before having utilities turned off.
When should I move out?
Different loan types have requirements regarding
occupancy that could affect your eligibility for a short
sale. Before making the decision to move, be sure that
you have talked with your agent and your Lender about
Can I take anything with me?
Anything that you are going to take from the property
needs to be clearly disclosed to any Buyers viewing the
property. Be sure to leave all fixtures that
traditionally remain in the sale of most homes in
The property is in bad condition…should I do anything?
Extensive repairs or clean-up will be considered by
potential buyers and reflected in the list price. Should
some clean-up be necessary to assist in the sale of the
home, your agent will make that request and work that
out with you.
What will happen If I do nothing?
If you do nothing and are not making your mortgage
payments, your lender will foreclose. You will have a
foreclosure on your credit report, be liable for any
deficiency, and/or subject to a taxable event.