Izzy Buholzer Lic. Realtor®/Agent Miami Real Estate Team Home & Business Realty, Inc. 305-476-8000
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Short Sales Explained
A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.
But to be technical, here's a more official definition:
A homeowner is 'short' when the amount owed on his/her property is higher than current market value.
A short sale occurs when a negotiation is entered into with the homeowner's mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then 'sold short' of the total value of the mortgage.
For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances:
Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
Monthly Income Shortfall – In other words: "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. I hold the CDPE® Designation and am ready to identify all possible options and, when possible, assist in the quick execution of a short sale transaction.
If you have questions or feel you may qualify for a short sale, please contact me for a free consultation.
Understanding your options now could mean all the difference in the world
A Short Sale is:
When a homeowner is authorized to sell for less than what is owed on the mortgage.
When the lender authorizes or accepts the sales price as a payoff.
When the seller avoids foreclosure and many times they can also avoid a judgment.
When the seller avoids a negative report, by the lender, to the credit bureaus.
The seller won't get any money at closing, but they will avoid the emotional toll a foreclosure can cause. The negotiations include a favorable wording for the forgiven debt on the mortgage that can help the recovery of the homeowner.
Why would a lender agree to lose money?
Financially, it's a smaller loss to accept a short sale than it would be to incur the additional expenses of a foreclosure.
Lenders are in the business to lend money not home ownership. The more resources they have tied up on a property the less they have to lend out.
With prices dropping so rapidly, even if the lenders decides to foreclose they will lose even more money when they finally try to sell the property later rather than sooner.
How does a short sale help me?
It helps you avoid an emotionally draining foreclosure process.
Avoiding a foreclosure with help save your credit. Typically a foreclosure will drop your credit score up to 200 points per loan.
Avoid having a foreclosure on your credit report anywhere from 7 to 10 years, which affects your future purchasing power and interest rates.
It could help you avoid a "deficiency judgment" from the lender after the foreclosure as they try to recuperate their losses.
Short Sale Frequently Asked Questions (FAQ)
I have already received my foreclosure notice, is it too late for a short sale?
The short answer is no, but there are a few variables that can affect the foreclosure timeline.
A qualified Realtor or better yet, a Certified Distressed Property Expert can help you extend the foreclosure timeline up to 6 months and in many circumstances up to 7 or 8 months.
A sale of a home can be done and approved up to the day of the bank sale or auction of the home.
I haven't missed any mortgage payments; can I still do a short sale?
Typically the lender will not consider a short sale if there have not been any missed payments but can be overcome if we can show a compelling reason why the payments have been made but the payments are not sustainable into the near future.
We would need to show if the payments were made with your credit cards, by borrowing from family members or even if the money came from retirement accounts, as an example. This will not guarantee the lender will accept but there are instances where they have done so.
How do I pay the Realtor commissions, taxes and other expenses associated with a home sale?
The homeowner does not pay any of the expenses associated with the sale of the home, such as commissions and other closing costs. Those expenses are also paid by the lender.
In December 2007, President Bush signed into law the Mortgage Forgiveness Debt Relief Act which eliminates the income tax that used to be levied on the forgiven portion of the primary home's sale. The tax is still in force for second homes and investment properties
Important Facts:
You will have to prove and explain personal hardship to the bank in order to process a Short-Sale.
You will not be allowed to receive any funds at the closing nor will you owe any large amounts.
The assistance of a professional realtor is required by all banks in order for them to process the short sale: The property must be publicly for sale (MLS). This will show the real market value and substantiate the negotiation of a reduction.
In the event that you need to short sell an investment property, you will need to cancel all lease contracts with existing tenants. In most states it is considered illegal to collect rent and not paying your mortgage and/or association fees (google: rent/equity skimming).
Most seller-associated closing costs (including Realtor's commission) can be negotiated with the the lender.
A Short Sale can take anywhere from one to six months and always requires lender's approval.
As your Realtor® and
"Certified Distressed Property Expert"
you can expect the proficiency necessary to save your credit, relieve the uncertainty and most of all, help your family.
