SHORT SALES
WE ARE HERE TO HELP
If you are having difficulty making mortgage payments due to a hardship, don’t worry. There are options available even if the property’s value is less than the mortgage amount owed. In a successful short sale, the bank allows a homeowner to sell the property for less than the outstanding mortgage balance and the lien is released. The homeowner does not pay out of pocket for closing costs like attorney fees or broker commissions as these expenses are included in the short sale.
Matt Melull has years of experience with real estate transactions involving mortgage foreclosures.
These situations often begin with an unexpected hardship that impacts a homeowner’s ability to repay their mortgage. Our team understands the financial and emotional stress caused by this difficult period and we are here to help guide you through the options available.
Our team specializes in these difficult situations.
Our law firm partners will advise how to prepare the short sale from start to finish.
Professional marketing.
Your home will receive the same level of attention as all our listings including premium quality photography, floor plans, and internet exposure.
Closing costs and commissions are all included in the short sale..
We only get paid if the deal closes.
Homeowners benefit from a short sale in many ways
A short sale is less damaging to credit reports than a foreclosure. While the mortgage may appear listed on a credit report as “satisfied for less than the full amount owed”, this is significantly more beneficial to the homeowner than how a foreclosure is reported by the credit agencies.
A foreclosure will prevent most homeowners from obtaining a new mortgage for 7 years. However, homeowners may qualify for a new mortgage only 3 years after a short sale.
Homeowners can continue living in the property until the scheduled closing date, which is typically about 30 days after the short sale is approved by the bank. Homeowners who do nothing through the foreclosure and eviction process will eventually be at the mercy of the sheriff’s lockout notice posted on the front door, which is often only a few days notice.
Some estimate it costs the bank around $50,000 for expenses related to each foreclosure. A short sale helps reduce this added time and financial burden to the bank, which may affect whether or not a deficiency judgement is filed against the homeowner.
The bank can ask the court for a “deficiency judgement” in order to recover money from the homeowner after the foreclosure sale is completed. Ideally the short sale approval terms will include a waiver of deficiency judgement, meaning the bank will not seek to recover money from the homeowner after closing. The short sale allows for dialogue directly with the bank’s loss mitigation department which provides an opportunity to negotiate a more favorable outcome than a deficiency judgement, for example a partial repayment plan or a full waiver of any money owed to the bank after closing.
Some banks will offer homeowners money to help with moving expenses. These funds are sometimes referred to as “financial relocation assistance” or “seller relocation incentive”.
QUALIFYING BUYERS AND SELLERS
A short sale transaction is very similar to a traditional sale. However, it is important that both buyers and sellers understand the noteworthy differences. The process can sometimes last 6 months or longer, so it is important that all parties acknowledge the potential timeframe and are prepared to wait if necessary. Setting proper expectations with everyone involved is essential to a successful short sale closing.
Short Sale Buyers
The buyer of a short sale should be someone who does not have a deadline to close, is willing to pay some additional closing costs customarily provided by the seller, and understands the property will likely need some repairs. Look for:
- Flexible closing date
- No home sale contingency
- Knows deferred maintenance and minor repairs are typical
- Will sign a Short Sale Addendum including at least 120 days minimum waiting time
- Will consider paying for lender required repairs prior to closing
- Preferably buyer’s primary residence as opposed to an investment property
Short Sale Sellers
A common mistake sellers make is accepting a contract with a low sale price because it sets the wrong expectation with buyers. Later on the bank will determine fair market value and counter offer the sale price, so if the numbers are too far apart then buyers often walk away. Therefore, it is important to negotiate the highest possible sale price for a short sale listing. Short sale sellers should still clean/prepare the house for sale and give as much attention to detail as with any other listing.
This includes being responsive, continuing to maintain the appearance, and making the property accessible. Look for:
- Quickly respond to attorney requests
for updated information - Flexible to move out with 30 days notice
Keep the house clean and presentable - Allow interior photography of the home
- Allow access for showing requests
- Continue to pay utility bills until closing
- Continue to maintain lawn until closing
Example Differences:
Traditional Sale
Seller pays for survey
Seller pays for well/septic inspection
Home inspection issues can be negotiated
Firm closing date within 30 – 60 days
Firm purchase price
Tax credit based on 105% - 110% of last bill
HOA dues paid in full at closing
Short Sale
Seller does not pay for survey
Seller does not pay for well/septic inspection
Home is sold in as-is condition
Unknown closing date
Purchase price may be countered by the bank
Tax credit based on 100% of last bill
Buyer may contribute to past due HOA balance
SHORT SALE FLOW CHART
1
CONSULTATION WITH REAL ESTATE BROKER AND LAW OFFICE
2
SUBMIT HARDSHIP LETTER AND FINANCIAL INFORMATION TO LAW OFFICE
3
PREPARE/CLEAN HOME FOR MARKETING PHOTOS AND SHOWINGS
4
SIGN REAL ESTATE BROKER'S LISTING AGREEMETN AND LIST FOR SALE IN MLS
5
NEGOTIATE OFFERS AND SIGN A PURCHASE CONTRACT
6
ALLOW BUYER'S HOME INSPECTION AND CONFIRM "AS IS CONDITION"
7
LAW OFFICE SUBMITS THE SHORT SALE PACKAGE TO THE BANK
8
WAIT 1-6 MONTHS FOR BANK TO ORDER BPO AND REVIEW VALUE
9
BANK COUNTER OFFERS THE CONTRACT PURCHASE PRICE
10
RE-NEGOTIATE PURCHASE PRICE WITH BUYER
11
OBTAIN BANK'S SHORT SALE APPROVAL LETTER
12
NEGOTIATE DEFICIENCY JUDGEMENT WAIVER WITH BANK
13
ALLOW BUYER'S MORTGAGE APPRAISAL
14
ALLOW BUYER'S FINAL WALKTHROUGH
15
CLOSING
FREQUENTLY ASKED QUESTIONS
Good question. Basically the bank needs time to identify the property’s fair market value, calculate potential losses, and request approval from the mortgage holder investors. Additional time is needed if there are multiple mortgages/liens on the property.
No, the foreclosure process continues. However, the bank will temporarily postpone the final foreclosure auction date if a short sale is under review.
No, the homeowner does not receive any money at closing. In some cases, the bank’s short sale approval may actually require a “cash contribution” from the homeowner at closing.
Unfortunately short sale approval is not a guarantee. However, our team will help consult and advise on the likelihood based on past experience. Ultimately we are at the mercy of the bank’s decision and homeowner hardship situations vary case-by-base.
This is a legal question best answered by the homeowner’s attorney. Each situation is handled on a case by case basis because there are numerous variables involved. When in doubt, a homeowner should continue to make mortgage payments to the best of their ability, as missing payments will negatively impact credit scores.
Sometimes yes, sometimes no. The bank may issue a deficiency judgement or they may forgive any outstanding mortgage balance. Ultimately we are at the mercy of the bank’s decision and homeowner hardship situations vary case-by-base.
The homeowner pays utilities until the day of closing. Stopping utilities can cause significant damage to the home, like the pipes freezing or the basement flooding. The homeowner should continue to maintain the property to the best of their ability including electricity, heating the home and lawn care.
Buyer pays for a survey. Customarily seller pays for a survey but short sales are an exception.
This seller cost is included in the short sale loss to the bank at closing. The homeowner does not pay out of pocket.
This seller cost is included in the short sale loss to the bank at closing. The homeowner does not pay out of pocket.
GLOSSARY
SHORT SALE
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens’ full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. 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.
BPO
A broker price opinion is a report that is performed by a licensed real estate agent, broker or appraiser. It is similar to doing a CMA (Comparative Market Analysis). The real estate professional gets paid to do a BPO. A BPO can be either an Exterior Drive-By or a Full Interior report.
DEFICIENCY JUDGEMENT
A deficiency judgment is a court ordered ruling against a homeowner whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full.
HARDSHIP LETTER
A homeowner’s written explanation of reasons behind their inability to repay the mortgage.
MLS
Multiple Listing Service is the website database real estate brokers use to list, advertise, and sell property.
SHORT SALE PACKAGE
A collection of documents to submitted to the bank in order to request a short sale approval. Includes homeowner’s hardship letter, personal financial details, purchase contract, etc. Usually handled by the homeowner’s attorney.
SHORT SALE APPROVAL LETTER
A letter provided by the bank which officially states approval of the short sale. Includes terms like the purchase price and closing date, may mention deficiency judgement.
SHORT SALE ADDENDUM
An addendum to the purchase contract, provided by the local real estate board, which clarifies the short sale circumstances and sets expectations. See below:
