Short Sale Education Center

Short Sale Education CenterBank of America Short Sale, Wells Fargo Short Sales, Chase Short Sales, GMAC Short Sales, HAFA Short Sales, FHA Pre-Foreclosure Sales, VA Compromise Sale . . . name the bank or short sale program and most likely we are the local resource and mentors for Realtors and Short Sale Negotiators.

As a Realtor or as a Home Owner come here to gather the necessary information to get you started.  We will help prepare you to make the best decisions for your business or as a home owner; you or your family.  Many times it is not just about getting answers to your questions but learning about the questions you did not even know to ask.  We can help you with all of that right here.

Home Owners, if you are confused and cannot seem to get clear answer call or email us using our contact page.  You may not have a lot of time but if you can take the first step with the right education you can conquer this and save your home from foreclosure.

Our hope is for this information to be relevant and not outdated.  For any questions not answered below please just send us a message through our contact form for a quick response.  Or call us toll free at (855) 263-6777, I promise we are all very friendly and empathetic to what you are going through.  We will never rush a conversation with you and strive only to provide information that can help you make the best decision for yourself.

Short Sale Expectations

What is a short sale?

A Short Sale is the sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Lenders may agree to accept the proceeds of a short sale and home owners are advised to seek out experienced Realtors® and negotiators if they wish to successfully complete a short sale of their home.

Banks will require that the home owners have a financial hardship and currently be insolvent at the time of the short sale.

If you do have to sell your home you have four options.

  • First, if you have the money you can bring cash to the table. You can bring the cash difference at closing to provide the banks with their full pay off. This is not a short sale as the banks will be getting all of the money owed them.
  • A second option would be to let the home go into foreclosure. The lender will go through the foreclosure process, force you out of your home and then auction it off to the highest bidder at a foreclosure or Trustee’s auction.
  • The third option is a deed-in-lieu. Basically this is still you losing the home but you agree to hand the keys over to the bank, leaving the home clean and in marketable condition so they can avoid the legal process of foreclosing and sell your home quicker.
  • The fourth third option is to pursue a short sale. You sell your home at fair market value and then negotiate with the bank(s) to explain the circumstances and convince them to take less than full value of their loan.

I am starting my short sale, what can I expect?

Expect that your short sale will take some time.  The banks will want detailed financial information from any party on the loan being short paid.  They will often request updated financials during the process.

Understand that in most short sale approvals the home owner does not contribute any cash out of their pocket for either Realtor fees or expenses related to closing the sale.  While it is possible for the bank to counter offers requesting cash contributions often that is not the case.  If the bank does request cash from the seller they do have the option to say no and cancel their short sale offer to the bank.

Below is a general outline of the short sale process.

  1. Home is listed for sale with a licensed Realtor®
  2. Home Owner gathers financials and completes lender specific short sale documents.
  3. Offer is received and accepted between the seller and purchaser.
  4. The financials and offer to purchase are faxed to the short selling bank(s) for review
    1. This is typically done by the negotiating company or real estate agent if they are negotiating the short sale for you, the home owner.
  5. Banks can take up to 30-days to acknowledge receipt of these packages due to the sheer volume they receive on a monthly basis.
  6. The short selling bank will order their own valuation of the property.
    1. They hire either a local Realtor independent of the sale to due a Broker Price Opinion (BPO) or will hire a licensed appraiser to assess value.
    2. They will reference this value to the offer price presented to them for your sale
  7. After review of your offer to their value they will either accept or counter your offer to them.
  8. Banks will require that you be able to arrive at the closing table within 30 calendar days or less of their written approval.

While this is a very simplistic overview it helps to layout the general process.  Factors that will add complications or delays include the following.

  1. Multiple loans in a short sale requiring written approval letters from all banks.
    1. The timing of manging multiple loans can get tricky and often revised approval dates are needed from one or more banks to allow for an acceptable closing date to all parties.
  2. Loans that are being serviced by your bank but are actually owned by Investors.
    1. During the review your bank will follow the guidelines for approval from the Investor but when completed still have to forward everything to the investor for final approval.  This process alone adds 30-60 days to the approval process.
  3. Loans that have Mortgage Insurance (MI)
    1. If there is mortgage insurance they too will be required to approve the sale and typically their review if needed comes after the investor review the offer.
    2. Mortgage companies are often the main cause of requests to home owners to bring cash and/or sign a promissory note for the final approval.
    3. Many home owners know up front if their loan has Private Mortgage Insurance (PMI) because it shows in the details of their monthly mortgage payment.  But often we find lenders that have ‘Lender’ paid mortgage insurance and that also creates the same issues described.  Lender paid MI tends to appear on loans that were originated towards the end of 2005 or newer.  That does not mean if you have a loan originated after 2005 there is a 100% chance it exists.  It just means we should prepare for it and ask the bank(s) quickly if any does exist.

How long will my short sale take?

This is the magic question.  We would love to tell you simply that with 1 loan it takes X-number of days/months.  It is so very dynamic and driven by more factors than how many loans there might be or which lenders are involved.

In general a home with one loan could be approved as quickly as 90 days and as long as 180 days.  We have seen some take much longer.  A home with two loans might get approved in 120 days or as long as 210 days.  While it seems excessive in time most of it relates to the volume of short sales being reviewed by the banks and the dynamics of all the parties that must sign off on the actual offer before they can submit a written approval to the home owners.

How long does it take for my short sale to be reviewed and the bank to respond?

It is often close to 30-60 days after the offer is submitted to the bank before the review begins in earnest. It can often take an additional 60+ days to finalize. Be prepared for the worse, longer, and if it does finalize quicker then you will be in a better place.

Can I short sale a property that is an investment?

Yes you can assuming you can prove you are insolvent, unable to maintain the payments and have a valid hardship.  You cannot complete a short sale just because you are unhappy the value has dropped.  The bank will require more financial details from investors to approve the sale.  In addition there are serious tax implications for investors that should be addressed before initiating a short sale.

Can I do multiple short sales if I own more than one property?

The answer is the same as wishing to sell an investment property.  Yes you can assuming you can prove you are insolvent, unable to maintain the payments and have a valid hardship.  The bank will require more financial details from investors to approve the sale.  In addition there are serious tax implications for investors that should be addressed before initiating a short sale.

Can a relative buy my home in a short sale?

This is not typically allowed.  Most banks have a ARMS length agreement involved with short sales.  It is a document signed by all parties, often including the Realtors on both sides.  It has all parties acknowledging that there is no relationship between any parties of the sale. 

They don’t want a family member buying the home only to sell it back to the original owner that completed the short sale.  There are often complication with the real estate agent being related to the home owner but more often than not this issue is not the banks main concern.

I am an real estate agent, can I represent myself in a short sale?

First we would suggest that your broker might prefer you never represent yourself in any of your own transactions.  Outside of that and related to short sales the issue is that the short selling bank will not allow you to collect a commission on your side of the sale.  Short sale guidelines from the banks do not allow the home owner to profit in any way from the completion of a short sale.  Payment of a commission would absolutely fall into this category.

If I took a personal loan from a family member or friend, can this be repaid during the short sale?

No they cannot be included as a payment through the proceeds of the short sale.

Can the bank take money from my 401K?

No they cannot force you to pay money from your retirement accounts.  Your accounts are protected up to certain limits, seek the proper advice from an accounting professional on these limits.

If the short selling banks requests copies of retirement account balances and see a large balance they may in fact request cash contributions based on those facts.  They cannot reach into your account and take the money during the short sale negotiations.

There is always a concern during your short sale that exposing your financial data as required by the short selling bank may have some inherent harm.  For example if the bank sees that a home owner has $200,000 in a retirement fund on a short sale that is losing the bank $100,000 they may approve the short sale.  But they may then elect to sue the home owner for the $100,000 unpaid balance on the knowledge of their $200,000 retirement fund balance. 

Always seek the proper legal advice when your finances may be at a level needing more direction than most short selling home owners.

Will the bank need my spouse’s financial information?

Only if your spouse is also on the loan will their financial information be required. 

It is possible that if you have more then one loan that your spouse might only be on one of them.  In that scenario the only bank needing financial information from both would be the bank both spouses are on the loan with.

This situation also brings up a reference to hardship.  If only one is on the loan a hardship related to the other will not support a short sale.  For example, spouse A was approved for the loan but then spouse B loses a job.  As far as the short selling bank is concerned that has no affect since spouse B was never considered during the approval of the original loan.

How does a co-signer affect my short sale?

The only people exposed to interacting with the bank on a short sale are those that appear on the loan papers.  If your co-signer is not on the loan papers they are not exposed to the negative implications of the short sale.  As always consult legal counsel when concerned about the overall impact of a short sale.

My spouse isn’t on the deed, do you still need their financials as well?

The only parties needing to supply financial data to the banks are those on the actual loan papers.  As for the sale of the home and based on local jurisdiction all parties on the deed will need to sign the listing papers and contract for sale.

My bank just called me and stated they have no request or file for me; what is going on?

If you ever receive a call from a bank about your short sale contact us immediately.  First and foremost often when the bank calls a home owner during the short sale process it is typically the collection department calling to collect money from the home owner(s).

The scenario that plays out most often is the home owner tells the bank calling on the phone that they are doing a short sale.  The representative on the phone states they have no short sale on record and if the home owner does not make some payment now the bank may not consider their sale at all.  This is completely a misrepresentation.  Most often the separate departments of the banks do not appear to have access to the other departments.  Meaning the collections department does not have access to the short sale department so of course they do not ‘see’ a short sale on file.

We still want our clients to contact us if receiving a call like this but most often the file is in the hands of the short sale department and being managed properly.

Another consideration is with 2nd loans (liens).  Many banks in the 2nd position (the smaller of the 2 loans if there are two loans) request that we not submit a request for a short sale to them until we have a written approval from the 1st position bank (the larger loan on the home).  For this reason while the 2nd loan is calling from collections it may in fact be true that no short sale package is on file yet.  But in this case it is due to their internal requirements, not the lack of our attempt to submit to them.

I have a security clearance. Can I still do a short sale? How will it affect my clearance?

It is highly unlikely that you will lose your security clearance or employment because of a short sale.  I want you to truly understand your unique circumstances so that you can approach your direct supervisor or human resources department for help AND FOR APPROVAL TO COMPLETE A SHORT SALE while stopping your mortgage payments.

You probably have a tendency to believe that your problems are unique to you which probably causes you to feel isolated.  I want you to remember that millions of people just like you are dealing with the issue of being unable to continue paying for their home every day.

It’s such a common phenomenon that most HR departments, even at the highest level of government, have a standing policy for dealing with short sales.

There are many factors that were considered to determine your eligibility for obtaining, or retaining, a security clearance or specialized employment.  Credit is only one of the factors used.  Let’s understand why credit might be a factor for consideration in such matters.

Employers will want to review a credit REPORT, not a credit SCORE.  A credit report is a combination of your credit score and your credit history.  Your credit history tells a story of how you have used your credit in your lifetime.  Have you exercised good judgment and decision making in your personal use and management of credit?  You probably have.

A historical review of credit also helps employers determine if you are vulnerable to influence from third party sources (such as bribery and extortion) because of poor financial judgment.   Are you vulnerable to bribery or extortion?  You might be if you don’t get rid of your upside down mortgage.

Remember that even if your credit score drops, your credit history will remain intact but it will now include a negative event THAT YOU DIDN’T CAUSE.

Most personnel and human resource departments realize the short sales are an everyday part of our life in this economy.  They know that you didn’t cause your circumstances and that by getting rid of the mortgage debt that acts like a financial anchor around your neck, you are exercising good financial judgment and decision making (because failure to act would make you vulnerable to third party influence – such as bribery and extortion).

Also, I don’t know if this describes you but most people face the prospect of a short sale BECAUSE THEY DON’T HAVE ANY CHOICE.  They are unable to continue paying their mortgage long term.  They need to sell but they owe more than the home is worth and don’t have the financial resources to pay the deficiency.  Regardless of whether their supervisors deem it permissible or not, they will do a short sale….which will affect their credit score even if they didn’t stop paying their mortgage.  But failure to stop paying their mortgage will likely disqualify them from being approved for a short sale.  It’s a Catch 22.

If I’m describing you, I recommend that you actually try to apply for a modification. I don’t recommend this very often.  Applying for a modification will demonstrate to your employer/supervisor that you did everything that was reasonably possible to avoid a short sale or mortgage default.   Of course, you won’t receive a modification that will cure your mortgage burdens but it’s the process of demonstrating that you tried that matters.

Stop and think about your circumstances.  Do you really think that if your employer knew about your financial struggles that they would say, “That’s tough.  Find a way to work it out”?  Of course they wouldn’t.  Would you want to continue working with/for them if they did say that?

Please don’t take my word for it.  This is such a critical and sensitive issue but you also don’t have to guess, wonder or worry.  The answer can easily be determined by simply asking the question.

Approach your supervisor or personnel department (immediately) to share the reality of your circumstances and ask for guidance.  You will likely learn that you weren’t the first to ask (and won’t be the last).   They will likely assure you that a short sale will not jeopardize your security clearance or continued employment.  It’s that simple.

If it turns out that I’m wrong, and the supervisor refuses to consider allowing you to do a short sale, what are you going to do?   You can’t keep making your payments.  Maybe you can in the short term but you can’t do it forever.  If you’re upside down by 30% or more, you have a short sale in your future.   I haven’t encountered any employer that would act, or react, so harshly given the unique circumstances.

I have shared this advice with hundreds of home owners with security clearance, many with the highest possible clearance, and not one has ever come back to me and told me that their request was denied.

However, in order for this approach to work, you must REALLY believe that you didn’t cause the financial turmoil that turned your home value upside down so that you can’t sell your home or afford your mortgage.  If you believe that you are somehow personally responsible for dropping property values by 30, 40 or 50%, then you will not effectively convince your employer (or anyone) that you should not be held accountable for exercising poor judgment and decision making.  And if you believe that you are responsible for dropping my/our property values, you are advised to seek therapy immediately because you have a denial issue!

Since this is a difficult issue which may be hard to reconcile, here are the critical points you should include when discussing your circumstances with a supervisor or personnel department.  It’s presented in letter form just in case you can’t bring yourself to have this discussion in person:

To Whom It May Concern:

Because of an unforeseen hardship (see attached hardship letter) I am unable to continue paying my mortgage under the current terms.

My lender has been unwilling, or unable, to modify the terms to an affordable or manageable level.
Due to a significant decline in home values I owe more money to my mortgage lender(s) than my home is worth.

I am unable to stay in my home under the current mortgage terms and am unable to sell my home for the full value of the mortgage debt.

My only known option is to proceed with a short sale (where my lenders agree to accept less money than they are owed in exchange for releasing their lien on the property).

A short sale will have a temporary negative impact on my credit score.  In addition, it is necessary for me to stop paying my mortgage in order to qualify for the short sale approval (which may have an additional short term negative impact on my credit score).

I’m aware that my credit profile is a consideration in approving/maintaining my security clearance.
Please understand that my overall credit history reflects excellent performance, choices, judgment and behavior.
My credit is very important to me, as is my current job/position and my security clearance.

While I accept the credit consequence of a short sale, I also understand that I was not the cause of the economic circumstances creating my hardship or loss in property value.

My credit score will improve quickly but my overall credit history remains the best indicator of my (continued) eligibility for a security clearance.

I ask that you (look favorably on my application for a security clearance or government contract) or (do not revoke my current security clearance or government contract) for all the reasons previously discussed.

I will gladly consider any other alternatives or options that might be available provided they can cure my current mortgage burden and allow me to keep my current employment and security clearance.

Thank you for your time and consideration.   I am happy to provide any additional information upon your request and look forward to your favorable response.

General Short Sale Questions

Who should talk to if I need information on a short sale?

A list of professionals you may wish to speak to while you determine if a short sale is your best solution.

  • Professional negotiating company – Contact an active negotiating company about your situation.  Their active role in negotiating short sales will provide up to date details on the process and options. Contact National Short Sale Support and find out how we can help you today.
  • Bankruptcy Attorney – Most home owners avoid this but speaking with a qualified bankruptcy attorney to understand the process and any benefits that may exist for you.
  • Certified Public Accountant – Due to the potential tax implications you want to speak with a CPA prior to your short sale approval.
  • Experienced Realtor – You bank requires that your home be listed with a Real Estate Agent and that it be in your local MLS (Multiple Listing Service).  Having a real estate agent that understands the short sale process is invaluable to a successful sale.
  • Your Bank(s) – If you have missed payments already you understand that when you call in to your bank you end up with the collections department by default.  Visit them online if needed to find out what their short sale requirements might be.

SERVICEMEMBER – What are my options?

If you are a servicemember in the Armed Forces you may have additional protection available to you.

Servicemembers Civil Relief Act (SCRA) – Download

Web sites and links are provided for informational purposes only.  We do not endorse or support these sites.  Please always seek proper counsel if you have questions about your options.

When do you contact my bank(s) about my short sale?

The moment we have the contract for sale and the supporting documents we will contact your bank(s) in conjunction with your short sale and offer.  We will require that all owners on the loan(s) sign an ‘authorization to release information to a 3rd party’ form for each lender.  This is the document your lender(s) will need on file in order to discuss your short sale offer with them.

My bank just called me and stated they have no request or file for me; what is going on?

If you ever receive a call from a bank about your short sale contact us immediately.  First and foremost often when the bank calls a home owner during the short sale process it is typically the collection department calling to collect money from the home owner(s).

The scenario that plays out most often is the home owner tells the bank calling on the phone that they are doing a short sale.  The representative on the phone states they have no short sale on record and if the home owner does not make some payment now the bank may not consider their sale at all.  This is completely a misrepresentation.  Most often the separate departments of the banks do not appear to have access to the other departments.  Meaning the collections department does not have access to the short sale department so of course they do not ‘see’ a short sale on file.

We still want our clients to contact us if receiving a call like this but most often the file is in the hands of the short sale department and being managed properly.

Another consideration is with 2nd loans (liens).  Many banks in the 2nd position (the smaller of the 2 loans if there are two loans) request that we not submit a request for a short sale to them until we have a written approval from the 1st position bank (the larger loan on the home).  For this reason while the 2nd loan is calling from collections it may in fact be true that no short sale package is on file yet.  But in this case it is due to their internal requirements, not the lack of our attempt to submit to them.

Will the bank(s) stop calling me when we start the short sale negotiations?

No, not on their own.  Remember they are out to collect a debt owed to them.  Download our Do Not Call form from our web site and send it to the customer service for your bank.  The bank may still contact you via U.S. Postal Mail but eventually the calls should stop if you follow the steps below.

We have our client say “under the Federal Fair Debt Collection Act, I have formally informed you that you may only contact me in writing and you are no longer permitted to call me under Federal law”.

In the end there is no promise they will stop but understand that the bank’s only goal here is to collect money from you, ANY amount they can.

Can I use a power of attorney during my short sale?

Typically the answer is no.  This becomes a very common argument during the process for most.  While this may change moving forward most short selling banks are very restrictive on allowing power of attorney for any of the documents.

Some banks are even arguing electronic signatures in states where they are legally enforceable.  We find often it is easier and quickest to defer to their preferences then delay the process trying to get their acceptance (that often never comes).

Can you explain what an acceptable hardship is?

Hardship reason can vary drastically from one home owner to the next. An important factor to understand is the bank(s) being shorted a payment are looking to understand what exatly has changed with your financial situation since the date of your original loan approval.

Some recent hardships that have been approved by different banks include

  • Divorce (but only when both where part of the initial loan)
  • Health and medical reasons
  • Loss of job
  • Reduction of pay
  • Familial status change
  • Relocation
  • Interest only loan changing

If you question your hardship contact us for a consultation.

Should I stop paying my mortgage in order to complete a short sale? Is it required?

This is a deeply personal question.  The fact remains that there is a contractual obligation to your debt with your mortgage provider.  While we cannot instruct you to break this contractual agreement if you are financially able to continue with your payments.  We do raise the following question which is what benefit does it provide you to continue payments if you are selling the home?

Also many banks will not negotiate your short sale offer if you are current on payments.  This sounds counter intuitive but their thinking revolves around the sheer volume of distressed home owners asking for consideration.  They seem only interested in the home owners in the worse situations.  We suggest contacting your bank to confirm their current policy on whether you need to be delinquent in payments to be considered.

Another consideration is many banks will start the foreclosure process after 3 missed payments (varies by institution and jurisdictions).  To be successful in today’s short selling market it is very helpful to avoid the start of the foreclosure process if at all possible.

Should I continue to make my HOA or Condo dues payments?

This is a personal decision based on your available finances.  We will caution that the home owners association and/or condominium association has the right to not only place a lien on the property but also to foreclose on the property. 

During the short sale process any back dues to either association must be paid to release their liens, if any were placed.  Lower past due amount are often manageable and more often than not are paid by the short selling bank but not always.  Higher amounts that are past due are almost always denied for payment by the short selling bank.  Your negotiating company will need to then interact with the associations to ask that they also accept a payment for less then they are owed.

Managing the associations as well as the second liens (mortgages) from doing anything that might rock the boat during the short sale negotiations with the first lien holder is very important.  If your finances allow it do your best to keep these current or from ballooning to values that become exorbitant.

Should I move out of my home during the short sale?

No, if at all possible stay in the home.  There are several benefits to being in the home during the short sale process.   Even if you are behind in payments it is best to stay in the home as long as possible.  For example one of the qualifications of the new U.S. Treasury’s HAFA Program requires that you be living in the home you are short selling to be accepted.

Can the bank kick me out of my house if I stop paying my mortgage? Can they change the locks?

Until the foreclosure process is complete the bank cannot make you leave your home.  You still own it until the bank has completed the legal steps of foreclosing.  But if you have left the home and it is now vacant the bank may secure the property. 

If the bank finds out the home is vacant or their attempts to make contact to confirm occupancy are left unanswered they may send someone to the property.  This person is typically only trying to confirm occupancy.  If they find the property is empty they will most likely change the locks to secure the property.  Depending on the season of the year and where the home is located they may also winterize the home to protect it from bursting pipes, neglect and other damage.

As the home owner and until the property is foreclosed you may request a copy of the key for the newly installed locks for access to YOUR home.

Will the bank put my things out in the street if I miss enough payments?

No, not until they have completed the foreclosure process.  In many states the home owner will have ample warning about anything taking place like this.  Make certain to open and read your mail.  The bank is speaking to you during this whole process make certain to read what is being mailed and you will be fully aware of what is going on with your home.  

Even after they complete the foreclosure you may find that the home was not purchased at the auction and now the ownership reverts back to the bank itself.  In this scenario the bank will assign this property to a local Realtor for the process of listing the home for sale.  The real estate agent will come to you and advise what is going on and what your options may be moving forward.

Can the bank come after my vacation home if I stop paying my mortgage?

No and well, tell us more.  Typically no, the mortgage you have for ‘property A’ is for that property only.  As such the bank cannot ‘take’ your other home, ‘property B’ or your vacation home.  But during your disclosure of assets the bank may see the Vacation Property as hard assets that could be liquidated to offset their financial loss.  With this knowledge they may counter offer during your short sale negotiations and ask that equity, if it exists, be taken from that property to offset their loss.  They cannot force you to do this.  If during a counter offer from your short selling bank they ask for this you have the right to say no. 

This scenario is not always so clear.  If you have further questions contact legal counsel prior to starting your short sale offer with your bank(s).

I have other liens on my property (mechanics liens, IRS tax lien, etc.). Can I still do a short sale?

Yes.  Additional liens will need to be cleared for you to sell your home.  As with other liens they will be considered while the offer is placed to the short selling bank(s).  Most often they are cleared without cash assistance from the home but not always.  Seek guidance from your professional negotiator and real estate expert.

It is not often possible to know prior to submitting the short sale request if your bank is going to ask for you to assist with cash.  Just remember that if your short selling bank counters the initial offer with terms you are unable to meet you have the right to say no and void the short sale offer to the bank.

Can my wages be garnished if I stop paying my mortgage?

The bank has no right to garnish your wages related to your missed payments of your mortgage.  Their lien against your property is their security for repayment.  Their recource is foreclosure of the mortgage and potentially the right to pursue the unpaid balance (deficiency). 

But use caution as we have seen some bank’s mortgage note agreement allowing them access to a savings or checking account held with them to withdrawal missed payments.  We have seen this occur to past clients and urge you to refer to your bank about their ability to do this in your agreement with them.

If I stop paying my mortgage will the bank stop paying my monthly insurance payments?

This answer is specific to how your loan was set up initially.  In a scenario where the cost for your home owners insurance is escrowed and included in your total monthly mortgage payment this payment is typically made annually or bi-annually for you.  If enough money has been collected prior to you stopping your payments they will still make the payment as scheduled.

We strongly suggest that in a distressed situation that you contact your hazard insurance company for your home and confirm your coverage.  Coverage is vital to limit your losses during your short sale.  If there were damage due to an insurable event this will help correct it and assist with getting the property sold.

Do I need to keep paying my home insurance?

Yes!  Make certain your home (hazard) insurance is current.  Any insurable related damages would become the cost of the home owner and be a huge negative impact on trying to sell a property if not corrected. 

Refer to our FAQ Question just above.

Is it harder to negotiate a short sale if I have more than one loan?

The more loans (liens) that exist the more difficult the process of short selling your home may be and the longer it will take to finalize.  Below is a list of typically easiest to hardest short sale scenarios.

  • one loan
  • two loans with the same bank and divisions
  • two loans with the same bank but different divisions (mortgage loan versus HELOC (line of credit))
  • two loans with two different banks
  • any of the above with an IRS Tax Lien

The management of multiple loans is not new and is very manageable.  It is important to know that the loan in first position, typically the largest loan, is in the driver’s seat.  They get to decide how much they will allow the junior loans to receiveas an offer to accept the short sale.  Often the junior loans are only offered $3,000.  On a smaller loan this works well but on larger loans the second will fight hard for more money.  This is where your short sale negotiating firm works hardest to get your offer accepted.

Can my credit cards or revolving credit accounts be affected if I stop paying my mortgage?

In the past if your credit card companies agreement with you included a Universal Default clause it allowed them to increase your interest rate on the unpaid balance or even reduce your available credit based on your performance with accounts other than them. 

Home Owners missing mortgage payments were finding that their credit limits were be drastically reduced eliminating their ability to use the credit to suppliment their expenses.  This ‘Universal Default’ clause was often unknown by or overlooked by the consumer.

In May of 2009 the Obama Administration created the Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD Act of 2009.  If you have concerns on how missed payments of your mortgage may affect your costs or credit limits with your current cards you should review your agreement with them and the above bill that went into effect February 2010.

What should I be doing with the rent my tenants pay me during the time I am pursuing a short sale?

If you have a tenant in a property that is being short sold you will need to disclose the details to your bank.  Typically with all short sales the bank will require a financial worksheet be completed.  This will detail your bills and income for all parties on the loan with the bank.

This Financial Worksheet will show the income from your rental (tenants).  The consideration most people are concerned with is if they are depositing this money into their bank account and how it may look to the short selling bank(s).  If your financial worksheet shows that even with the rental income you do not have the finances to pay your mortgage then this most often will not cause any issues for your short sale consideration.

The other concern that arises refers the the banks right to collect rental fees if you are not making your mortgage payment to them.  We are not in a position to speak on your specific loan or the language it may contain.  If you have concerns about this refer to your loan documents and consult with trusted legal counsel on the matter.


National Short Sale Support Role

When exactly do the negotiations for a short sale start?

Submission and contact to your bank(s) starts when you have an offer to purchase.  Prior to having your contract we typically have no interaction with any of the banks involved with the short sale.  The simple reason is almost all banks require that there must be a purchase contract in place before they will start to review the short sale offer.

When do you contact my bank(s) about my short sale?

The moment we have the contract for sale and the supporting documents we will contact your bank(s) in conjunction with your short sale and offer.  We will require that all owners on the loan(s) sign an ‘authorization to release information to a 3rd party’ form for each lender.  This is the document your lender(s) will need on file in order to discuss your short sale offer with them.

My bank just called me and stated they have no request or file for me; what is going on?

If you ever receive a call from a bank about your short sale contact us immediately.  First and foremost often when the bank calls a home owner during the short sale process it is typically the collection department calling to collect money from the home owner(s).

The scenario that plays out most often is the home owner tells the bank calling on the phone that they are doing a short sale.  The representative on the phone states they have no short sale on record and if the home owner does not make some payment now the bank may not consider their sale at all.  This is completely a misrepresentation.  Most often the separate departments of the banks do not appear to have access to the other departments.  Meaning the collections department does not have access to the short sale department so of course they do not ‘see’ a short sale on file.

We still want our clients to contact us if receiving a call like this but most often the file is in the hands of the short sale department and being managed properly.

Another consideration is with 2nd loans (liens).  Many banks in the 2nd position (the smaller of the 2 loans if there are two loans) request that we not submit a request for a short sale to them until we have a written approval from the 1st position bank (the larger loan on the home).  For this reason while the 2nd loan is calling from collections it may in fact be true that no short sale package is on file yet.  But in this case it is due to their internal requirements, not the lack of our attempt to submit to them.

How is National Short Sale Support paid for their negotiation services?

The cost for our services are included in the settlement statement forwarded to the bank.  Our goal is to always have the short selling banks pay the majority of our fee for our services for the home owners we support.  Many of our home owners are glad to pay.  The realization that for 1% of the sales price of their home, $3000 minimum fee, they may be able to clear that large debt that is over them is a great relief.

If the short selling bank either denies or tries to negotiate a lower fee, the unpaid balance is paid by the home owner.

If the bank were to deny the short sale or the terms returned from the bank are unacceptable to the home owner then there would be no fee payable.

Does NSSS get involved in trying to stop my foreclosure sale during the short sale negotiations?

If during the process of negotiating a short sale for a home owner the foreclosure process starts we do interact with the short selling bank and attorneys to try and stop the foreclosure sale.

We always like to remind our home owners to keep a close eye on their mail.  Whether they live in the home or not it is only the home owner that will have the quickest notice of the foreclosure.  The foreclosure process runs independent of the short sale and requires specific attention to have it stopped.  As the banks aggressively change their policies on postponing these sales it becomes even more important for home owners to not delay if they need to benefit from completing a short sale.

If a home owner comes to us prior to having a contract for purchase for the home they are short selling and wish to employ our services to stop the foreclosure sale we will consider that request.  There would be a separate fee for service that would be negotiated and paid prior to service.


Foreclosure and Short Sales

My foreclosure started. Is it too late to do a short sale on my home?

No but you may be running out of time.  Over the last months (last 6 months of 2010) the banks have become increasingly more aggressive with completing the foreclosure once it has started.  The foreclosure process and short sale process run completely independent of each other.  The further along the foreclosure the harder it is becoming to stop them.

In 2008 it was easy to stop a foreclosure sale.  Even without a contract to purchase they would often consider postponing the foreclosure auction sale just by knowing the home was listed for sale with a real estate agent.  That is no longer the case.  Many banks will not consider stopping the foreclosure unless there is a contract in place for the subject property.

If you are in foreclosure or one is looming do not wait any longer to speak with local professionals to help you manage your losses.

Do I have to worry about my home foreclosing if we have submitted an offer to my bank for my short sale?

Yes, you do.  The process for the banks all run separately.  For example their loan modification requests, short sale requests and foreclosures are often managed by completely separate divisions that do NOT communicate with each other effectively.  Whether on purpose or due to technological limitations this separation needs to be monitored.  The fact that a home owner is attempting a loan modification or short sale does not protect them from the foreclosure process initiating if they are continuing to miss payments.

Who can foreclose on my home?

Any bank with a lien on your property, your Home Owner Association or even your Condo Association of you are behind on payments.  They all still must follow the jurisdictional requirements to foreclosure for your locality. 

Most often the junior liens (loans) and HOA/Condo Associations do not due to the cost incurred to complete this process.  But if they believe your property to have enough equity (value) to pay off all of the loans in front of their claim and still pay them with the balance of those proceeds they may consider this option to be viable.  All liens must be paid in the order they were recorded.  So if a Condo Association for example wished to foreclose the proceeds would first pay out to all the liens (loans) recorded before theirs.

How long do I have to get out of my home if it goes to foreclosure?

This will vary based on the type of foreclosure process for your state, either judicial or non-judicial as well as any redemption period.  We always suggest contacting local professionals on the foreclosure process for your jurisdiction.

In many states it can be as long as 3-5 months after the foreclosure process starts before it would complete requiring the home owner to leave the property?

Check out Realty Trac’s Foreclosure Comparison Chart at:
http://www.realtytrac.com/foreclosure-laws/foreclosure-laws-comparison.asp

Will my belongings be put out in my yard if my home forecloses?

This is very important for home owners to know.  The bank will attempt on many levels to contact you.  They will call and they will send letters to the mailing address they have on record.  The mailing address is typically the home they have the loan secured with.  If you move out make certain to update them on how and where to communicate with you.

Typically the bank and the bank’s attorneys will make every effort to communicate with the home owner about what is happening.  While we do not have national numbers, to date we have not had this happen to any of the home owners we have worked with.  Even after the foreclosure many states require that any home secured after a foreclosure that has belonging inside must make an effort to allow access to the home owner.  So if your home is secured with your belongings inside they must attempt to contact you and allow you typically a 24-hour window to remove your belongings.

When you hear of the rare story where this happens it is only after exhaustive efforts from the bank and attorneys.  If you are a home owner do not hide from your mail or the phone calls.  We know you are having a hard time sleeping, it feels overwhelming but find someone you can consult with and find the options that work best for you.


Short Sale Contract Questions

How will a Short Sale affect my credit score?

It will be damaged.  That’s the unfortunate truth.  But keep in perspective what it means to have damaged credit and its practical effect on your day to day life.   Credit has value only when borrowing money or when being used as a variable in determining eligibility for certain jobs/employment opportunities (or security clearances).

If your job/employment is not dependant on your credit, a short sale will have no impact.  If you don’t expect, or need to, borrow money in the next 24 +/- months, a short sale will have little to no impact in your daily life.

Credit will self repair if you return to paying creditors on-time and as agreed.  The unfortunate, yet minimal, risk of having damaged credit is one of the unintended consequences of a short sale.  The only way to avoid damaged credit is to continue paying your mortgage as agreed and until maturity.  For most of us, that is not a possibility.  It’s often not a matter of whether or not we will default but when we have to default.

Since it takes at least 24 months to return our credit to pre-default levels, the longer we delay the decision to default the longer it will take to return to “good credit” status.

How does the bank decide if our offer is good enough?

After we submit the short sale package/offer the short selling bank will complete their own valuation of the property.  The purpose quite simply is to verify if the offer they are receiving is market value or where the offer falls.  Offers that are too low are either denied or a counter offered.

The typical valuation model the banks use is a BPO or Broker Price Opinion.  This option has a real estate agent local to the property visit the home, enter, take pictures and then return to their office where they complete a form detailing the short selling home and the recent sold and under contract homes close to it.  This is not a full appraisal and cost the short selling bank less money.

The better and more accurate process would be for the bank to order a full appraisal with a certified, experienced appraiser.  They too will access the property but due a better job adding and subtracting value based on the current condition of the short selling home versus the area homes similar to it.

After the bank has reviewed the offer to what they believe the home is worth the negotiations can now start in earnest.  Prior to the completion of their evaluation they cannot respond to the offer.  Our experience shows that most banks can take anywhere from 15-45 days after receiving the short sale offer to have completed their price evaluation.

What happens if the original buyer for my home cancels their offer?

If you submit a short sale offer and during the process your buyer cancels their offer a new offer will be needed.  There are many factors to the short sale and replacing an offer with a new buyer.  Most important to know is that most banks require the file to be completely updated when a new buyer enters the picture.

Also important to know is if you had an approval from a bank for Buyer-A and they leave the short sale the approval letter for Buyer-A cannot be used for the next buyer.  The bank will review the offer again.  Part of this approach is their due diligence to making certain that the sale is an Arms Length Transaction and that no parties in the short sale know each other prior or are related to each other.

It is helpful if the following offer matches or is better for the banks bottom line compared to the first.  We always urge caution as many agents and home owners misunderstand the process.  Any progress or prior approvals do not convey to the new buyer and some banks will have you start all over again.  Avoid making claims to other buyers that the sale is pre-approved just because they may have approved it for a previous buyer.  This is not in fact true.

From the negotiating side of this if Buyer-A leaves the offer and you do not have a buyer to replace them we do not notify the bank immediately.  We will allow the process to continue with the short selling bank while a new buyer is searched for.  If challenged by the bank while waiting for a new buyer we will have to acknowledge at that time the fact the initial buyer has left the offer.  At that time most banks will close their file until a new offer and short sale package is presented to them.

My buyer wants closing cost assistance, do I pay that out of my pocket?

As with other fees related to the short sale and contact offer most often the bank will pay these fees and concessions.  There are many factors for example they must be in reason for the local market.

  • Most often a bank will not allow for seller concessions over 3% of the sales price.
  • They will often try to negotiate for a lower concession then initially requested
  • They don’t typically pay seller concessions on cash offers
  • Certain short sales will not allow for more then 1% seller concession.  If the short selling bank’s loan was an FHA or VA loan.

Our advice, confer with your Realtor but don’t be afraid to counter offer and negotiate a strong contract that your short selling bank will approve.

My home has repairs that are needed; will I need to repair them?

Typically no repairs are completed by the home owner.  You may see a common theme in our Short Sale FAQ – the use or overuse of the word ‘typically’.  The reasons for this are due to the dynamics of short sales, market conditions and local contracts. 

Consult with your real estate listing agent on how the ‘as-is’ clause of your local contract protects you.  Your home is sold in As-Is condition as a requirement of your bank.  They do not want a home owner putting cash into the home they are leaving.  If repairs are needed the offer price should reflect the current condition of the home.  If significant items are found during an informational home inspection we suggest the purchaser supply at lease two written estimates.  These may or may not influence the bank into accepting a lower offer then originally submitted to them.

Work with your real estate agent closely as they will be the best resource for you and your home locally.


Short Sale Cost and Fees

Do I have to pay the Realtor’s commission?

The fees related to selling your home are charged to the short selling bank (your bank).  So the commissions, seller concessions, closing cost fees and such are charged to them, not to you.

BUT, there is always a ‘But’, that does not mean they will not make a counter offer to those fees or try to deny paying them in part or full.  This is the key to a) having a strong offer on price and b) having an experienced negotiating team on your side.  Most often the standard fees for your area would be paid by the bank and not you.

So if you receive a $200,000 offer on your home listed for sale at $200,000 and the cost for Realtor compensation, closing fees and seller concession totaled $11,000 the offer to your bank would be $189,000 ($200,000-11,000).

How is National Short Sale Support paid for their negotiation services?

The cost for our services are included in the settlement statement forwarded to the bank.  Our goal is to always have the short selling banks pay the majority of our fee for our services for the home owners we support.  Many of our home owners are glad to pay.  The realization that for 1% of the sales price of their home, $3000 minimum fee, they may be able to clear that large debt that is over them is a great relief.

If the short selling bank either denies or tries to negotiate a lower fee, the unpaid balance is paid by the home owner.

If the bank were to deny the short sale or the terms returned from the bank are unacceptable to the home owner then there would be no fee payable.

My real estate taxes that are overdue, how are they paid?

As with many fees and expenses the attempt is always to have the real estate taxes paid from the proceeds of the short sale.  for example, if the offer for your home is $200,000 and you owe $4,000 in back real estate taxes your bank would be offered $196,000 and $4,000 paid to get you current on your real estate taxes.

This is always the attempt and no guarantees can be offered.  Our past negotiations show that most often this past due amount will not have to be paid by the home owner.

My buyer wants closing cost assistance, do I pay that out of my pocket?

As with other fees related to the short sale and contact offer most often the bank will pay these fees and concessions.  There are many factors for example they must be in reason for the local market.

  • Most often a bank will not allow for seller concessions over 3% of the sales price.
  • They will often try to negotiate for a lower concession then initially requested
  • They don’t typically pay seller concessions on cash offers
  • Certain short sales will not allow for more then 1% seller concession.  If the short selling bank’s loan was an FHA or VA loan.

Our advice, confer with your Realtor but don’t be afraid to counter offer and negotiate a strong contract that your short selling bank will approve.

What if the bank says yes to my sale but requests money or other terms that I am not able to meet?

You, the home owner has the final say in the approval and moving forward with a short sale and not the bank.   Once the bank has reviewed your offer and responds you have three options, a) accept their approval as stated, b) deny their approval and not sell your home or c) continue with the negotiations.

Assuming the bank has not accepted the offer exactly as submitted to them the home owner is not contractually bound to accept the banks ‘counter offer’ to them.  Most often continuing the negotiations to receive the most acceptable version of the approval is best.  Avoiding the foreclosure and the cost associated to them is the biggest concern for most home owners.

The bank won’t waive my deficiency, should I let the home foreclose?

The answer whether to allow a home to foreclose or not would require more information to make an educated decision.  Often we have home owners that misunderstand one key component to a foreclosure.  They assume that all that happens is they lose their home and have to deal with the stigma and challenges of having a foreclosure on their credit history.  There is far more as they also will be responsible to re-pay the bank all uncollected fees to include the cost of the foreclosure and the balance of the loan(s) not recovered from the foreclosure sale.

If the home foreclosed and sold at auction for $190,000 but the home owner owed the bank $240,000 the $50,000 unpaid balance will be the responsibility of the home owner.  Additionally the bank will also charge the home owner the cost incurred to complete the foreclosure which can average as high as $60,000.  So in this case they would owe the bank $110,000.  If they completed a short sale for the same price they would only be exposed to $50,000 not $110,000.

Related to a foreclosure the potential unpaid balance (deficiency) is much lower for a short sale.

I am behind on my Home Owner Association/Condo fees. Do I have to pay them first before completing a short sale?

The fees related to selling your home are charged to the short selling bank (your bank).  The fees for the unpaid association dues will be included as a bill during your sale.  The goal is to have them paid by your bank.  As with other related fees the short selling bank may pay it all comes down to how strong the contract offer is.  A low offer might be accepted by your bank but cause them to deny payment of other fees.

The reason they consider this is that if the home were foreclosed they would in fact pay those fees at that time.  That payment would become part of their ‘cost to foreclose’.

If your unpaid balance is very high your short sale negotiator may have to discuss a short pay to the association and if they might accept that.

Please keep in mind that it is possible for the home owners association / condominium association to also foreclose on your home.  It does not often happen due to the balance owed to the senior liens but is a consideration when payment balances get very high.

NO SALE:  Do your best to keep these fees as current as you can.  Did you know that if you live in a Condominium Association and enough owners are 30+ late with their fees that a buyer may be denied their loan to purchase your home because of this.  Typically a 30+ delinquency at 15% or higher will have the lender for your buyer deny them their loan.  Of course a cash purchase would not have this issue.

Will I have to pay the bank(s) back any money that is not collected if they approve my short sale offer?

In recourse states this is a genuine concern.  These states allow the banks the right to collect the unpaid balance after a foreclosure or short sale is completed.  While banks may choose to sue a home owner for the unpaid balance we typically see them sell that debt to a collection company for pennies on the dollar.  It is not unheard of for an institution to sell a $100,000 debt to a collection company for $2,000 or less.

Deficiency Options:

Unless your short sale is part of a predefined short sale program from your bank or the government that explicitly states they will waive their rights to collect the unpaid balance this issue is not known at the start of the process.  Not until the bank delivers their written approval letter will they expose their position on your unpaid balance. 

If they reserve the right to collect you may attempt prior to the short sale closing date to negotiate this term by offering them money.  I have not seen them waive this right for free.  Offer them money knowing they will most likely sell the debt for less then you might offer is a good position of power when addressing this.

If you have no funds to negotiate away the bank reserving this right then be prepared to try this months down the road with the collection company.  All of this assumes that they sold the debt at all.  It is possible that they will not act on this right at all and you will not need to pay it.  That is left to be said.

If you are concerned about the unpaid balance we suggest you speak with a qualified bankruptcy attorney prior to starting your short sale so you know all of your options.  Typically a Chapter-7 filing would protect you from this if the home in question is included in the filing.

What is the cost to represent me during my short sale?

The cost for National Short Sale Support to negotiate your short sale is no less than 1% of the sales contract price for the short sale property, but no less than $3000.

The fee is charged to the short selling bank as a service and or legal fee.  Whatever amount is left unpaid by the seller’s bank(s) is paid for by the home owner at closing.

If the short sale is not successful or the home owner selects not to agree to the terms offered by their bank(s) there is NO CHARGE.


Tax Implications of a Short Sale

Are there tax implications to completing a short sale?

Absolutely there are tax implications to your short sale.  It is very important that a home owner consult with a tax professional prior to completing a short sale.  The tax exposure that people reference is related to the unpaid balance owed the bank after the short sale is complete.  For example, if your bank was owed $250,000 and recovered $200,000 from the short sale they are owed $50,000.  The bank will issue a 1099-c to you showing you earned $50,000.  You will need to speak with a tax professional to see if you are in fact liable to pay income taxes on that reported amount.

President Bush enacted the Mortgage Forgiveness Debt Relief Act and Debt Cancellation in December of 2007.  It addressed this concern and will often be used by your tax professional to qualify you for tax relief of your short sale unpaid balance.  Refer to IRS Publication 4681 for details on Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Resources:

There are many factors to considering a short sale.  Don’t allow anyone to push you towards a decision you are not prepared for or educated enough for.  Always seek the advise of professionals prior to starting the process.

My real estate taxes that are overdue, how are they paid?

As with many fees and expenses the attempt is always to have the real estate taxes paid from the proceeds of the short sale.  for example, if the offer for your home is $200,000 and you owe $4,000 in back real estate taxes your bank would be offered $196,000 and $4,000 paid to get you current on your real estate taxes.

This is always the attempt and no guarantees can be offered.  Our past negotiations show that most often this past due amount will not have to be paid by the home owner.


Miscellaneous

Will the bank(s) stop calling me when we start the short sale negotiations?

No, not on their own.  Remember they are out to collect a debt owed to them.  Download our Do Not Call form from our web site and send it to the customer service for your bank.  The bank may still contact you via U.S. Postal Mail but eventually the calls should stop if you follow the steps below.

We have our client say “under the Federal Fair Debt Collection Act, I have formally informed you that you may only contact me in writing and you are no longer permitted to call me under Federal law”.

In the end there is no promise they will stop but understand that the bank’s only goal here is to collect money from you, ANY amount they can.

Does NSSS provide bankruptcy services?

Although it has been requested of us very often at this time we do not provide bankruptcy services.  If you need local references for bankruptcy attorney feel free to contact us directly.

What do I need to provide if I have completed a Bankruptcy?

This is a bigger question then you may have expected. We will address it in two parts.

Part 1 – What is needed to review my short sale if I filed Bankruptcy?
This question needs to be answered / supported by your bankruptcy attorney. There are some attorneys that do not feel their client needs to submit any financial documentation to the banks for their short sale to be reviewed. Some schools of thought revolve around the concept of ‘reaffirming your debt’ with the bank if you do this. Most bankruptcy attorneys we speak with do not see this as the case. But because there tends to be some disagreement we will always defer you to your bankruptcy attorney for this answer. There may be a serious conflict with your short selling bank if we are unable to provide financials but would confirm that on a case by case basis.

Part 2 – My short sale was approved. What will you need from me to finish my short sale?
You will need a copy of your bankruptcy discharge papers in order to sign the closing documents for your sale. Consult with your bankruptcy attorney about the process and timing of this. You, your attorney and your short sale support (listing agent & negotiator) will want to be on the same page with this timing. Managed properly this can be very easy to accomplish.