These are the most frequently asked questions we get asked about short sales. The most important part is to take action quickly, as time is not on your side if you’ve already missed payments.
What is a short sale?
A “short sale” is a negotiated settlement. It occurs when a lienholder (lender) agrees to accept an amount less than what is owed to payoff the loan(s) as an alternative to foreclosure.
Why a short sale?
You’re contemplating a short sale for one of the following reasons:
1 – You’re behind in your mortgage payments
2 – You have to move and owe more than your property is worth
3 – The property is an investment and you’re losing money every month
4 – The value of your property has depreciated so much you just want to walk away but are afraid of the consequences
Listing your home as a short sale is the logical answer for some of these reasons. If your home qualifies as a legitimate short sale, we will be happy to represent you in the sale of your property.
1 – QUESTION: Can you guarantee my home will sell before it’s foreclosed on?
ANSWER: Unfortunately, no. Due to the lengthy, uncertain process, there are no guarantees.
2 – QUESTION: How much will it cost me to sell my home as a short sale?
ANSWER: The Karten Group does not charge anything to list and sell your home as a short sale. However, you will be responsible to pay for the HOA resale package and HOA demand (this usually is no greater than $500). We do require that you leave the utilities on and continue to pay your HOA monthly dues. Your lender may also ask you to sign a promissory note for a portion of the forgiven debt or for a cash contribution. More on this later.
3 – QUESTION: What’s the best way to choose a Realtor to sell my home as a short sale?
ANSWER: I suggest you interview each agent, just like you would any other real estate transaction. I am a Certified Distressed Property Expert (CDPE), Certified Foreclosure Alternatives Consultant (CFAC), Certified Short-Sale Professional (CSP) and have earned my Short Sale and Foreclosure Resource designation (SFR), who is not only trained and certified, but I also have successfully represented many sellers on short sale transactions. I have the resources to make the contacts necessary to keep your lender focused on reviewing your information and making a formal decision – the most important part of the short sale.
4 – QUESTION: How much money will I be able to get by selling my home as a short sale?
ANSWER: One of the key factors in a short sale is that you will not realize any money – not even a penny. Since the lender(s) will be losing money, you cannot profit from the sale. However, there is a government program called HAFA, which is for owner-occupied homeowners only. If you qualify under HAFA (we can tell you specifically), then you will receive $3,000 at the close of escrow to help you relocate to a new home.
5 – QUESTION: Why would I list my home as a short sale instead of just letting it go to foreclosure?
ANSWER: In a short sale, we have the ability to negotiate where you could owe nothing. A foreclosure still lets the bank collect the money you owe them. The bank has six months to file a deficiency judgment on your first mortgage and six years on your second. By short selling, you may be able to have peace of mind immediately, by negotiating the terms to your benefit including having the bank(s) waive their right to pursue a deficiency judgment.
Negotiating a short sale with your lender shows that you were a responsible borrower even though you had a financial mishap. If you “walk away,” a foreclosure will most certainly ruin not only your credit, but in many cases, subject you to losing your job. If you work in the military and have a security clearance, or work for a casino – if your credit score drops to an unacceptable level or you have a foreclosure, they can fire you. Check with your Human Resources Department to verify this.
Another benefit is that you can live in the property rent-free during the short sale process, giving you an opportunity to save your money for your move. You can potentially minimize the damage to your credit by selling as a short sale versus a foreclosure as well.
6 – QUESTION: Which will be worse on my credit rating: a short sale, foreclosure, bankruptcy or deed-in-lieu of foreclosure?
ANSWER: A foreclosure is reported as such on a credit report. There is no way to report a “Short Sale” on a credit report, however. It can be reported as “paid for less than agreed” or many other ways. Missing your monthly payment is what will lower your credit score, based on payment history. A short sale is an indirect event on your credit report, a foreclosure is not. We have a reputable company that can provide credit restoration to assist you in regaining a credit score worthy of buying a home.
7 – QUESTION: Why would my lender want to approve a short sale, rather than just foreclose on my property?
ANSWER: A short sale can save the lender tens of thousands of dollars over a foreclosure for many reasons. First, they don’t have to hire lawyers to process the foreclosure. They don’t have to clean, maintain, repair, insure, pay property taxes, assessments, HOA dues and market the property until it’s sold. The property is occupied which reduces vandalism and theft.
8 – QUESTION: Is there any reason why you wouldn’t list my home as a short sale?
ANSWER: Yes. There are a few. Let me explain the process and what qualifies as a legitimate short sale.
To qualify as a short sale in the eyes of a lender, each has their own guidelines. However, there are a few generalities that all agree on.
1 – You must have suffered a demonstrable hardship. A hardship includes:
• Loss of job
• Medical bills
• Divorce or separation
• Excessive debt
• Mortgage payment increase
• Chronic or terminal illness
• Medical bills
• Death of close family member (child or spouse)
• Business failure
• Major repairs are needed to the home
• Military service
• Damage to property
• Insurance or tax increase
• Incarceration
• Inheritance
• Mandatory job relocation
Other events may qualify, but need to make sense to the lender.
You may be asked to document your hardship. Divorce papers, medical bills, job reduction or termination notice, etc.
2 – Detailed financial statement.
Your lender will ask for a detailed description of your income and expenses on a financial statement (which is very easy to fill out.)
They will also ask for:
• Full statement copies for 2-3 months of each bank account you have.
• Current paystubs for each borrower.
• The last 2 years of tax returns.
3 – Hardship letter.
The lender wants to hear, in your own words, what happened in your life to get you to this point. This is usually an emotion-filled, signed letter that tells them exactly what occurred and why you’re asking them to write off the negative equity of your loan. We will provide you with some sample letters to give you an idea of what to write.
If you do not have a legitimate hardship that you can prove or there is very little time left before your home is foreclosed on, we will not be able to work with you on your short sale listing.
9 – QUESTION: I don’t have any of the hardships listed. What are some reasons I wouldn’t qualify?
ANSWER: If your reason includes any of the following, you generally won’t qualify for a hardship.
• Bad economy
• You defaulted on your first payment
• You recently refinanced your home with cash-out
• You don’t like your neighbors
• You have good income but want to walk away
• You committed loan fraud to obtain the property
• You are in a Chapter 7 or Chapter 13 bankruptcy plan
That being said, there are always exceptions to the rule. If you had a life-changing event that had a financial impact on your life, you may still qualify. Feel free to discuss your circumstance with us in confidence and we can give you a specific answer to your situation.
10 – QUESTION: How much time is there between missing my first payment and my home being foreclosed on?
ANSWER: Your mortgage payment is due on the first of the month. On the 16th, you’re considered in default for non-payment. Normally, you will receive a letter or call from your lender with a reminder that your payment was due and offering different ways they can help. Depending on your circumstance, you should review the options they give you. The first step is to ask for a loan modification if you’re having difficulty making your payments.
The paperwork requesting a loan modification is very similar to a short sale application. In fact, it’s identical. Many lenders require you to go through a loan modification review before accepting a short sale application.
Although it varies from lender to lender, if you don’t make three payments in a row, you will receive a “Notice of Default – NOD” from your lender. This says that on a certain date, the lender has filed this notice with the Clark County Recorder’s Office and you now have 3 months and 20 days to pay your balance to become current, or they will sell your home at a Trustee’s sale. The clock starts ticking the day the NOD is filed.
If you have gotten an NOD, every day that you don’t list your home for sale makes it harder to get your home sold as a short sale. In your notice of default paperwork, you will be given the opportunity to go to mediation to work out a loan modification with your lender. This is time sensitive, as you only have 30 days to file this request from the date of the NOD.
You MUST spend the $200 to opt-in for your mediation hearing, IF you live in the home as your primary residence (owner-occupied.) Please contact us immediately so that we can give you the guidance you need to make the best decision and how to be prepared for the mediation.
Until the lender meets with you in mediation and acts in good faith, they cannot proceed with the foreclosure. However, if you’re not owner-occupied, the process continues as follows…
90 days after you receive your NOD, you will receive a Notice of Trustee’s sale. Now the lender starts to advertise in the “Nevada Legal News” that the home will be sold on the courthouse steps in 3 weeks.
Once the sale occurs, either the home is purchased by someone or the bank buys it back or sells it to someone else. In any case, within 24-48 hours someone will come to your home and either give you 3 days to vacate or make arrangements with you on when you will be moved out.
Once you’ve received the “Notice of Default” this time period is set. You have 121 days to get the home under contract with a buyer through a short sale before foreclosure and eviction.
11 – QUESTION: I don’t live at the property, there are tenants living there. Will they be evicted within 3 days, too?
ANSWER: The rules in Nevada changed on May 20th, 2009 to give tenants at least 90 days to stay in a foreclosed home. They have to provide a copy of their lease to show that they’re bona fide tenants (they can’t be related to the owners) and they must show that they’ve been paying fair market rent. If their lease is valid for longer than 90 days, they may be able to stay the term of their lease. Please be aware that if you have a security deposit that has not been returned to the tenant, they can sue you in small claims court for the return of their money.
12 – QUESTION: I’m current on my loan payments, but I have a qualifying hardship. Do I need to be in default to do a short sale?
ANSWER: Unfortunately, the bank wants you to prove you’re in a distressed situation by taking a hit on your credit. However, we’ve gotten banks to agree to short sales without the homeowner ever missing a payment. This will also help retain your credit score as well. A few lenders in particular, Wells Fargo, Bank of America and PHH do require you be at least 30 days delinquent before they’ll approve a short sale.
13 – QUESTION: If I owe the bank $200,000 on my mortgage and the house sells for $125,000, I understand the bank is writing off the $75,000 as a loss and that is the “short” pay of a short sale. Do I owe the bank the $75,000 now or can they collect it from me in the future?
ANSWER: It depends on how you own the house and how the bank settles with you. Although the bank is writing off the loss, the IRS considers the write-off as a gift to you and gifts are taxable. It’s called a phantom tax, because you never see the money.
If you live in the property as your primary residence, the Mortgage Forgiveness Act of 2007 protects you against paying any taxes on the written off amount, up to $2 million. Also, if a home equity loan was written off and it was not used to build, buy or substantially improve the property, that portion is still taxable. In other words, if you took a home equity loan (also known as a HELOC) as a line of credit and bought a car, paid off credit card bills, took a vacation, etc., the lender most likely will not write this off. Please have receipts for any household improvements you used this money for to substantiate its legitimacy.
If you’re not living in the property, then the forgiven amount is taxable and I suggest you speak to an accountant as to the potential tax liability you may incur. They can see if you qualify for the “insolvency” IRS rule, so that you’re not liable for taxes due. The IRS has a great publication called “Cancelled Debts, Foreclosures, Repossessions and Abandonments” that go over tax implications. Click the following link to download your own copy:
Cancelled Debts, Foreclosures, Repossessions and Abandonments (1.2 MiB, 166 hits)
In regard to the balance the bank writes off, your lender can address this a few different ways. They may ask you to contribute a portion of the money as part of the short sale settlement. This amount can be negotiated usually, but if you don’t agree to participate, they will proceed with the foreclosure of your home. Our goal is to have them completely forgive the debt.
Another option your lender has is to file a deficiency judgment for the amount written off. A deficiency judgment is a lien that follows you on your credit, that needs to be paid off in full to be satisfied. There may be options to remove this, including bankruptcy, but you need to consult with an attorney for legal advice.
Beginning on October 1st, 2009, Nevada law changed and the lender can’t file a judgment if the home was your primary residence, you lived in it continuously after you got the loan and you did not refinance the loan. This is only if you purchased the home after October 1, 2009.
14 – QUESTION: I have a first and a second mortgage. Is it harder to get a short sale approved?
ANSWER: Yes. When dealing with two lenders, the second mortgage holder will usually have to take a minimal amount ($3,000) as a settlement of their loan. If the second lender doesn’t agree, you can’t get the short sale approved. If the second lender does agree, they may have the right to recover their loss for up to 6 years after the breach, depending on how they agree to forgive the debt (see question #17.) Again, you’ll want to consult a lawyer on how this could affect you.
15 – QUESTION: Can I have a family member buy my property so that I can still live in it?
ANSWER: No. The purchase must be arms-length, meaning there is no family relationship between buyer and seller. Bank of America requests the Social Security numbers of the buyers to verify their identity, other banks require documentation attesting that all parties are acting in good faith.
16 – QUESTION: Do I still have to pay my property taxes and HOA dues?
ANSWER: Yes. If your lender(s) approve the short sale, they will not pay any delinquencies on your property. Property taxes, HOA dues/fines, SID/LID payments, water, sewer and trash are your responsibility – in many cases, if you don’t pay them, then the sale cannot be completed unless they’re impounded in your monthly mortgage payment.
17 – QUESTION: You also mentioned something about a promissory note. What does that mean?
ANSWER: The short sale process is a negotiation and some lenders will not forgive (write-off) the entire amount you are short on your loan. Some will ask you to sign a promissory note to pay back a portion of the loan, usually at 0% interest, over 5 to 10 years. Each sale is different and we will work with you as to the terms negotiated and offered. Again, our goal is to have the debt completely forgiven and unconditionally released.
If the bank will not grant a full release from the underlying obligation (your loan), the bank has 6 years to collect the remaining debt from you on a first or second mortgage in a short sale, 6 months on a first mortgage in a foreclosure, 6 years on the second.
18 – QUESTION: I received a “Notice of Default” after July 1st, 2009. There was information about going to mediation to determine if I could get my loan modified. Should I do this?
ANSWER: YES, if you meet the following criteria. If you are currently living in the home, then you can submit your request for mediation. If it’s a second home or you have tenants, you cannot take advantage of this service.
If you do qualify for mediation, this is a time-sensitive event. You must request mediation within 30 days of the NOD being filed (not from the day you receive it). After that, you are no longer eligible. Please talk to us the minute you get your NOD so that we can help you proceed in an timely and efficient manner.
19 – QUESTION: So we decide to list our house with you as a short sale. What is the process until it’s sold?
ANSWER: Once we’ve determined that you’re a good candidate for a short sale, you will provide all the necessary paperwork we need for the short sale package, depending on your lender’s requirements. Once the package is complete, we will list your home for sale. We will utilize all of our marketing tools to give your home the broadest exposure possible, so that we can get an offer quickly.
When we receive an offer, we present this to you for your approval. The goal is to get an offer at or above our asking price (which we’ve determined based on the comparable sold listings and current homes for sale in your neighborhood.) If you approve the offer, we will take the home off the market and submit all the paperwork you’ve prepared, along with the offer, to your lender(s) for their approval.
This process can take anywhere from 1-5 months. Unfortunately, due to the backlog of different lenders plus the reviews necessary for approval, we have no control as to the length of time this will take. Because we are experienced at short sales, we provide everything necessary at the start, so there are no delays during the review process.
20 – QUESTION: I understand you need all the short sale paperwork before you can list my home. Will you submit my paperwork for “pre-approval” to the bank before we list it?
ANSWER: For most lenders, in order to submit your short sale request, we must have a legitimate offer from a buyer.
21 – QUESTION: Why do you have to take the home off the market? If the bank hasn’t accepted the offer we submitted, can’t we keep it listed as “available” and keep taking back-up offers?
ANSWER: No. The same rules apply to a short sale listing as a fair market listing. Once you accept an offer, the listing must go into “C” (Contingent) status. If a buyer still wants to see the property and put in a backup offer, we are happy to do that.
22 – QUESTION: I’ve heard that if we have our home listed as a short sale but we don’t find a buyer, our lender may offer us a deed-in-lieu of foreclosure. What is that?
ANSWER: This is when you transfer the deed to the lender (give him back the keys) instead of foreclosing. The lender will sometimes accept the deed in full satisfaction of the mortgage debt, although we’re seeing less and less of this now. This still has a negative effect on your credit, but some say it is less harmful than a foreclosure.
23 – QUESTION: How soon will I be able to buy another home?
ANSWER: As of December 2009, the FHA has changed their criteria to help people, just like you, purchase another home after a short sale. Here’s their new rules:
* Borrowers ARE eligible for new FHA financing if they had no late payments on the mortgage in the last 12 months, are current on all their installment loans AND the proceeds from the short sale serve as payment in full.
* Borrowers whose mortgage was in pre-foreclosure status at the time of short sale are NOT eligible for FHA financing for 3 years unless they qualify for an exception.
Las Vegas now has a lender who is offering mortgages to borrowers who have short sold their home more than 12 months ago. There are certain minimum qualifications in addition to being able to afford a new mortgage. You must have been current on all your bills except your previous mortgage. You will need to put down a minimum of 20% (although 15% may be a gift from a family member.) Ask us for more details.
Now that you’ve seen the most frequently asked questions, give us a call at 702-252-7836 to set up a confidential appointment to answer any specific questions you may have or to start the short-sale process.
IMPORTANT GOVERNMENT NOTICE:
1 – You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you will have to pay us NOTHING for our services.
2 - The Karten Group at Rothwell Gornt Companies is not associated with the government, and our service is not approved by the government or your lender.
3 - Even if you accept this offer and use our service, your lender may not agree to change your loan.
Follow Us On: