Short Sale Definition FAQ’s: - What is a Real Estate Short Sale?
- A Short Sale is an agreement between a lender and a borrower to settle mortgage debt for less than the full amount owed. This agreement is usually due to an economic hardship of the borrower and a reduced value of the borrower's property.
- Who can qualify for a real estate short sale?
- Traditionally, only property owners that were experiencing an economic hardship and at least three months behind in their mortgage payments qualified to be a short sale candidate. However, in the current housing market conditions have changed. You may qualify for a short sale if you are experiencing economic hardship and any of the following apply to you:
- You are behind in your mortgage payments one (1) month or more
- You are current in your mortgage payments but will become delinquent very soon if you are unable to sell your property
- You owe more on your house than what it’s worth
- You owe at or near full market value
- You have a mortgage loan that is set to drastically adjust upward in the near future and therefore make it impossible to pay
- What is required for a real estate short sale?
- In order for a Short Sale to be successful you need a thorough understanding of the short sale process, from both the property owners’ and the mortgage lenders’ respective perspectives, as well as all of the applicable documents and information. Additionally, to maximize success it is helpful to have access to other property owners and professionals that have experience negotiating short sales so that your individual questions can be answered.
- How long does a real estate short sale take to complete?
o Because of the nature of the process and the many layers of bureaucracy that mortgage lenders and servicers have, short sale negotiations are lengthy in nature. You should expect to spend several weeks, but more realistically, several months working through, presenting, and negotiating a real estate short sale before receiving an approval to sell at a lower price. Patience is a virtue. - Why do lenders accept short sales instead of foreclosing on some properties?
o According to Realtor.com, the national average mortgage lenders lose when foreclosing on a property is 40% compared to the national average loss of approximately 20% when the lender accepts a short sale. This savings the lender receives is what entices them to negotiate short sales with knowledgeable negotiators. - When should I start a short sale?
o You should start a short sale negotiation the moment you become aware that a property owner (sometimes yourself) is about to experience an economic hardship and not be able to make the FULL amount of monthly mortgage payments owed. If the property owner is already experiencing an economic hardship and unable to pay the full monthly mortgage payment then now is the best time to start a short sale negotiation with the property’s lender(s). - If the short sale is not accepted, what happens then?
o If the property owner is truly experiencing an economic hardship then most times unsuccessful short sale negotiations mean the property slips into foreclosure. However, rest assure that lenders are well aware of how much more money they will lose by foreclosing on a property rather than working out a short sale. If you have presented the bank with a systematic “sales pitch,” otherwise known as a short sale package, then your chances are high that a lender will want to work something out with you rather than foreclose on the property. o This is what happens when a mortgage lender allows a property to be sold without having the total amount owed on the note paid in full. With just a “release,” the mortgage note is considered Not Satisfied and the property owner is still liable for the remaining debt on the property that is not paid off at closing. It is important to note that even if a property owner is only able to receive a “release,” the property is still able to be sold and foreclosure is staved off, salvaging the property owner’s credit. Also, in many cases the lender will not pursue the old property owner for this unsatisfied debt unless the borrower has significant assets in which the lender can collect. - What is a “deficiency judgment?”
o This is the money that is left over when a mortgage note is considered “released,” but not “satisfied.” Essentially, if a property is sold as a short sale and the lender refuses to give a “satisfaction” of debt, the mortgage debt that is not paid off at closing becomes a “deficiency judgment.” - What is a “satisfaction?”
o A “satisfaction” occurs when a lender agrees to “release” its security interest against the property in return for a lesser amount than that is owed on the mortgage note. When the property is sold, the property owner’s note and obligation to their lender is considered Satisfied and no more money is owed to the lender for the property in question. With a “satisfaction” the borrower may have some tax consequences for the forgiven debt as this debt may be treated as income. Our goal is to have this debt forgiven and not taxed.
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