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What is a short sale?
Sample steps of a short sale:
Seller signs a listing agreement with a real estate agent subject to selling as a short sale with third-party approval.
1. The agent finds a buyer who makes an offer for less than the amount of the mortgage.
2. Seller accepts the buyer's purchase offer subject to the lender’s approval.
3. Seller's lender accepts the buyer's purchase offer.
4. Transaction closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed.
What is the difference between a short sale and a foreclosure?
A short sale is a process in which the mortgage holder agrees to accept less than the balance owed on the mortgage at sale to prevent foreclosure. Foreclosure is when the bank terminates of all rights of the homeowner covered by a mortgage. Foreclosure is a process in which the estate becomes the absolute property of the lending institution.
How will I know if I qualify for a short sale?
Only the bank that holds your mortgage can ultimately determine if you qualify for a short sale. However, there are some general guidelines that can give you an idea if you might be able to work with your bank to secure a short sale agreement. Some factors that banks often consider when determining short sale eligibility include, but are not limited to:
- If the home’s market value has dropped considerably - Comparable sales must substantiate that the home is worth less than the unpaid balance due the lender.
- If your mortgage is in default or near default status - It used to be that lenders would not consider a short sale if the payments were current, but in many cases, lenders realize that other factors contribute to a potential default making them eager to head off future problems.
- If the homeowner has fallen on hard economic times - The homeowner is required to submit a letter of hardship that explains why they cannot pay the difference due upon sale, including why the homeowner has or will stop making the monthly payments. Some examples of economic hardship may include; unemployment, divorce, medical emergency or sudden illness, bankruptcy or death.
How much will a short sale cost me?
A short sale costs the seller nothing – the lender pays all closing costs, escrow fees, commissions, etc. The lender may also pay any outstanding property taxes.
How long will a short sale take?
The short sale process typically takes about 3-6 months, start to finish. It can take longer depending on how backlogged the lender is. You can live in the property for the entire duration of the short sale or you can move out whenever you wish.
How will a short sale affect my credit?
According to Fair Isaac, the organization that helps determine credit scores, credit scores are affected about the same, whether a seller goes through with a short sale or foreclosure. Fair Issac says the average points lost on a FICO score are as follows:
- 30 days late: 40 to 110 points
- 90 days late: 70 to 135 points
- Foreclosure, short sale or deed-in-lieu: 85 to 160 points
- Bankruptcy: 130 to 240 points
Do I need to hire an attorney to help me with the short sale process?
Unfortunately, the short sale process can often times be unpleasant and consist of a number of confusing legal documents. In order to ensure that you are being protected and that you are not taking any additional risks with your finances and credit score, we suggest that you hire an attorney to review all of the paperwork and written agreements that have been drafted by your lender.
Do I need to be behind on my mortgage payment to qualify for a short sale?
No. This is a common misconception. You do not need to be behind on your payments or have been late on a payment to do a short sale, although lenders are usually more motivated to do the short sale if you are not making payments
