Short Sale FAQ

Are you upside down in your property and feel like there is no way out? We maybe able to help. See below for more information.

Why does it take so long to close a short sale?
A normal real estate transaction can close at will once the contract is “four cornered” or that all signatures are affixed and there has been a meeting of the minds. In the short sale, all agreements are “subject to lien holder approval”. Since the seller is requesting a discounted payoff from the lien holder all parties must allow the lien holder to complete an evaluation to determine the value of the home and determine if the loss is justifiable. The lender wants to mitigate his losses and so the process of evaluation must be completed before approval is granted. This process can delay closing for several months.

If the client files a bankruptcy should he still complete the short sale?
One of the main goals in the completion of the short sale is to minimize the damage to the credit of the individual. It is true that a Bankruptcy is disastrous to ones credit. Adding a foreclosure is financial suicide. Why afflict the client with both. There are methods available to have the home released from the assets included in the bankruptcy allowing the agent to complete the sale.

How long after the short sale can the client purchase another home?
The client’s ability to purchase a new home is dependent upon several factors. Credit is only one of the factors. We have seen cases where minimal credit damage was caused as a result of the short sale and the client repurchased within six months with little down and with an excellent rate. A lender is most interested in the borrower’s ability to repay the loan. If the problems that led to the Short sale are behind and there are at least twelve months of good credit with three or more credit accounts, he should be able to purchase with minimal down payment at a competitive interest rate.

Why would a lender agree to take a loss on real property?
Lenders are in the business of lending out money, not acquiring real property. They are required to keep their REO inventory below a certain percentage of their assets. When they foreclose and receive a property in their portfolio they work as quickly as possible to sell or turn it around. The foreclosure process is very costly. The lender will determine the current market value of the property and then contract with a real estate professional to market the property. Regardless of the amount originally owed, the home can only be sold at market value. Lenders can mitigate losses and reduce expenses by selling the property pre-foreclosure.

Why won’t the lender work directly with the homeowner?
When a borrower signs the original Note, he agrees to pay the money back as outlined in the agreement. Regardless of the circumstances, he is still obligated to pay the full amount. The lender cannot negotiate with the homeowner. When faced with the decision to liquidate the property, a lender must hire a professional to evaluate all of the marketing costs and value of the property.

Can I sell a property that has multiple liens?
Liens against a property are prioritized according to date and time of recording. When a property is sold “short” the loan in first position is paid the majority of the proceeds. All others are pretty much happy to get what they can. All lien holders can be negotiated with. There is a chapter in the book that deals specifically with the technique used to negotiate with junior liens.

How does a short sale affect the credit of the borrower?
There are as many opinions about this question as there are attorneys. When a borrower fails to pay his loan as agreed and falls 30-60-90 days behind he is considered in default. When the lender files a “Notice of default”, which is recorded with the county recorder, this begins the foreclosure process. At this point, the majority of the damage to ones credit is done. It is actually considered a positive step if the borrower sells the property. The credit scores will recover faster, with a loan “settled for less than was owed” than it will with a completed foreclosure.

Information provided courtesy of ShortSales4Profit.com.