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Short Sales

What is it?   Owing more on your property than it is worth and needing to sell it.  The net proceeds from the sale are not enough to cover the mortgage and closing costs and the seller is unable or unwilling to cover the difference.

 Seller may be in default on mortgage loans and be facing foreclosure.

 Seller may have bought when the market was high, refinanced and took out home  equity, and now needs to sell due to loss of job, divorce, job transfer, medical expenses.  Seller owes more on the property than it is currently worth  with the costs of selling it factored in. 

The lender(s) agree to receive a lower amount of the owed debt in exchange for the sale of the property to a third party, usually at no cost to the borrower.   The lender(s) will want to know they are getting more from allowing the short sale than they will recoup from foreclosing on the property and selling the property as a real estate owned asset ("REO") of the bank. On the average, a lender saves $14,000 doing the short sale versus foreclosure on the property and gets paid quicker.

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Lenders will require a completed "Package" submitted before considering  a  short  sale offer.  Some of what is required is listed here and in the Over View of the Steps listed below:

1. Completed purchase contract  
2. Estimate net sheet
3. Complete financial disclosures from seller
4. Hardship letter stating why seller can not make his payment  

          An Over View of the Steps in completing a short sale :

•  Contact the lender's Loss/Mitigation department.
•  Provide the lender with a letter of authorization allowing communication  with  your  real estate agent   and your title company's escrow officer. 
• Obtain a preliminary net sheet from the title company to show your expected sales price minus all the costs and expenses , unpaid loan balances, late fees, realtor fees, etc.
• Submit a hardship letter to the lender that explains your financial situation and the reason you would like the lender to accept less than what is owed.
• Provide the lender with statements showing income, assets, copies of bank statements, savings, stocks, bonds, cash, other tangible assets. The lender wants to be assured that you are unable to cover any of the debt that you owe.
• Ask your real estate agent to provide a comparable market analysis (CMA) if the house is now worth less than what you paid for it. This shows the lender that you cannot sell the home for enough to pay off the debt.
• The lender will want to see the listing agreement with the realtor and may want to provide input as to realtor fees.
• The lender will want to see the purchase contract when there is a buyer and order an appraisal of the property. The contract is subject to the lender's approval.   

It is important to be patient as this process takes time.  It is a good idea to discuss your situation with a real estate attorney to explore all options as short sales also have some downsides.  Even though the short sale is "settled debt" on your credit reports, it would impact your credit score if the lender reports this. It is also a good idea to check any tax issues with  your CPA .

The Mortgage Forgiveness Debt Relief Act of 2007 addresses debt forgiveness and not paying taxes on the portion that is forgiven on principal residences.  See www.whitehouse.gov/news/releases/2007/12/20071220-6.html.        

Short Sales for the Buyer     

 For many home buyers and investors, the short sales in the market place have allowed them to find properties at a very reasonable price.  The downside is that the properties are sold "as is" and may need some repairs or home improvements.  It is always important to utilize the Buyer's Advisory provided by the Arizona Association of Realtors and given to you by your real estate agent and to always have a professional property inspection completed.  The process of buying a "short sale" may extend from a couple of weeks to two months to get lender approval and may take up to 90 days to close the deal.  Buyers as well as the sellers need patience.