Completing a real estate short sale can be one of the most difficult transactions in all of real estate. It is important to know that the company and team you hire to complete this process for you have expertise in this area.
In order to provide a good understanding of just what these ‘short sales’ are, we found it beneficial to provide some common questions and thier answers. Your Realtor should be able to answer these questions below in order to successfully help you if a short sale is part of your real estate transaction.
What is a Short Sale?
A short sale in real estate is selling a property for less than is owed on the property or loan balance. For example: Loan Amount is $550,000 and Market Value of Real Estate is $475,000.
The property is at a minimum upside down $75,000. In order to get the bank to take an offer at $475,000 a team of experts who specialize in negotiations with banks and marketing short sale properties to the real estate community are needed.
How long does it take?
Banks can take up to 60 days to give an official approval of an offer once it is received. Ensuring that the required paperwork by the bank is correctly filled out increases acceptance by over 45%.
How long do I have until I have to move out?
The bank is required to let you know when they have filed the notice of default with the county recorders office for the county you are in. Most banks do this after you are 90 days late on your mortgage or 3 consecutive mortgage payments. From this time the earliest a sale date can be set is 90 days from that date.
What are the consequences of doing a short sale?
Completing a successful short sale will mean that you will not have a foreclosure reported on your credit. This is one of the best consequences of doing a short sale.
What happens if it doesn’t work?
If your property does not sell as a short sale it may end up being foreclosed upon by the bank. It is of the utmost importance to get the bank an offer to review so that they can decide how they can best help you and to accept the offer you have received.
What kind of information will the bank ask for?
Signed hardship letter | Copies of last several paychecks for all owners of the property | Copies of P&L statements if you are self employed | Complete financial form – Each bank has their own standard | Copy of Tax Returns | Copy of Bank Statements | Copy of Investment Account Statements | Copy of Listing Agreement | Estimated net sheet | Identification of liens on property
What is a hardship letter?
This is one of the main pieces of information that the bank uses in order to make its decisions off of. A hardship letter is a statement of how you and your family got behind on your payments. Hardship letters will typically include these categories of information: Loss of Job | Loss of overtime or income from a job | Family issues – pending divorce, medical bills, other family issues
What if I have declared bankruptcy?
Bankruptcy can delay a sale of your home at a trust sale. Your bankruptcy attorney may have additional advice for you. If you have declared bankruptcy please let your specialist know and please give them your attorney’s information.
What do I do with letters from the bank?
o Read, review, and get a copy of them to your short sale realtor.
What do I do about people offering to buy my house if I just sign the deed over to them?
Make sure to have your real estate professional to look at anything prior to signing any offer from one of these individuals. If the person has a legitimate offer they will not care who reviews the offer.
Are all short sales the same?
No. It would be great if they were, but any team who has helped buyers or sellers of short sale properties will tell you that not all short sales are created equal. Success depends on a variety of reasons: Uncooperative banks | Inadequate disclosure by the seller | Poorly prepared buyer | Banks delays | Poor communication by listing agent with bank | Buyers back out | Seller fails to cooperate
Will I get a 1099 for the difference between the sale price and what I owe?
Each bank is different and the vast majority of banks will 1099 you for the difference. This is considered debt relief by the IRS and client should speak to their tax advisor for assistance.
Why shouldn’t I just let the home go to foreclosure?
Foreclosure is one of the biggest damages to your credit that can be done. You will have to disclose the fact that you had a foreclosure every time you try and purchase a new property in the future no matter how long it has been since you had the foreclosure.
You will still be 1099 for the difference in the foreclosure sales price and the amount owed. In some cases this can increase 50% by the time the property goes to foreclosure.
Is it better or worse if I have two loans?
Two different lenders is one of the hardest short sales and typically a more stressful transaction. Ultimately, it will hinge on how well the 2 banks communicate between each other and the parties involved.
Why would a bank agree to do this, don’t they just want my home?
The foreclosure process is a very expensive process for the bank to carry out. There are legal fees, property fees, court fees, and additional staff required by the bank to handle foreclosures for a bank. Their goal is to prevent properties from going into foreclosure.