Short Sale Information, is it right for you as a buyer? as a seller?

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Short Sale- Definition

Keller Williams Realty
3001 Lava Ridge Ct suite 100
Roseville Ca 95661
Tammy Pecht Realtor
916-425-8305

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A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. [1]

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the mortgagor. This
negotiation is all done through communication with a bank's loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less
than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such
instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a
loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank
to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there
are carrying costs that are associated with a foreclosure. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling
price from a Broker Price Opinion BPO (also known as a Broker Opinion of Value (BOV)) or through a valuation of an appraisal. For the home owner, advantages
include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a
foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on
a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Short sales are common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business
transaction when extending credit. When it makes no business sense or is economically not feasible to retain an asset, businesses default on their loans (called
bonds). It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future
defaults.

What does this mean for you as a seller, its a better way out of the home than a foreclosure, you can stay in your home while your trying to sell it as a short sale,
your credit can suffer but not as much as a foreclosure. You will have agents calling to show your home and in this market it will be often until sold.

What does this mean for you as a buyer, this is a good way to get a home before it goes to foreclosure, however the process can be a long one, some banks take a
long time to negotiate or accept an offer, the good thing is you can put in offers on different homes and you can always accept or deny the offer if accepted by the
bank.

For owners who can no longer afford to keep mortgage payments current, there are other options to bankruptcy or foreclosure. One of those alternatives is called a
“short sale.”.

A short sale in real estate means that the lender is accepting less than the total amount owed to release an existing mortgage. Not all lenders accept a short sale nor
do all sellers or properties qualify for a short sale..

It is very important to work with a Realtor such as myself who has experience in doing short sales. I am a CDPE, Certified Distressed Property Expert and know what is
needed to complete the short sale process. You must be patient, diligent, organized, and persistent. But when all parties collaborate, it can be beneficial to all
involved. .

Lenders have varying requirements and will ask the seller to submit a wide variety of documentation. If you are considering a short sale here are some suggestions:.

Contact the Lender:
Make several phone calls until you find the right person who is the decision maker regarding short sales within the financial institution..

Hardship Letter:
State the facts how you got into your financial bind and make a plea to the lender to accept less than what is owed. Lenders may be sympathetic if you lost your job,
were hospitalized, or had a death in the family. You will need to have supporting documentation such as medical bills, death certificate, divorce decree, etc. However,
lenders will not consider any dishonesty or criminal activities..

Letter of Authorization:
During a short sale you may be working with a Realtor, lawyer, title company or closing agent. You will receive better cooperation from the lender if you write a letter
giving them permission to talk to those specific interested parties about your loan. The letter should include: The date, your name, property address, loan number, and
all parties involved with their names and contact information. .

Proof of Income and Assets:
It is best to be truthful and honest about your financial status and disclose all and any assets. Start to gather your Tax Returns (last 2 years) and Bank Statements (last
3 months). List all assets such as other real estate, bonds, cash, savings accounts, and anything of tangible value. .

Preliminary HUD 1 Statement:
This is an estimated closing statement that shows the sales price you expect to receive, all the costs of the sale, unpaid loan balances, past due payments, late fees,
and real estate commissions. Have your attorney prepare this estimate of closing costs in the form of a HUD 1..

Comparative Market Analysis:
Sometimes markets decline and property values fall. If this is part of the reason you cannot sell your home for enough to pay off the lender, this fact should be
substantiated for the lender by a CMA (Comparative Market Analysis). Your Realtor can prepare a CMA for you which will show comparable property values..

Purchase Agreement & Listing Agreement:
When you reach an agreement to sell to a potential buyer, the lender will want a copy of the offer and a copy of your listing agreement. It is very important that the offer
has no financing contingencies and contains all the required addendums. Make the best and strongest offer possible..

Package: It is very important to send a complete package with seller/buyer information to the lender. Missing information will delay the process. Remember, there are
multi-levels of approvals and conditions are usually required. Keep in mind that lenders are overwhelmed and review thousands of files. They will only consider
packages that are well put together and are likely to close

Short Sale Information and Steps

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Sellers may wonder whether doing a short sale would affect their credit less than completing a foreclosure, and whether there are other advantages between the two.
While in foreclosure, and depending on state laws, a seller could possibly stay in the property, essentially rent free, for four months to a year before being forced to
vacate. But that fact alone does not mean a foreclosure is better.
Whereas a short sale involves offering the home for sale, generally listed through MLS. Potential home buyers will make appointments to view the home, some will make
lowball offers, agents might hold open houses and, in general, a seller's life will be disrupted, all in the hopes that a buyer will buy the home.

Basics of a Short Sale

Short sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale. Not
all lenders will negotiate a short sale, and that is why a real estate agent or a lawyer can be a tremendous help by contacting the lender's loss mitigation department to
find out.

You can't just wake up one morning and decide you're going to sell your home at a loss by asking for a short sale. It used to be that lenders wouldn't even consider a
short sale if your payments are current, but that has changed. However, realize that lenders will be more agreeable to negotiation if your payments are in arrears. Plus, if
you have cash assets, the lender might try to tap those accounts.

How is a Short Sale Seller's Credit Affected?

Fair Isaac released a report that says credit scores are affected about the same, whether a seller does 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
•Bankruptcy: 130 to 240

•Foreclosure or Deed-in-Lieu of Foreclosure
Both of these solutions affect credit the same, says David Steep of Vitek Mortgage. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit.
This means if a seller's FICO score before foreclosure was 680, it could dip as low as 380.

•Short Sale
Steep maintains that the effect of a short sale (providing the sellers are more than 59 days late) on a seller's credit report is identical to that of a foreclosure. The ding on
credit will show up as a pre-foreclosure in redemption status, Steep says, which will result in a loss of 200 to 300 points. This means a short sale seller with a previous
FICO of 720 could see it fall from 520 to 420.

My personal experience has been somewhat different. I completed a short sale for a Sacramento seller who was 90 days behind on her mortgage. A few months after
her short sale closed, she checked her credit report and found her FICO fell by only 100 points to 671. I suspect every seller's situation varies.

Catherine Coy, a mortgage broker in southern California, agrees with Steep. "The effect on a consumer's credit report -- foreclosure vs. short sale -- is the difference
between being hit by a train or a bus," says Coy, speaking about borrowers who are a few months in arrears.

Waiting Period Before Buying Another Home

•Foreclosure or Deed-in-Lieu of Foreclosure
Steep says a seller who wants to buy another home after foreclosure will end up waiting about 24 to 72 months before a lender will offer any kind of interest rate that
makes sense.
Coy says, "The good news is a short sale will allow the consumer to obtain an institutional loan for a new home within two years".

For more information, see the Fannie Mae Selling Guide online. Click on the PDF link in the yellow box and see page 75.

•Short Sale
Some agents say the good news for short sale sellers is the wait is much shorter before buying another home, and Fannie Mae guidelines in 2008 adopted new
procedures.
Can a seller buy again in less than two years? Not really, says Coy, "It's an utter myth that a consumer 'can buy again in about 18 months at a good interest rate.'
However, Fannie Mae guidelines now require only 24 months' seasoning, and that's good news for agents who specialize in short sales."

FHA adopted guidelines in 2010 that say a seller who is current and does a short sale may qualify to immediately buy another home. Lenders aren't so quick to follow
those guidelines. However, Flagstar Bank gave an Elk Grove short sale seller a new loan within 2 months of closing his short sale, and that seller was current at the time.

Note that Fannie Mae guidelines allow a seller to immediately apply for a new loan to buy another home if that seller kept the payments current, had no delinquencies
exceeding 30 days and did not agree to repay the debt relief. Moreover, it's the late payments that dramatically affect your credit report, not the short sale.

Foreclosure or Short Sale Decision
If you're a seller trying to decide whether to let a home go through foreclosure versus attempting a short sale, salvaging your credit may not be an advantage to doing a
short sale, says Coy. She reports that according to "Score Factor Code #22, there's no credit score advantage for a delinquent borrower on a short sale over a
foreclosure."

I have my doubts about that, though. From what I've seen, there is less damage to a credit report after a short sale involving late pays than a foreclosure. Moreover,
another advantage for those with delinquencies on their credit is the ability to buy another home within 2 years over the 5- to 7-year period required for foreclosures. And
there are other short sale advantages over a foreclosure. But seek legal and tax advice before making that decision.

These rules change constantly and quicker than most can keep up with, please consult with a short sale expert to get up to date information and rules and guidelines.

How Short Sales affect Your Credit

Contact my team of experts for more information, we offer real estate and legal experts to help you resolve the situation you
are in.