The following information should give you some insite into a short sale situation. Of course, this doesn't cover everything that has to do with a short sale so feel free to contact us if you have unanswered questions.

WHAT IS A SHORT SALE? 

A short sale simply means the lender is accepting less than the total amount due when you sell your property.

If I owe you ten dollars and only pay you back eight, I'm short two dollars.  It's the same concept except you're dealing with a bank instead of an individual.

Not all lenders will accept short sales, (follow the dollar...if the bank makes more money foreclosing then a short sale will not be approved) and not all properties qualify for short sales.

If you are considering a short sale, there could be drawbacks. For your protection, you should:

• Obtain legal advice from a competent real estate lawyer
• Call an accountant to discuss short sale tax ramifications

SHORTAGE COUNTED AS INCOME 

Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, Uncle Sam could consider the short sale amount as income. 

Also, there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid.

In some states, this amount is known as a deficiency judgement. An attorney can determine whether your loan qualifies for a deficiency judgment or claim.

Although all lenders are different, the following steps will give you a pretty good idea of what to expect should you consider taking steps in a short sale.

STEP 1: CONTACT YOUR LENDER

It could take several phone calls to your lender before you find the person responsible for handling short sales. You do not want to talk to just anyone, you want the supervisor's name or the name of the individual capable of making decisions.

STEP 2: GIVING PERMISSION TO DISCLOSE INFORMATION

Lenders will not disclose any of your personal information without written authorization to do so. When you decide to work with HomeOwners Advantage and an attorney, you will only receive help if you write a letter to the lender giving the lender permission to talk us about your loan. The letter should include the following:

• Property address
• Loan reference number
• Your name
• The date
• Your attorney's name & contact information

STEP 3: ESTIMATED EQUITY SHEET

An estimated equity sheet is a statement that shows the sales price you expect to receive and all the costs of associated with the sale including but not limited to: unpaid loan balances, outstanding payments due and late fees, real estate commissions, prorated taxes, etc. 

Either HomeOwners Advantage or your attorney should be able to help you with this. If the bottom line shows cash left over then Good News...you will probably not need a short sale.

STEP 4: HARDSHIP LETTER

The grimmer you can make it the better it is for you. This letter describes what lead to your situation and makes a plea to the lender to accept less than full payment. 

These days lenders completely understand if you lost your job, had medical issues, or 'life' happened. 

On the other hand, lenders don't smile with situations involving dishonesty, criminal behavior or anything of that nature.

STEP 5: ASSETS AND LIABILITIES

Honesty is King. Be honest about your financial situation and disclose truthfully.

Lenders will want to know all about your finances (savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value).

Lenders are not in the business of losing money and often require assurance that you cannot pay back any of the debt that it is forgiving.

STEP 6: BANK STATEMENTS

If your bank statements reflect something out of the ordinary (large cash withdrawals or an unusual number of checks, unaccountable deposits, etc), it's probably a good idea to explain each of those line items to the lender.

In addition, the lender ask you to account for all deposits so it can determine the likelyhood of future deposits.

STEP 7: HOME VALUE AUDIT

Sometimes markets decline and property values decrease...obviously. If this is part of the reason causing the short sale, tell your lender. This can be done by conducting a Home Value Audit of your property. Some of the information a lender will require is:

• Active on the market
• Pending sales
• Solds from the past six months.

STEP 8: TIME TO SELL 

When it comes time to sell and you reach an agreement with a buyer, provide the lender a copy of the offer, along with a copy of the listing agreement.

Remember, the lender can make their own changes in order to continue with the short sale so be prepared for the lender to renegotiate terms, refuse to pay for certain items such as home warranties or termite inspections and commissions.

STEP 9: ADVERSE CREDIT

If everything goes well, the lender will approve your short sale. At this point, you might ask that the lender not report you to the credit reporting agencies.

They are under no obligation to accommodate this request but it doesn't hurt to ask.

OVERVIEW

Short sales are no fun no matter how you look at it. Although they can be somewhat difficult and time consuming, it's extremely important to do everything fully and correctly.

A single minor detail could be the difference of getting an acceptance or denial.  Be sure to get the appropriate help before you move forward.

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