Short Sale Frequently Asked Questions (FAQ's)
What is a short sale?
A short sale is a real estate transaction where the lender, or lenders, agree to a sale
where the net proceeds will not cover the total mortgage obligation, closing
costs, and real estate commission. In most short sales, the lender releases and
forgives the mortgage lien on the property at closing and does not require the
mortgage holder to make up the loss. In some situations, the homeowner must make
arrangements with the lender to settle the remainder of the debt – typically at
a fraction of what was owed with payments spread out over multiple years.
am interested in doing a short sale what do I do?
Simply give us a call at 404-257-8717 or 678-587-8717 and we can walk you through
the process. We will explain what is involved in a short sale and send you all
the items you need to proceed.
Do I have to keep making my
mortgage payment while I am waiting for short sale approval?
No. While there are cases of short sales being approved when buyers were current
on their mortgage, most lender’s guidelines require that you actually be behind
on your mortgage and not making payments to obtain approval.
Do I have to pay a real estate commission to do
a short sale?
No. All real estate commission is paid by the mortgage company.
Can I stay in my home while we are waiting on short sale approval?
Yes! In fact, we encourage our sellers to stay in the home during the short sale
process if possible.
Who qualifies for a short sale?
order to qualify for a short sale, the seller must prove to the bank that they
are experiencing a hardship, such as:
Loss of job, and difficulty in
finding a new suitable job
Change in income
Illness and medical expenses
Divorce (or split of domestic
House needs unforeseen major
Change in family size (birth,
Death of a spouse
Overextended credit (credit
card bills, car loans, student loans, etc.)
Job relocation when equity is
Adjustment in mortgage payment
due to a change in interest rate (adjustable rate mortgage) or an unforeseen
increase in living expenses
Unable to afford the loan from
the beginning (lender fraud)
Why would a lender accept a short sale?
It is in the lenders best interests to accept a short sale since the alternative
is foreclosure. While a lender does lose money on a short sale, their losses are
much less than with a foreclosure. Just as a foreclosure has substantial
consequences for a homeowner, there are significant consequences for the lender
if they foreclose, including:
High legal costs of the foreclosure including legal fees,
eviction, repossession, and clean out expenses.
Risk of theft and vandalism at a vacant property
(and risk of damage to the home from the disgruntled former
Repair and maintenance expenses
If the property does not sell at the courthouse steps, the bank
is left owning the home. When a bank owns a non-performing asset they are
severely penalized by the government by freezing 3-10 times the loan amount from
the bank’s pool of funds to lend. This freeze causes additional losses for the
lender since they cannot lend these funds to another borrower.
- Additional loss of revenue for the bank until the property is
Taxes, HOA, and utility bills.
Do lenders approve all short sales?
According to national statistics less than 20% of all short sales are approved.
We have found that one of the biggest reasons short sales are not approved are
that homeowners and inexperienced real estate agents are not prepared properly
to handle short sale negotiations with the bank.
We have a
40+ person short sale team including former banking executives, licensed
Realtors, and former mortgage company employees committed to getting your short
sale approved. We specialize in short sales and are committed to getting your
short sale approved.
How long does it take to complete a short sale?
The length of time varies from
lender to lender, but most lenders are currently averaging 60-90 days from the
time the offer and complete short sale package is received until it is approved.
Unfortunately there are still some lenders that can take 6+ months to approve a
The actual closing of the
property would take place at a time negotiated between the buyer, the seller,
and the bank typically 15-40 days from the date of the short sale approval.
Why does the
short sale process take so long?
A short sale is a structured multiple step process between the lender(s), our
short sale negotiation team, the seller, and the buyer.
situations additional parties may be involved since the lender is simply the
company that services the loan and the loan is owned by another party such as
Fannie Mae, Freddie Mac, or HUD. Also many loans are insured by private mortgage
insurance firms and additional time is needed to work with them as well.
will need time to have third party inspections of the property and typically at
least two BPO’s completed. A BPO is a Broker Price Opinion of the value of the
property. The bank contracts with local real estate agents and pays them a fee
to provide a report on the value of the particular property. Since the lender
may be based across the country they do not have the insight into the local
market and the BPO is essentially their eyes into the current local market.
also wants to ensure that the property is not being sold to a related party for
the sole purpose of reducing the mortgage debt obligation.
lenders are also working with a reduced staff and a huge increase in short sales, foreclosures, and refinances – they simply do not have the staff needed
to handle a short sale in a quick timeframe.
Can I do a short sale if I have a first and
second mortgage on my property?
Yes. In fact, second mortgage
holders are typically more flexible than first mortgage holders.
What if my two mortgages are with different lenders?
you can do a short sale on a property with two loans with different lenders. The
process can take slightly longer since each loan will need to be negotiated
separately. When the primary mortgage on property is foreclosed, the second
mortgage lender losses everything so they are highly motivated to agree to a
short sale. (When both loans are with the same lender, typically one negotiator
can handle the entire process.)
Do I have to move out before the property closes or on the day of closing?
Our standard short sale contract allows the homeowner to stay in the property
for up to 3 days after the closing at 5:00 PM. This will allow you time to move
out of the home and leave it clean for the new buyer. Only on properties that
are vacant or if you specifically agreed would possession be given to the buyer
have heard of borrowers getting paid by their lender to do a short sale. How
does that work?
mortgages backed by HUD (U.S. Department of Housing and Urban Development),
borrowers are eligible to receive a small amount of compensation for keeping the
home out of foreclosure and to make sure the home is left in good condition at
the closing. This payment typically ranges from $100 to $1000.
What if my home needs work, can I still apply for a short sale?
Lenders are highly motivated to agree to a short sale on a home that needs work
since it will be an additional expense for them if it is foreclosed.
Am I required to make repairs to
my home for a short sale?
All of our short sale listings are marketed as an “as-is” sale meaning that the
homeowner will not be asked to make any repairs. In addition, all of our short
sale contracts allow a buyer the opportunity to inspect the property but do not
require the seller to make any repairs.
What does the lender need to approve a short sale?
A lender will need a complete short sale package to approve the short sale. We
will send you a complete check list of the documents needed including all
necessary forms. You will simply need to complete some fill in the blank forms
and provide us with copies of some financial documents. We handle the
preparation of the short sale package and the submission to the lender.
The standard items needed by most lenders are
- Hardship letter
- A hardship letter is a
detailed explanation explaining why you can not afford the
property. Typically it’s about 3/4 to a page long and it
must explain your situation in detail. The letter is
designed to have the mortgage company sympathize with your
situation so the short sale is approved.
- Authorization letter
allowing our short sale team to speak to the bank on your
- Last two years of income
tax returns or a or written statement explaining why you don't
- Two most recent pay stubs (or a letter explaining why you
don’t have them if you are out of work)
- Two most recent bank statements
- A copy of your real estate listing agreement
- A complete copy of the offer on your home including the
buyer’s proof of funds or mortgage approval letter
- Marketing history, showings, and feedback for your home
- Repair estimate for any repairs needed
- A preliminary HUD-1 showing the bank what their proceeds
will be from the sale
- A preliminary title report showing the seller still has
lenders also may require some items to be completed on their specific forms or
may request the latest copies of bank or pay stubs at the time of approval. Also
you will need to provide current up-to-date documents when requested by the
lender throughout the course of the short sale.
have provided copies of financial documents to my lender(s), do you still need
these items from me?
Even though you have submitted some of this information to the lender before, we
will need to submit it again in order to have a complete short sale package.
Lenders are notorious for claiming that they are missing items from a short sale
package. By submitting a complete short sale package each time an acceptable
offer is received on your property, we greatly reduce many of the pitfalls
experienced with short sales and greatly decrease the time needed for approval.
One of the main reasons that short sales fail is because an incomplete short
sale package was sent to the lender.
Will my lender consider a short sale if my mortgage is current?
lenders will accept a short sale on a non-delinquent loan while other lenders
will not approve a short sale until the loan is delinquent.
lenders have guidelines that state that a short sale can not be agreed to if the
borrower has the means and can continue to pay on the loan each month. However
in the current market conditions, many lenders have changed their guidelines and
each short sale is reviewed on a case by case basis.
experience, lenders typically assign a much higher priority to delinquent loans
-- but again each situation is unique and each lender’s guidelines are
different. We have also had lenders that originally said they would approve a
short sale where the mortgage was current and then suddenly changed their mind
and told the borrower that they needed to stop making their mortgage payment in
order for the short sale to be
Does my home have to be for sale for a certain length of time before a short sale
will be accepted?
lenders and/or mortgage underwriters require that your home be on the market for
a period of 60-90 days before they will approve a short sale. This does not mean
that you must wait this entire period before accepting a short sale offer from a
buyer. This simply means that your lender will not issue a short sale approval
letter until you have met their time on market requirements.
Are there any tax consequences to the seller of a short sale?
Mortgage Debt Relief Act of 2007 (H.R. 3648) generally allows taxpayers to
exclude income from the discharge of debt on their principal residence. Debt
reduced through a short sale qualifies for the relief. Prior to this change in
the tax code, banks would record this loss as income for the seller and would
report this as a taxable event to the IRS.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up
to $2 million of forgiven debt is eligible for this exclusion ($1 million if
married filing separately).
the exclusion only applies to the sale of a home that is considered your
principal residence at the time of closing, so investment properties, second
homes, etc. would not be eligible under H.R. 3648.
If the property is not a
principal residence, your tax consequences are limited to the amount of debt
that exceeded your amount of insolvency immediately before the cancellation. You
were insolvent immediately before the cancellation to the extent that the total
of all of your liabilities exceeded the fair market value of all of your assets
immediately before the cancellation. For purposes of determining insolvency,
assets include the value of everything you own (including assets that serve as
collateral for debt and exempt assets which are beyond the reach of your
creditors under the law, such as your interest in a pension plan and the value
of your retirement account). Liabilities include: The entire amount of recourse
debts, and the amount of non-recourse debt that is not in excess of the fair
market value of the property that is security for the debt.
information, including detailed examples can be found in Internal Revenue
Service Publication 4681, Canceled Debts, Foreclosures, Repossessions, and
Abandonments. We suggest you consult with a qualified tax advisor for any
specific questions related to this matter.
Does a lender forgive all mortgage debt with a short sale?
Typically a short sale will release the borrower from all mortgage debt but not
always. Each short sale situation is unique. Our goal is to get the lender to
agree to forgive the mortgage debt “without recourse” with the closing of the
short sale ending the borrower’s obligation to the lender. However, there are
some lenders that will only approve a short sale “with recourse” where the
lender reserves the right to pursue the loss from the borrower. (Please note
that there is new legislation that requires
lenders to release mortgage debt without recourse for certain borrowers and
types of loans. For more
information see the
Home Affordable Foreclosure Alternatives Program
situations where a mortgage insurance company is involved, the mortgage
insurance company may want a contribution from the borrower to approve the short
sale. Also some second mortgage holders may ask for additional compensation in
order to release their mortgage. These contributions can be made in lump sum
payments or done as a promissory note with payments spread out over multiple
mortgage insurance companies typically agree to accept a fraction of the loss as
payment in full. They also typically will allow it to be paid back with zero to
little interest over an extended period ranging from 3-15 years or more.
We work to
negotiate these amounts down to the smallest amount possible. Also in cases of
severe hardship, we have had many lenders change their initial terms from
requiring a payment to not.
Does a foreclosure or a "deed-in-lieu"
release a homeowner of all mortgage debt?
No. In Georgia, when a property is
foreclosed or if the lender accepts a deed-in-lieu of
foreclosure the lender can still get a deficiency judgment
against the borrower. This deficient amount will be the
difference between what was owed on the home plus all penalties,
interest, late fees, legal fees, etc. minus the net proceeds
from the sale of the home.
Since the homeowner has no control over
the final sales price of the home nor the additional expenses
involved in a foreclosure, the amount the lender seeks for a
deficiency judgment can be astronomical. In addition, foreclosed
homes often sit vacant for months where the additional expense
of theft and vandalism effects the proceeds from the foreclosure
sale - and increases what the homeowner might owe in a
With a short sale, the seller is involved
in the process and the loss to the bank is greatly reduced. Even
if a homeowner has to agree to pay a small negotiated settlement
or agree to a promissory note for a bank to agree to a short
sale, the financial impact is substantially less than the risk
of a deficiency judgment with a foreclosure or deed-in-lieu of
What about HOA fees? Does the lender pay them in a short sale?
Technically HOA fees as well as any utilities or other fees or assessments
billed by a Homeowner’s Association are not considered part of your mortgage and
would not be the lender’s responsibility. However some lenders will often pay
HOA dues/fees as part of a short sale. Each situation is unique and will vary
from lender to lender.
How does a short sale affect my credit?
The impact on your credit will vary greatly depending on the
specifics of your situation and what is actually reported by your lender. We
have had many instances where nothing was reported by the lender and there was
no impact on the seller’s credit. Sometimes the bank may report the sale to the
credit bureaus as having a negotiated or settled payoff – meaning they accepted
an amount that was less than the original loan amount as payment in full. Other
times the bank simply notes the account as paid in full and closed.
If you are
behind on your mortgage payments they typically will report that you are 30, 60,
90 etc. days late on your account. Sometimes these late payments get removed
when the short sale is finalized. If all other accounts besides your mortgage
are kept current, a short sale may only lower your score by 50-100 points.
may or may not be an impact on your credit report, the impact is usually short
term and is substantially less than a deed-in-lieu of foreclosure, a
foreclosure, or a bankruptcy.
property is foreclosed or the seller does a deed-in-lieu of foreclosure, your
credit can be severely impacted for 7 years and may effect your ability to
obtain credit, rent or buy a property, buy or lease a car, obtain insurance, or
even prevent you from being hired for certain jobs. A foreclosure remains on your credit report for 7 years
and on public record FOREVER. And if you are considering
filing for bankruptcy, you should note that a bankruptcy legally can remain on
your credit report for up to 10 years.
foreclosure can lower your credit score 150-200 points or more, and a bankruptcy
can lower your score 350 points or more. These credit reductions also will
impact your score for a much lengthier period than a short sale.
one can guarantee what each lender will do in each specific situation or how it
will impact your particular credit score, the bottom line is that a short sale
has the least amount of potential impact on your credit report compared
with a foreclosure, a deed-in-lieu of foreclosure, or a bankruptcy.
How soon after a short sale can I purchase another home?
Fannie Mae and Freddie Mac will allow borrowers who have gone
through a short sale to obtain a new mortgage loan 24 months after the closing
of the short sale.
back to home ownership is drastically shorter with a short sale than what you
will experience with a foreclosure or deed-in-lieu of foreclosure. If a borrower
has a property that goes into foreclosure they will not be able to get a Fannie
Mae or Freddie Mac backed loan for 5 years. However it will likely be 6-7 years
before you can actually qualify for a mortgage if you have had a foreclosure.
This is because lenders require higher credit scores if you have experienced a
foreclosure and additional time will be needed for your score to improve.
All in all, a short sale is a
much better option than a foreclosure for a borrower that is planning to own a
home again in the future.
Are there any things I can do to prepare for a short sale?
With credit markets tightening, we have seen other creditors
tighten their credit accounts and even close them when you are behind on your
If you are
someone that depends on credit cards to manage your finances, pay for
reimbursable work expenses, etc. and do not own at least three major credit
cards (MasterCard, Visa, American Express, or Discover), it might be wise to
quickly obtain additional credit.
companies have begun to cancel credit cards in perfectly good standing if they
fear you might be in a situation where you can not repay them. Also they often
will reduce your credit limit to a fraction of what it was previously. We have
seen credit limits of $30,000 reduced to $5,000 and limits of $10,000 reduced to
Also if you
have credit cards that you have not used for a while, it is important to use
each card at least once every 2-3 months and pay the bill in full to keep the
card active and current.
currently have my checking (or savings) account at the same financial
institution that services my mortgage. Is that recommended?
No. Many banks have clauses that you may have agreed to when you
made an online mortgage payment or even opened your account, that allow them to
obtain funds from your accounts when your loan is deficient. To have the best
level of protection, it is wise to open a new checking and/or savings account at
a bank that is totally unrelated to your lender
How do I determine if Fannie
Mae or Freddie Mac owns or guarantees my loan?
If you are getting the run-around from your mortgage company
determining if Fannie Mae or Freddie Mac guarantees your loan,
please visit the links below.
You will need to enter your address
EXACTLY like it is on your monthly mortgage statement.
Please make sure all abbreviations such as
"St" for street or "Cir" for circle, etc. match exactly how your
address is on your statement.
If you have trouble using the loan lookup
tools, toll free numbers for Fannie Mae and Freddie Mac are
provided as well.
How do I determine if I have an FHA loan?
In general, most homeowners would know if they had an FHA loan because they
applied for an FHA loan. FHA is a federal program that guarantees loans even
though your actual loan is serviced and held by a traditional lender such as
Chase, Bank of America, etc.
If you do not remember if your have an FHA loan, you can find out via the
Review your HUD-1 Settlement Statement that you received at
closing. If you have an FHA loan, the document will be marked
FHA in the "Type of Loan" section on page 1.
Review your loan documents from your closing. If you have an
FHA loan, an FHA case number will be on your loan documents.
Call the lender that services your loan and ask if you have
an FHA loan.
What is the
Home Affordable Foreclosure Alternatives Program (HAFA)?
On November 30, 2009, the Treasury Department released
guidelines and forms for its new Home Affordable Foreclosure
Alternatives Program (HAFA). HAFA is part of the Home
Affordable Modification Program (HAMP). HAFA provides
incentives in connection with a short sale or a deed-in-lieu
of foreclosure (DIL) used to avoid foreclosure on a loan
eligible for modification under the HAMP program. Servicers
participating in HAMP are also required to comply with HAFA. A
list of servicers participating in HAMP is available at
HAFA applies to loans not owned or guaranteed by Fannie Mae or
Freddie Mac, which will issue their own versions of HAFA in
The program began on April 5, 2010 and is currently set to end on December 31, 2012.
HAFA is a complex program, with 43 pages of guidelines and
forms, designed to simplify and streamline use of short sales
and deeds-in-lieu of foreclosure. HAFA:
Complements HAMP by providing a viable alternative for
borrowers (the current homeowners) who are HAMP eligible but
nevertheless unable to keep their home.
Uses borrower financial and hardship information already
collected in connection with consideration of a loan
Allows borrowers to receive pre-approved short sales terms
before listing the property (including the minimum
acceptable net proceeds).
Prohibits the servicers from requiring a reduction in the
real estate commission agreed upon in the listing agreement
(up to 6 percent).
Requires borrowers to be fully released from future
liability for the first mortgage debt (no cash contribution,
promissory note, or deficiency judgment is allowed).
Uses standard processes, documents, and
Provides financial incentives: $1,500 for borrower
relocation assistance; $1,000 for servicers to cover
administrative and processing costs; and up to $1,000 for
investors for allowing a total of up to $3,000 in short sale
proceeds to be distributed to subordinate lien holders (on a
one-for-three matching basis).
Requires all servicers participating in HAMP to implement
HAFA in accordance with their own written policy, consistent
with investor guidelines. The policy may include factors
such as the severity of the potential loss, local markets,
timing of pending foreclosure actions, and borrower
motivation and cooperation.
Additional HAFA information
can be found in the following publications from the National
Association of REALTORS:
provided by the NATIONAL ASSOCIATION of REALTORS
brief on HAFA.)
For more information and
to discuss your specific situation,
please call 404-257-8717 or 678-587-8717 or visit our
Contact Us section.