What is a Short Sale?
What is a Short Sale?A “Short Sale” or “Negotiated Settlement” or “Short Pay” occurs when a Lender agrees to accept less than the amount owed as a payoff on a loan. If the property is worth less than the amount owed on the loan, then even if the Lender forecloses and takes back the property, they know they are going to take a loss. We can often convince them that the Lender will “do better” if they take less than what is owed now, in cash, rather than waiting and taking the property back by foreclosure and trying to sell it later.
Is this legal?Yes. We simply ask the Lender to take less than what is owed. It’s legal and is done hundreds of times a day in almost every state.
How long will it take?The short sale negotiation process is a lengthy one. It may several weeks or more likely several months to get an approval. Many lenders have several layers of bureaucracy, insurers, and investors that we will have to maneuver through in order to get a short sale approved. So, it is important to be patient through this long process. With our processors we have received short sale approvals in as short as a month. We can't promise that, but we know that we work as fast as possible to get the best results.
My house is going to foreclosure, will I have enough time?Maybe, maybe not. Just starting a short sale will not automatically stop the Sheriff’s Sale. However many times we can convince the lender to stop the sale, if it is prior to the Sheriff’s Sale in order to let us attempt to negotiate the process. So, while there are no guarantees, it doesn’t hurt to try. Once the Sheriff’s Sale has occurred the clock is running on the six month redemption.
Can I stay in the house?The key word in “Short Sale” is sale. The purpose of a Short Sale is to get the property sold, unless we are working with you to keep your home. So, you will be moving. I encourage clients to remain in the house as long as possible for two reasons. One, if you move and the mortgage company finds out, they will petition the court to have the home declared abandoned and the six-month redemption period is then 30 days. And yes, they do check. The second reason is simple – you are living in the home rent free. Use the time to save your money for the down payment on an apartment, mobile home, or another home. This is not a program that can stop a foreclosure and allow you to keep the house indefinitely. Once we are near an agreement with the lender, however, you will need to move out.
How do I know this will work? You don’t. We cannot, have not, and will not make any promises to you that this will work. Once you go to Sheriff’s Sale the Lender is in charge and can proceed to foreclosure if they want to. But we know that they do not want to. They’re in the mortgage business, not in the real estate business, and we are very good at presenting alternatives to the lender so they often want to accept rather than foreclosure. We are very good at what we do, but NO PROMISES are being made as to whether or no the lender will accept a Short Sale – they may or may not
What happens if this doesn’t work?The same thing if you had done nothing. You remain in foreclosure. A Short Sale is something you try after you have exhausted all other options. However, if the debt exceeds the value of the property, the lender often wants to work something out, and while we cannot make any guarantees, there is a good chance it will work.
What is a “Satisfaction”?A Lender may agree to accept less than it is owed as complete and total satisfaction of a note and releases it’s lien against the property. It is something that we always ask for, and frequently receive. Advantages: Your note and obligation to the lender are satisfied for less than you owe. When the property is sold, the debt is paid off completely. Disadvantage: You may have some tax consequences as the Lender may issue you a 1099-C form, saying in effect that you are liable for taxes on between what we purchase the property for and what the balance on your loan was. However, IRS rules say that if your liabilities outweigh your assets, you aren’t liable for the amount owed. Please check with a tax advisor to see how this may or may not affect you.
What is a “Release”?A Lender may offer to “release” its security interest against the property in exchange for less than the total amount of the note. A release will allow the property to be sold without paying off the obligations of the note. However, the note is not satisfied. Advantages: This successful Short Sale will allow the property to be sold thus avoiding a foreclosure on your credit report. Disadvantages: The remaining debt on the property (also called a deficiency) still exits. You are still liable for the note – in other words, you still owe the money. Reality: Remember the old saying, “you can’t get blood out of a turnip.” It is not likely the Lender will pursue the deficiency unless you have significant assets.
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