A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.
Short Sales Explained
But to be technical, here’s a more official definition:
- A homeowner is ‘short’ when the amount owed on his/her property is higher than current market value.
- A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then ‘sold short’ of the total value of the mortgage.
For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances:
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. I hold the CDPE® Designation and am ready to identify all possible options and, when possible, assist in the quick execution of a short sale transaction.
If you have questions or feel you may qualify for a short sale, please contact me for a free consultation.
Understanding your options now could mean all the difference in the world.
Q&A with Your Scottsdale Phoenix Short Sale REALTOR®
How much do I have to pay you to help me with a Short Sale?
Your Scottsdale Phoenix Short Sale Agent does not charge any upfront fees or any other fees at any time. We are compensated by commission paid at closing by the primary lender. We split this commission with any cooperating broker who may represent a buyer.
Does my home have to be worth a certain amount for you to help me?
No. We understand the agony and stress that many homeowners find themselves in nowadays. We believe all homeowners need and deserve our help. We will handle a Short Sale of your home without regard to the asking price. This does not mean we will accept everyone as a client. There are other criteria we use to determine if we are best suited to helping your particular situation.
Can I do a Short Sale on a second home or investment property?
Yes. You may sell any number of properties by the Short Sale process. The lender will look at your ‘big picture’ financial position and you will need to disclose all of your assets including other properties. Second homes or investment properties are not eligible for the HAFA Short Sale programs.
Will the condition of my home impact a Short Sale?
No. The condition of your home has no special bearing on a Short Sale other than the current market value of the property. Keep in mind that a Short Sale is still a sale, and you must attract a buyer. We encourage you to keep your home in good condition, but it is not necessary to make major repairs in order to complete a Short Sale.
In what areas of Marricopa County do you handle Short Sales?
We assist distressed homeowners throughout Maricopa County. We specialize in working with homeowners in Scottsdale, Phoenix, Paradise Valley, Chandler, Carefree, Cave Creek. and Glendale
What documentation is required for a Short Sale?
There is substantial paperwork involved in a Short Sale and we ask you to assist us by providing the most recent 3 months statements for all your financial accounts, including bank statements, 401k, investment accounts, the last two years tax returns and your two most recent pay stubs. As the process is ongoing, we ask that you save new relevant documents as you recieve them, so that we may present them to the bank when an offer is received. In addition, you will be asked to sign an authorization for us to represent you, disclosures about your property and miscelaneous documents. A Short Sale differs from a regular sale in that you must provide your REALTOR® with all of the aforementioned financial information. Rest assured we treat all your confidential infomation with the utmost of care.
How much less will the bank accept on a Short Sale?
There is no easy answer to this question. Even the same lender will make adjustments to their policy depending on their risk exposure. Very often the bank is only servicing the loan and they will have to get approval from the investors who own it. We will be happy to disuss this in more detail with you.
If I do a Short Sale, how will my credit score be impacted?
As of today the major credit bureaus do not have a code to indicate a Short Sale on a persons credit report. If you are late with your payments or do not pay off your loan in full, your credit score will be penalized as normal. Therefore the impact of a Short Sale on your credit will be much less than if your home is lost to a Foreclosure. Typically a homeowner is eligile to buy another home 2 years after a Short Sale, whereas they may have to wait up to 7 years to obtain financing after a Foreclosure. The other big diffference is that a borrower will always be asked if they have ever had a Foreclosure, not if they had a Short Sale.
Can my relative buy my home in a Short Sale?
No. A Short Sale transaction must be at “arms length”, meaning there must be no relationship between or among the parties involved. This means you may not sell the property to a family member, coworker, friend, neighbor etc. Even a real estate agent entering into a short sale transaction must list their Short Sale with another broker.
Does the State of Arizona allow Deficiency Judgements in a Short Sale?
No and Yes based on the situation. In Arizona, the homeowner may or may not be subject to a Deficiency Judgement in a Short Sale or Foreclosure. Arizona is a non-Deficiency state but certain criteria must be met for this to apply. For the most part, if this is your primary home and you have a single mortgage a deficiency is usually waived. We’ll know more when we look at your specific situation.
What are the tax consequences of a Short Sale?
All we can say is that there may be some tax consequences if you complete the sale of your home by the Short Sale process. The same is true of a foreclosure. You may be liable for taxes on any amount forgiven by your lender. Please consult your tax advisor or CPA for an accurate assement of your personal situation.
Why does it take the bank so long to approve a Short Sale?
The good news is that since the introduction of the Home Affordable Foreclosure Alternative (HAFA) program, it now takes less time to complete a Short Sale. At the beginning of the mortgage crisis, banks developed a bad reputation for being slow or nonresponsive with Short Sales. This has changed recently as the banks have put systems in place to handle the volume of Short Sales. Nowadays the biggest reasons for a delay in the Short Sale process are due to improper or incomplete offer packages being submitted to the banks, so it is important to work with a Certified Distressed Property Expert® (CDPE) REALTOR® who understands what is requried to get a Short Sale consumated. Another reasosn is the banks need to wait for approval from the investors who own the original mortgage. Keep in mind that very few banks still own the loans they originated. They usually sold the loans to investors and now collect revenue for servicing these loans.
If there are any questions we have not answered, please make a note of them and we will be happy to respond with answers.
Ask for one of our short sale specialist, Jeff or Jane Daley, or Kathy Crawford.