What are They and How Do They Work?
In today’s real estate market with tightening credit and lower home values, there are many ways to lose a home. But foreclosure, the signing away of ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity has to be the hardest. Fortunately for owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy and foreclosure proceedings. One of those options is called a "short sale." Lenders, who agree to do short sales, are accepting less than the balance due on the mortgage they hold. Not all lenders, however, will accept short sales or discounted payoffs.
There are some legal and financial ramifications that you should be aware of before buying a short sale or considering a short sale yourself. As a real estate agent, I am neither an attorney nor a CPA and cannot advise on those consequences. Be aware the I.R.S. can and will consider debt forgiveness as income, and 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. This amount is known as a deficiency. The lender can as a condition of the acceptance of the short sale ask that the borrower accept a deficiency judgment and pay back all or a portion of the deficiency. A lawyer can assist you with determining your best options and the impact that this may have. Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect and what to do.
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Brandon: (813) 684.0001
Call Your Mortgage Company
Call your mortgage holder; you may need to make many phone calls before you find the person responsible for handling short sales. You do not want to talk to the "real estate short sale" or "work out" department, you want to talk to the responsible party, get the supervisor's name, and/or the name of the individual capable of making a decision.
Provide a Letter of Authorization
Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following information as well:
- Property Address
- Loan Reference Number
- Your Name & Last 4 digits of your SSN
- The Date
- Your Agent's Name & Contact Information
- Agent name
- Vintage Real Estate Services
- 139 E Bloomingdale Ave. Brandon, FL 33511
- Office Number - 813-684-0001
- Fax Number - 813-685-6562
- Agent's Cell Number
- Agent's email address
Write a Hardship Letter
The sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or have had some other catastrophe, but lenders are not particularly empathetic to situations involving dishonesty, fraud or criminal behavior. Be heartfelt but honest.
Provide Proof of Income and Assets ( Lender will have a form)
It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lender are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving. Check with your attorney, but in Florida the lender cannot seize your IRA or 401K retirement assets.
Include Copies of Bank Statements
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. Additionally, the lender might want an accounting for all deposits so it can determine which deposits will continue and the amount of your near term income. This will be used to determine in part any deficiency judgment the lender may request.
Provide Purchase Agreement & Listing Agreement (Vintage agent will do this)
When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to allow payment of certain items such as home protection plans, seller contributions or termite inspections.
Now if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request. But in most cases the lender reports this as a “Settled Debt” which has far less impact than a foreclosure or bankruptcy.