FREQUENTLY ASKED QUESTIONS ABOUT SHORT SALES

What is a Short Sale?

A short sale in real estate is a special sale of a home where the Lender is paid an amount that is LESS than the current mortgage balance owed on the home. This can only be done when the Lender agrees to the lower sale price after the Homeowner has proven that financial hardship has created the need for this type of arrangement.

Who qualifies for a Short Sale?

Generally a Short Sale is granted by the Lender to Homeowners who have experienced a financial hardship that prevents them from continuing to pay their current mortgage obligation. Rather than foreclose on the home, which is a huge expense to the Lender and very devastating to the Homeowner's credit, a Short Sale may be done instead.

Some of the common hardships that lead to a Short Sale are loss of a job, a serious illness, divorce, financial stresses from liens or delinquent taxes or even the death of a spouse or loved one.

Will I receive any money related to the closing of my home?

No, but you may be elligable to receive relocation costs up to $3000 with the Home Affordable Foreclosure Alternatives (HAFA) Program starting on April 5, 2010.  Click here for more information.

Who will pay the Realtor’s commission and the closing costs?

Your Lender pays both the Realtor fees and closing costs.  The expense of commissions and closing costs are far less than a costly foreclosure for your Lender.

Is the Homeowner responsible to pay any fees to Home Realty if the home does foreclose?

No.  Home Realty is only paid a commission when the house is sold. 

Would it be easier to let my home foreclose?

On one hand, yes it is easier because you, as the Homeowner, would not have to communicate as often with the Lender. However, there are some potentially damaging consequences of a foreclosure. In some states, a Lender may seek a deficiency judgment following a foreclosure to try to get back the money you that was owed on the foreclosed home. The Lender may then try to place liens on other properties that you own, garnish your wages, or even repossess vehicles to recoup their losses. This is why a Short Sale may be a better option for a distressed Homeowner so that a deficiency judgment and other negative consequences may be avoided. For more detailed information, seek advice from your CPA or legal counsel.

What is the Homeowner's advantage for doing a Short Sale?

One of the best reasons for you to do a Short Sale is to try to avoid your Lender from pursuing a deficiency judgment against you. The next reason is preserving the your credit.

Both a foreclosure and a short sale will negatively impact a Homeowner's credit, however a foreclosure is much worse. A person's credit may recover in 2 years with a short sale, but a foreclosure may take up to 10 years. This will hurt the person's ability to get a new home loan and will put him or her in a high risk category causing much higher interest rates. It could also impact career choices as many employers now check a person's credit report as part of the hiring process.

Will filing for Bankruptcy affect a Short Sale?

Yes, if you have put the home under bankruptcy protection then the home cannot be sold as a Short Sale until the home is released or discharged from the bankruptcy. Notify your Realtor to discuss the options available to you.

Why do banks and lenders accept Short Sales?

At first it seems hard to believe that your Lender would be willing to so deeply discount the sale of your home until you take the time to look at the situation from their perspective.  If a Lender forecloses on a home they must repossess it, make repairs, change the locks, and pay for a variety of legal fees. A Short Sale costs less than what it costs to foreclose on the home, so the Lender actually saves money.

Another reason is that in this distressed housing market with so many foreclosures, Lenders don't want too many foreclosures (or bad debts) on their books. This prevents them from borrowing more money from the Federal Reserve, so they are unable to give out new loans to increase their revenue streams.

How long does a Short Sale take?

How long it takes will depend on what state you are in. In Georgia, a typical Short Sale may take from 2 to 4 months. Sometimes Short Sales take longer to sell than conventional home sales because there is more paperwork involved.  The process can be delayed when paperwork is either missing or incomplete.  Lenders may often reject a purchase offer based on this reason alone.

What is needed from the Homeowner to process a Short Sale?

Each Lender may have their own specific requirements to begin the Short Sale process.  However, there are some general requirements such as: a hardship letter (explaining why the homeowner can no longer pay the mortgage); financial statements (monthly income & expenses); tax returns for the last 2 years; bank statements for the past 2 months and a pay stub for the past 30 days. Lenders also may want the Realtor's Listing Agreement that shows the property has been listed at the current fair market value.

Will the foreclosure process stop by listing my home as a Short Sale?

No, however there are a couple of exceptions. If you have an FHA loan, you may qualify for a Pre-Foreclosure Sale (PAS) Program due to your hardship which postpones your foreclosure for 90 days. Click here for more information on the PAS Program.

Another possibility is if an offer is made on your home before the foreclosure date then your Lender may consider postponing the foreclosure in order to review the offer and Short Sale paperwork.

Where do I start?

There are items that your lender is going to require before we can begin to negotiate a Short Sale. At Home Realty, we like to have these items prepared and available for the lender as a complete packet. We have found that the more complete of a file that we provide them up front, the smoother the Short Sale process has been.

Your lender is going to need:

• 2 months bank statements
• 2 months pay stubs
• 2 years of tax returns
• A Letter of Hardship: Explaining your difficulty to continue to make your current payment obligations.
• A Letter of Authorization: So that Home Realty, Inc. can work on your behalf.
• A Listing Agreement with a proposed sales price to be approved by the bank.