Short Sales FAQs

Short sales have become a highly popular option for distressed properties, due to their mutually beneficial outcome for all the parties involve. But the process is still relatively new and there are a lot of misconceptions. We've put together this guide to help answer some of your most common questions and help you understand more about short sales.


Frequently Asked Questions:

What's a short sale?
How do short sales affect credit ratings?
Who really benefits from a short sale?
Why would my bank forgive my debt?
Can Conventional, FHA or VA loans qualify?
What caused my negative equity?
What exactly is negative equity?
What if I only owe the total value of my home?
Isn't it easier to just foreclose?
I've never missed a payment. Can I still qualify?
How long will a short sale take?
What if my property is currently in foreclosure?
Will I receive a 1099 for forgiven debt?
How much does a short sale cost?
How do you determine the listing price of my short sale?
How will you market my short sale?
Is a loan modification better than a short sale?
Can my property be leased during the short sale process?
What should I do to prepare the house for sale?

 

What's a short sale?

A short sale is a transaction in which real estate is sold for less than the total amount owed on the mortgage. Essentially, the lender will agree to receive less than the total balance of debt and will "forgive" most, or all, of the differing amount. This allows the home owner to walk away without financial burden and start fresh.

How do short sales affect credit ratings?

The process of a short sale itself won't affect a credit score, if you don't fall behind on your mortgage payments and the banks agree not to report the short sale. This can often be negotiated in the contract, which is why you want an experienced real estate agent on your side. If the short sale isn't reported, you're free to buy real estate again right away! Even if it is reported, you'll only have to wait 2 years under Fannie Mae guidelines before making another purchase, instead of the 5-7 year wait that comes with foreclosure or bankruptcy.

Who really benefits from a short sale?

Everybody! Short sales are a win-win situation, in which the lenders, buyers, sellers and real estate agents all benefit. Lenders get the majority of their investment back, sellers have financial relief and avoid foreclosure, real estate agents receive commission and buyers get a good deal!

Why would my bank forgive my debt?

Lenders often forgive the difference on a short sale because it's a much better alternative to foreclosure. Short sales require less effort and resources on behalf of the bank and often return greater amounts. When this is the case, they are a much more desirable option.

Can Conventional, FHA or VA loans qualify?

Absolutely! The Mike Mazyck Group has negotiated short sales for each of these loans in the past, with success. We can talk in more detail about your specific loan.

What caused my negative equity?

There are quite a few reasons why real estate can have negative equity, which essentially means that the mortgage payments on a house are more than the home is worth. Here are some of the most common reasons this occurs:
-The property was bought in a higher market or for a higher value than it's worth in current conditions
-The area is now less popular causing real estate values to decline
-The property has not had time to increase in value before the original buyer wants to sell it again and the cost of the sale will put the property into negative equity
-The property was refinanced with a higher appraisal value, causing equity to decrease
-The property was purchased in a new neighborhood or subdivision that has not yet increased in value or has decreased in value
-The current real estate market is "soft" because there are too many homes on the market, causing a buyer's market, or because there are too many new builds

What exactly is negative equity?

Negative equity is when the outstanding balance on a loan is more than the asset is actually worth. For example, if you owe $200,000 on the mortgage for a property but that property is only worth $175,000 in the current market, you would have $25,000 in negative equity. Negative equity is usually caused by a decline in the value of something after it was initially purchased.

What if I only owe the total value of my home?

Because of the high costs associated with selling a home, you may still need a short sale to cover the cost of the sale. Closings costs can be hard to cover in homes that didn't increase in value, which is why a short sale is often a solution.

Isn't it easier to just foreclose?

No! A foreclosure is the absolute last thing you want. Foreclosures are a lengthy legal process in which nobody really wins. When your property is foreclosed, you are still obligated to pay the outstanding balance on the mortgage even though you no longer legally own the house. It also takes a lot of time, money and resources for a lender to foreclose, which is why they are often willing to consider a short sale as a mutually agreeable alternative.

I've never missed a payment. Can I still qualify?

You certainly can! It's only a misconception that you have to be in a foreclosure position to qualify for a short sale. Short sales are meant for properties with negative equity, which doesn't mean that you have to miss payments to qualify. Mike's Realty Group has negotiated short sales for people who have never missed a payment.

How long will a short sale take?

Receiving approval for a short sale can take 60 days or more. Do what you can to alleviate any financial stress in the meantime, as patience is a very important aspect of short sales.

What if my property is currently in foreclosure?

Contact me right away at 972-325-6671! Foreclosures are usually suspended during a short sale process but you'll need to act quickly.

Will I receive a 1099 for forgiven debt?

Not if we act quickly. The Mortgage Forgiveness Debt Relief Act of 2007 prevents the forgiven amount from being taxable through to the end of the 2012 calendar year, if the property is your primary residence. This means there may still be time to short sale your home and avoid having to pay taxes on the difference.

However, it may still be worth it to short sale a home if you will be receiving a 1099. The taxable amount owed is usually a fraction of the cost of the forgiven debt. For example, there was an investor who received a 1099 for $30,000, which resulted in them owing $1,300 on their taxes that year. While nobody wants extra taxes, it's a lot easier to pay $1,300 than $30,000, so a short sale was still highly beneficial overall.

How much does a short sale cost?

We charge an upfront fee of $395.  Short sales are an incredibly labor-intensive transaction and require a lot of expertise and time to execute. The fee allows us to immediately delegate an expert processor to your account, which significantly raises our success rate. You may pay this fee by credit or check. Your lender will pay the real estate commission.  We will offer a discount on the upfront fee if you allow The Mazyck Group to put a ‘pre-foreclosure’ rider on the sign put out in the front yard.  Ask us about this option when you talk to us!

How do you determine the listing price of my short sale?

We'll start with an extensive market analysis. Once we receive an offer on the determined amount, we'll submit it to the bank. The bank will then hire their own appraiser who will view your home and determine it's value, based on its condition. Because of these extra steps required, we need you to send our short sale package and provide us with all the information we ask for as soon as you can. Once we receive these documents, we'll put up the sign, lockbox and start to sell your property.

How will you market my short sale?

Because short sale buyers are different than traditional buyers, traditional marketing tactics don't tend to work. The main factor in selling a short sale property is the listed price. We'll review pricing every week or so, and make adjustments until an offer is generated. We will also use an array of internet strategies to help sell your home. We typically generate an offer within 30 days, unless the property is very unique.

Is a loan modification better than a short sale?

If you want to remain in your home and can make monthly payments, then you absolutely should do everything you can to keep it! Loan modification will require you to demonstrate that you're generating more income than monthly expenses. If this is true for you, call your lender right away and let them know you want to proceed with a loan modification. If they decline your request, then you can get in touch with us and we'll help you with the short sale. Please note that we're unable to short sell your home while you're negotiating a loan modification.

Can my property be leased during the short sale process?

We recommend against leasing out homes during the short sale process. Lenders are less sympathetic towards sellers who are receiving rental income, especially if the sellers aren't making mortgage payments. Furthermore, stringent tenant rights and laws make occupied homes significantly harder to show and sell.

What should I do to prepare the house for sale?

Not a lot! The reality is you won't be making a profit from the sale, so we don't recommend investing any money into getting it sold. That's why short sales are usually sold "as is". Our only suggestion is to remove as much belongings and clutter as you can. Other than that, you don't really need to do any work on the home.

To find out more about short sales and whether they are right for you, call us at 972-325-6671 or contact us online right now!