Bellenot & Boufford, LLC
Selling your Home by Short Sale
What is a short sale?
A short sale is when you sell your house for less than you owe on the mortgage(s) and the lender(s) agrees to accept less than is due.
Should you consider a short sale?
A successful Short Sale has many benefits. For one, you will avoid a foreclosure judgment. While a short sale may initially have a negative impact on your credit, Judgment of Foreclosure creates a public record which can be worse.
In a foreclosure, lenders can request a deficiency judgment. You would be personally liable for the difference between the balance due on the mortgage and the fair market value of the home. With a short sale you can negotiate forgiveness (debt cancelation) for the deficiency and be free of the shortfall. There may be tax consequences, but not as bad as a deficiency judgment and you may be eligible for exemption from reporting the forgiven portion of the debt as income.
Some lenders may offer the homeowner a financial incentive in a short sale to help cover moving costs.
The process of listing the home, marketing its sale and the time it takes to close can give you many months to save money and prepare for your move.
How to proceed with a short sale?
The two most important steps are choosing the right realtor and the right attorney to assist you with the short sale.
Your realtor must have experience with short sales. While it is not as difficult as it was 10 years ago, there are important differences compared with a traditional closing. For example, the listing agreement must identify that the sale is subject to third party (mortgage lender) approval. It is also important that the realtor is patient. A short sale usually takes longer than a traditional sale and has additional steps in the process.
Your attorney also needs to be experienced and patient with short sales. There is limited interaction between an attorney and the seller’s lender in most traditional closings. The interaction between the lender and the attorney in a short sale is significant and crucial.
The attorney will also have to determine if there are subsequent liens. If so, negotiate funds from the first lender to offer the subsequent lien holders in the hopes of obtaining releases for all liens.
Most traditional closings set firm contingency deadlines for inspections, searches, mortgage commitments, etc. Attorneys in a short sale must be more flexible with floating deadlines. Since the sale is subject to 3rd party approval, buyers do not want to spend money on inspections, searches, and such, until its clearer that the short sale lender will cooperate with the short sale and accepts the offer.
Once an offer is made, it is submitted to the short sale lender. Some banks require the seller to complete a formal application, while others are less formal. Most will require the seller to establish a hardship. The seller’s attorney will prepare a proposed settlement statement advising the short sale lender what it can expect to receive at closing.
There is more to a successful short sale, but it all starts with finding the right realtor and attorney. Professionals that will keep the lines of communication open.