What is a short sale?
A short sale is the sale of a home where the proceeds of the sale doe not fully pay off existing loans and lenders will accept a discounted payoff to satisfy the loan. The existing lender typically pays virtually all sales costs including commissions, escrow, title fees, and repair costs. The seller gets their home sold, loans paid off, and avoids foreclosure.
What is the short sale process timeline in California?
Typically, a Notice of Default (NOD) is recorded at two months delinquent on mortgage loan payments. The NOD period has the duration of 90 days in which the borrower has the right to cure the mortgage loan default. After the 90 days, the notice of Trustee’s Sale can be recorded and published. The Trustee’s sale can be scheduled as soon as 21 days after the Notice of Trustee’s sale is recorded. In most cases, the sale date is closer to 30 days after the notice is recorded. The borrower has up to 5 days from the sale date to redeem the loan.
Is a short sale right for me?
Mortgage lenders are increasingly willing to work with borrowers facing financial hardship to accept a discounted payoff on the mortgage loan. If you have a financial hardship that makes it likely you will be unable to make your obligation to pay you mortgage, your lender would rather settle with you then repossess your property through foreclosure.
Remember your lender wants to limit the loss on your loan. Through a short sale, your lender has reached a solution that is financially better for them than a foreclosure. Your lender wants to work with you.
If I pursue a short sale, how much will I have to pay to sell my home?
Typically, you will pay no sales costs if a short sale is approved by your lender. All commissions title and escrow fees, and even most repair expenses are usually paid by the lender as part of the Short Sale approval. If this is the case, the following clause will be contained in the contract:
“Seller’s agreement to sell is subject to approval by existing lender of a Short Sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow”.
How do I initiate the short sale process?
Contact Michelle Mahzari, CCIM at IMAX Premier or one of our representatives and we can answer any questions you may have and help you begin the short sale process.
Can I just deed my property to someone else and avoid the hassle?
On almost every occasion transferring the deed of your property to someone else without paying off the loan is a bad idea. The lender will still consider you primarily responsible for payment on the loan and if the payments are not made or the lender forecloses, it will affect your credit. Also, when you transfer the deed, you lose control of the property.
What short of hardship will a lender consider legitimate?
This can vary depending on the mortgage company considering the Short Sale request. However, as long ad the hardship is real and the mortgage company believes that the loan will likely become delinquent the short sale request will be processed by the Loss Mitigation Department To increase the chances of the Loss Mitigation accepting your financial hardship, you should submit a strong hardship letter that will set the tone for your entire file.
Hardships that are frequently accepted by mortgage lenders are:
Family illness or injury
Illness or injury in the extended family- particularly if it necessitates relocation
Job relocation when the property is equity deficient
Job loss or significant income loss
Divorce or split of domestic partners
Adjustment in mortgage payment or unforeseen increase in living expenses
If I am current on my mortgage will my lender consider a short sale?
It depends on your lender. Some lenders will accept a Short Sale file for approval on loans that are not delinquent but others will not accept the file until the loan is delinquent.
Why would a mortgage company agree to accept a short sale?
Mortgage companies would consider a short sale for several reasons including the following:
Legal concerns- Lenders are under legal pressure to work with borrowers to equitably solve situations in which the borrower is unable to meet their mortgage obligation, particularly when the borrower is making an effort to reach a compromise with the lender.
Wall Street is watching- Mortgage lenders rely on their ability to package and sell loans on the secondary mortgage market. They need to sell these loans in order to put the funds back to work by loaning the money again and collecting the loan fees. If mortgages perform poorly after they are sold it can impact the ability the lender has to sell their loans on the secondary market. A short sale will get the loan payoff resolved quickly.
Asset Management Expenses- If a lender acquires property through a foreclosure, the property will be managed until it is repaired and resold and this can be expensive when managing homes throughout the region, state, or nation. The lender would rather avoid the costs to keep the properties maintained, utilities on, repair any damage, and the associated administrative costs. A short sale eliminates most of these costs.
Reserve Requirement- Delinquent and non-performing loans place a burden on the lender because for every delinquent and non-performing loan the lender must set aside funds in reserve to deal with potential losses. These funds cannot be used to generate new loan fees until after the bad loans are resolved. A successful short sale give the lender access to more money to work.
Do lenders approve all short sales?
No, this is why its imperative you work with a real estate broker who is experienced at getting short sales approved. Michelle Mahzari, CCIM here at IMAX Premier has extensive knowledge getting short sales approved and selling them. We can help you with the preparation of the short sale package to the lender as well as working with lenders Loss Mitigation Department, to keep your file moving toward approval.
I have two loans, can I still do a short sale?
Yes, we can either work with both of your lenders, discuss both loans held by a single lender, or work to find which out of the two is most likely to accept a short sale. Neither lender wants to own another home through foreclosure so even if your home is valued below the balance of your first mortgage, we can typically get the two lenders to cooperate.
My property needs a lot of work, can I still do a short sale?
Yes, lenders are actually more motivated to do a short sale on a property that needs work than a property that doesn’t because they know the risk of loss goes up when they foreclose on a property that needs a lot of work.
How will a short sale affect my credit?
A foreclosure can cause more damage to your credit report than any other event, including bankruptcy. While you are waiting for short sale approval, you may miss your monthly payments and this will negatively affect your credit but as long as you avoid foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods, etc) relatively quickly; much faster than it would be following a foreclosure or bankruptcy.
My financial hardship was temporary, do I need to sell my home?
You may be able to if you can convince your mortgage company of two things:
The financial distress that caused the disruption to your mortgage payments was beyond your control (illness, injury, temporary disability, forced job change, etc)
You are now in a position to stay current on your mortgage payments an make some progress towards paying back the amount you are delinquent.
If you can prove those two things, you can qualify for a forbearance or a loan modification.