What is a short sale ?
What is a short sale ? Many people ask what is a short sale when they want to know more information about the short sale process and decide if it is the right choice for them. Here is a brief example of what is a short sale: A short sale of real estate property occurs when a lender agrees to accept a discounted payoff on a loan. So, if a homeowner owes $300,000 and the house is worth $200,000, we sell it for $200,000 and the lender agrees to accept the $200,000 and walk away from the other money that the homeowner owes. That’s it ! Your Realtor convinces the bank to take market value for the property and let you, the homeowner, walk away from all monies that are owed.
Further, even though the home is sold or less than what the homeowner owes, the bank pays all fees associated with the sale, and the bank accepts the left over amount as a final payoff for their loan. Again, the example: Homeowner owes $300,000 on their home, the property sells for $200,000, the bank pays $20,000 in sale fees (back taxes, agent commission, appraisal fees, etc), the bank accepts $180,000 as a final payment for the $300,000 owed and all parties walk away from their interest in the property.
Why is it to a homeowners advantage to do a short sale?
The number one advantage of a successful short sale is being able to WALK AWAY from a property that is worth less than what is owed. If you owe $300,000 but the property is only worth $200,000, a short sale can allow you to walk away from that $100,000 difference and never have to repay that money.
There are also many long term benefits that can be a good thing for the homeowner: 1) A foreclosure will impact your credit score far more than a short sale, especially in the long term. 2) Banks don’t report a short sale whereas a foreclosure can stay on your credit report for 10+ years. 3) In the event of a foreclosure, many states the lender will seek a deficiency judgment in the amount you owe. They could even come after other properties and assets of yours, including vehicles. 4) Your credit could recover from a short sale in less than two years, whereas a foreclosure or bankruptcy can take 7-10 years. A short sale will likely lower your credit score by about 50-120 points. The hardest hit to your credit comes from missed mortgage payments rather than the actual short sale itself. 5) A foreclosure is part of the permanent public record and shows up on a background check, a short sale does not.
When we sell the home, can I get any of the money?
Yes !! As part of the Making Home Affordable Plan, and specifically the new Home Affordable Foreclosure Alternatives (HAFA) initiative recently announced November 30th, 2009, qualified home owners can get up to $3,000 BACK from a short sale to use towards relocation expenses! This is a gift from the bank at closing for keeping your home in good shape and cooperating with the short sale process. Some lenders are offering even more!
How can the team at Short Sales Chicago help me?
We have the whole short sale team in place. We specialize in completing successful short sales throughout northern Illinois. We have the Realtors, Attorneys, processors, and all the right tools. We work with your lender, or lenders, to negotiate a lower payoff amount in order to price your home below competition and get it sold. We also aggressively market your home to attract buyers and oversee the entire sales process of your home. We handle all negotiation with the bank or banks with the objective of getting you fully released from all loans and liens. These services are at no cost to homeowners. The BANK PAYS ALL FEES including both Realtor fees, all back taxes, all appraisal and other service provider fees, and all city/state/county fees, and more. You can bring $0 to closing and walk away from all of the money that you owe on your property and in some cases even walk away with a check in your hand for up to $3,000.
What are the qualifications for a Short Sale?
The main qualification for a short sale is that you are in or have experienced some type of “financial hardship”. This can include: loss of employment or income, divorce or separation, relocation, job transfer, major illness and medical expenses for you or a close family member, high dollar repairs that were or are required for the property, increased bills or higher living expenses. You typically must provide your paystubs and tax returns as proof that you cannot afford to pay your mortgage each month. Many lenders make this process very easy and if you are already behind in your payments it is not a problem to prove the hardship.
What if my home is worth more than my loans, but I can’t pay off the loans plus the closing costs, taxes, and fees?
Yes, you can still attempt a short sale on your home. Many homeowners in Illinois have tried to sell their home for more than it is truly worth in an effort to avoided a short sale scenario. The reality is that your home is worth what the market says and if that market price will not allow you to pay off all the loans plus the closing costs then a short sale is the only way to avoid paying other costs. By trying to sell the home for more than it is worth, you are just delaying the inevitable. If you list your property for short sale, we charge every single dollar of home-sale/closing costs to the bank and likely get them to let you out of any further payments and obligations !
If I sell my home as a short sale, can the bank come back after me for the money?
Not in most cases. We tirelessly work to get a full, 100% release of all liens for you at closing. This release will fully forgive any deficiency between the amount you owe, and the proceeds from the sale of the home. So, if we again refer to the example above: if you owe $300,000, the home sells for $200,000 and has $20,000 in expenses, we work with the bank to get you fully released from the difference between what you owe and what the bank receives which, in this case, is $120,000.
Who pays the commission to the Realtors?
Not you !! The BANK pays all commissions and all other fees associated with the sale of the property. You pay $0 out of pocket, period.
How much work will this take?
Not much for you. We will ask you to gather certain financial information and forms for us to present to your lender like your most recent tax returns, recent paystubs, hardship letter, etc. We will handle all of the negotiations and details with your bank or banks as well as the entire process of selling your house.
If the lender does give me a ‘release’ of all liens, what happens to that money?
Any shortfall on your mortgage that is ‘forgiven’ or ‘released’ will likely be written off as a loss by your lender. Because of this, your lenders may also send you a “1099” for any amount forgiven. Due to the Mortgage Debt Relief Act of 2007, you are NOT required to pay taxes on this money if you short sale your primary residence prior to 2013. Consult your accountant with any other questions regarding this.
If I am going through foreclosure, can I do a short sale?
YES! Banks are more than happy to work with borrowers conducting sort sales. A short sale benefits everyone involved including you, the bank, and the market as a whole. The foreclosure process costs a lender on average $58,000 where a short sale costs less than $20,000.
When will I have to move?
You will not have to move out of your home until after the closing. Typically a short sale takes 4-7 months from the time you list your home to the time you move out of your home; during this time you can stay in your home and not pay anything for your mortgage or your taxes.
Will the bank continue the foreclosure and short sale process while my home is for sale?
Yes, the bank will continue the process. When we receive an offer and are negotiating it with the bank they will usually pause the process and allow us to negotiate the offer without fear of running out of time. The bank may call you or send you letters in search of payments but most will not continue the foreclosure process if you are actively working on the short sale.
What if I don’t like the terms of the short sale that the bank gives me?
You tell them to take a hike !! If the terms of the short sale are not in your best interest, you are not required to sell the property and complete the short sale. Do remember though that a short sale will have the lender forgive you of the debt and is the best option to avoid foreclosure or bankruptcy and will have the least negative effect on your credit. If you choose not to do a short sale the bank will NOT forgive you of the debt and may continue to pursue you for the outstanding loan balance.
Are there any dangers to be aware of when working a Short Sale?
Be careful of scam artists or shady individuals if you are in financial hardship or facing foreclosure! These sharks often cause more harm than good. Never sign a contract or quit claim deed, power of attorney or an “option contract” without consulting an attorney and/or an experienced agent. A good rule of thumb to understand is that anybody trying to purchase your home will look out for their own best interests in the transaction, NOT yours. Be especially aware of notes you receive in the mail saying that someone ‘wants to buy your home’, these people do not have your best interests in mind and are usually trying to flip your home on the closing date for a quick profit. Only work with licensed professionals including Realtors and Attorneys.
Can my Realtor friend or someone I know work a short sale on my home?
Yes and no. A short sale is not a typical transaction and requires a different type of work than a typical transaction. It is in our best interest to work with an experienced Short Sale Realtor because they know the ins and outs of the short sale process and they know how to make deals happen.
We understand this is a difficult and stressful time for you and your family. Our job is to get rid of your headaches and help things go as smoothly as possible for you. This Short Sale FAQ is meant to give you information about what is a short sale, short sales in general, the short sale process . . . . please discuss your options with us for even more great information.
We will discuss your situation and explain all of your options with you in detail. A short sale is NOT the best option in every case. We can advise great attorneys and other experts to help you if we can’t help.
We will provide you with all of the forms and documentation that are required from your lender in order to process a short sale.
It is our goal to coordinate an aggressive marketing plan to attract buyers to your home and help get it SOLD!
We will work directly with your lender to negotiate the short sale, as well as do all of the processing involved! Your effort only consists of getting us documents in a timely manner, we work with all other parties to coordinate the transaction . . . .you you ALWAYS pay ZERO.
If required, we can sometimes also offer tips and suggestions to delay the foreclosure process while working with your lender, and possibly keep you in your home longer.
We will work to get your home sold and get you forgiven of your debt and the loan deficiency! This will keep the lender from being able to come after your other assets.
Note that we are not attorneys or tax professionals. Seek appropriate legal advice in legal matters.