What is a Short Sale?

A Short Sale is one way of avoiding foreclosure and bankruptcy. It is when the lender accepts less than the loan amount (a discount on the loan) and releases the lien on the property at closing, without requiring the owner to make up the difference. I have made Short Sales one of my specialties, and can guide you through the process either as the buyer or the seller.

If you are a buyer and want to make an offer on one of my short sales, please call me so I can explain the best way to write the offer for the bank to understand.

If you are looking to avoid foreclosure or bankruptcy, and can no longer afford the house you have, please contact me. I have several resources at my disposal to help you with your unique situation. If you have not received a notice of foreclosure yet, you still have several options. Let me help you decide which one is best for you. Email me or call me at (702) 203-6688.

Frequently Asked Questions:

Who Qualifies for a Short Sale?

In order to qualify for a short sale, the seller must prove to the bank one or more of the following conditions:

• Loss of job, and difficulty in finding new suitable job
• Job Relocation, when equity is deficient
• High medical expenses due to disability, injury or illness in family
• Divorce
• Unable to afford the loan from the beginning
• House needs unexpected major repairs
• Overextended Credit
• Changing Economy
• Adjustment in mortgage payment due to interest rate or an unforeseen increase in living expenses

Incidentally, these are also the most common reasons for a foreclosure.

Why Would a Lender Accept a Short Sale?

Why would a lender accept less than they are owed? Because the alternative is a foreclosure. Just as with the borrower, there are significant consequences to the lender if they foreclose.

• The legal costs of eviction and repossession,
• The loss of loan payments during the foreclosure process until it is re-sold
• A foreclosed house will need work before it can be resold
• After the foreclosure, the bank has two options: Sell it at the courthouse steps, or try to resell in the market. If they resell in the market, they are penalized by the government by freezing 3-10 times the loan amount so that the lender cannot lend those funds to another borrower.

Will my lender consider a Short Sale if the mortgage is current?

Sometimes, some lenders will accept a Short Sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent.

Do lenders approve all Short Sales?

No, however having a Short Sale Specialist helping you through the process increases your chances for Short Sale approval substantially!

What if a property needs work, can I still apply for a Short Sale?

Yes. In fact, lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn't. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work. However, the amount of interested buyers for your home will change due to your home's condition.

What is a Short Sale Packet and What Needs to be in It?

A short sale package it used to determine whether a homeowner can afford the property. Most lenders already have a standard package which they will send to the borrower upon request. The borrower is expected to provide financial information to include income and household expenses.

The seller must fill out forms with the Listing Agent to be submitted to start the Short Sale process - and submitted with any offer. These forms include:

The Listing Agreement
Authorization to Release form (to allow agent to discuss with bank)
Hardship Letter (see "How to Qualify" above)
Financial Statement
Seller Net Sheet (a copy of the HUD form with offer)
Contract (when offer is accepted)
Buyer's Proof of Funds (with offer)

The Buyer must provide additional items as well, but the basics are:

What are the Tax Consequences to the Seller of a Short Sale?

Before, the Seller was sometimes required to declare the difference between the loan principal and the amount the bank received as income on their tax forms, and pay tax on it. In November 2007, a law was passed that changed this. Effective January 1, 2008, "Forgiven Mortgage Debt" (the difference between the principal and the amount the bank received) is excluded from taxable income. There are restrictions. In order to qualify for this exclusion, the house must be occupied by the owner as a principal residence (not a summer home, vacation house, rental property, etc.). Investors do not qualify.

I have more than one mortgage on my property. Is that a problem?

No. Subordinate lenders are more flexible than 1st mortgage holders.

What if I have 2 mortgages held by different Lenders?

When you have 2 loans with the same lender, it is more beneficial to them, as there is no need to negotiate with another lender.

When the two loans are with different lenders, the process is a little longer, but the second lender is the one who has more to lose if they don't reach a settlement. This is because if the property goes to foreclosure, the first loan is the first one to be paid and the second usually nets nothing.

Do I have to be past due on my mortgage to be able to get the benefit of a Short Sale?

No, but it is likely that the lenders' guidelines will prevent them from formalizing a short sale if the loan is not past due,. This means, for them, that the borrower has the means and can continue to pay on the loan each month. Please understand, however, I AM NOT RECOMMENDING THAT ANYONE STOP PAYING THEIR LOANS. In the current market conditions, it is possible that a bank would accept a short sale, even when the borrower is current.

What is a BPO?

A Broker Price Opinion (BPO) is when the lenders contact their own Broker/Real Estate Agent and pay them to render an option on the condition, value and time on market for the property. This is because many lenders do not have the knowledge of the market in Nevada, because their offices may be in California for example.

If a lender saves so much money working out a Short Sale arrangement, why do they request so much information and why does it take so long for them to work a file?

The lender wants to make sure that a borrower is truly having financial problems and is not one of those people who for various reasons just wants to stop paying for the property and the mortgage debt. If the borrower has liquid funds, the lender may want the borrower to use them in the sales process. The lender also wants to make sure the borrower is not selling the property to a related party for the sole purpose of locking in a reduced pay off. The bottom line is that the lender is going to manage the transaction with the objective of recovering the most money for the lender. The time frames involved cover a multi-step negotiation process between the borrower and the lender with either the lender or borrower objecting to certain terms and making various counter proposals before coming to an agreement. Third party inspections and BPOs will also need to be done before the negotiations can be formalized in an agreement.

What is a hardship letter?

This is a letter that explains the borrower's current financial circumstances. Which circumstances have changed from when the house was purchased, and why the mortgage payments can no longer be made. These circumstances are what led to a borrower’s inability to make payments and to pay off the loan in full. This letter must be written by the borrower, and be sincere in demonstrating (with documentation) that it is the truth.

What types of information does the lender require the borrower to submit?

Along with the Hardship letter, each lender will have different forms that we will need to complete. All lenders generally require various items such as two months of bank statements, pay stubs, past tax returns, W2, etc. Usually each Short Sale package that I submit is over 70 pages long.

How long does it take to complete a Short Sale?

The time frame for the lender to receive and evaluate the short sale proposal is about 8 weeks from the time the offer and Short Sale Package are received. Buyers need to realize that this is a lengthy process. This is why it is very important to work with a Short Sale Specialist who knows how to manage the transaction. The other agent and the buyer may get cold feet at the end, and the transaction may fall through.

Why does the bank accept less than they are due?

They lose less on a short sale. On average, lenders lose tens of thousands of dollars less on a short sale versus a full foreclosure. It is simply in their best interest.

Can a borrower do this for themselves?

Yes, but doing it alone and on the phone with the lender leads to inconsistent results that are, frequently, not acceptable to the borrower. Working with us, with written negotiations, yields more consistent results.

Why do Lenders prefer to work with Experienced Agents?

In steeply declining markets, short sales are booming. Selling a home for less than the underlying mortgage often provides troubled home owners with their best chance of avoiding foreclosure and ruining their credit. A cottage industry of bankruptcy specialists and other self-described loan mitigators are trawling for clients, but lenders would often prefer to work with real estate professionals in negotiating short sales for clients. Here’s why:

1. Agents are licensed by the state.
2. Agents adhere to a code of ethics.
3. Agents carry errors and omissions insurance.
4. An Agent has too much at stake to cut corners. A licensed professional is not likely to commit fraud that could put their entire career at risk.
5. An Agent specialized in Short Sales does not need extensive training by the lender’s loss mitigation department.  Many departments simply move the file to the foreclosure stack when they realize the listing agent is not experienced in short sales because they have hundreds on their desk and do not have time to train the agents.

I owe more than my home is worth. Is a short sale my only option to get out of foreclosure?

You have other options, like a Deed in Lieu of Foreclosure. That is a perfect case to demonstrate to the lender that if they do not accept a short sale, they are going to lose even more money than they are now.

How long does the foreclosure process take?

Please see the "Foreclosure Process" section of my website.

What are the implications of a deficiency judgment?

Deficiency Judgments are allowed in Nevada. Since Nevada permits a deficiency judgment, this can allow a lender to garnish your wages, attach your other properties and aggressively collect for years to come any amount that remains unpaid after a foreclosure sale of the property.