What is a Short Sale?
A Buyer requests that a home owner sell a house at a reasonable fair market value but that Price, less Seller closing costs, is less than the amount due the Lender(s) with mortgage(s) on the property.

What are the Short Sale benefits to Seller over foreclosure?

• Looks better on Seller’s credit report than foreclosure; usually shows loan as paid but at less than full value.
• Seller gets to set timeframe for moving out of house (but it may be sooner than for foreclosure)
• If specifically included in the short sale agreement, Seller will not have the potential of a deficiency action after the foreclosure sale.

What are the baseline requirements for a Seller to be considered for a Short Sale?

• Little to no equity in the property
• Three months delinquency
• Qualified Buyer
• Contact information for Loss Mitigation Dept at Lender (Direct Line and Fax Number; eventually direct line for your loss mitigation contact person)
• BPO with true comp’s showing value of property (obviously lower the better but Lender may get their own figure so be realistic!)
• Cooperative Buyer and Seller willing to make complete and honest financial disclosure – most of this information should be prepared prior to signing P&S

What are some obstacles to Short Sales?

• If there are Federal Tax Liens on record – need Waiver from IRS – difficult but doable if there is no equity
• Juniors liens must also be negotiated (they are usually willing to do so as they would be wiped out completely with a foreclosure sale of a senior interest; junior lien holders have been known to take less than 50% of amount owed)
• There must be very little to no equity in the property
• Lender may want to see the Listing Agreement between Seller and Real Estate Broker and may require decrease of commission
• Other assets: driving a BMW, 401K plan, other properties, etc.

Are there obstacles outside of Buyer/Seller control?

• If FHA, FannieMae, etc., need their approval
• If PMI, need PMI company approval
• If investor, need investor approval
• If servicer, need servicer approval
• If in Bankruptcy, need to conduct this process through bankruptcy court
• Banking regulations for percentage calculating short sale percentages
• Number of short sales a lender has recently approved
• Person you are dealing with in the loss mitigation department

Do I really have to be broke to do a Short Sale?
The true concept of a short sale is that the seller does not have the assets, money or other resources to make the payment nor to make up the shortfall on a sale on their own. This requires full financial disclosure. If the Seller is truly broke, all other factors considered, the lender may allow the short sale. The alternative is the risk of exposure if the lender does find additional assets and the short sale is denied. The lender’s knowledge of the Seller’s financial situation will provide a significantly easier manner of locating assets to pursue your seller for a post-foreclosure deficiency. This is a very clear reason to consider the seller’s full financial position prior to submitting the short sale request.

How does the Lender decide whether to allow the Short Sale?
Every lender is different and has different criteria. For example a lender may have formulas used for basis calculation of whether to even consider the short sale. Do Net Sale Proceeds exceed 82 % of as-Is value? Or is the property worth at least 63% of the unpaid principal balance? Further, FHA, PMI companies, HUD and FannieMae involvement bring in even more guidelines. The criteria of a lender also changes with the changing economy and the number of short sales being presented.

Do I need to call the Lender for follow up?
If hired, it is the job of Foreclosure 911 to do the follow up and negotiation. You must, however, be available to answer questions or provide additional information quickly as requested. Remember, a short sale submission can take about 30 days for approval and, most often (try to be the exception), foreclosure proceedings are not suspended!

If a Short Sale does not work, what are my options?
There is no always a way of avoiding a foreclosure but Foreclosure 911 will assist in finding the solution if there is one to fit your situation. See Foreclosure Alternatives for more detail and let us know how we can help you by contacting us ASAP!