Short Sale FAQs
FORECLOSURE/SHORT SALE FREQUENTLY ASKED QUESTIONS
What is a mortgage default?
A mortgage is considered to be in default when one or more monthly payments have been missed.
What is hardship?
A hardship situation is generally defined as a situation beyond your immediate control that results in default of your mortgage and may ultimately lead to foreclosure.
What is a Short Sale?
A Short Sale occurs when a homeowner owes more on their property than the property is actually worth, but their bank agrees to accept less than what is owed as “payment in full”, in an effort to avoid the foreclosure process. In other words, if the Seller meets the lenders criteria, the lender agrees to “write off” the portion of the mortgage that is higher than the value of the home.
Can any real estate professional assist me with a short sale?
Possibly, but more often than not the average real estate professional has little to no experience with Short Sales. Given that time is of essence when you are trying to out run a foreclosure, it is best not to have a real estate agent who is "learning on the job." Be sure to look for a professional that has plenty of Short Sale experience and better yet, is certified to handle your transaction.
How long does it take to close a Short Sale?
It depends on the property location, current market conditions in your neighborhood, availability of interested buyers, the number of lenders involved and other factors. But in general a Short Sale can take anywhere between 3 – 9 months.
Why would a lender agree to take a loss on my property?
The lender will take a loss on your property regardless of whether they allow a Short Sale or proceed to foreclosure. In addition, other loss mitigation options do not usually resolve the root cause for a homeowners default. The alternative the lender has is to proceed with a lengthy and expensive foreclosure. The bank does not like excess inventory and delinquent loans on their books. They know that taking control of a property is an expensive and time consuming liability.
Will I have to pay taxes for a Short Sale?
Either the property owner or the lender will have to pay property taxes depending on the terms of the Short Sale agreement. It is important to note that in most cases the homeowner may pay extra income tax if the bank sends a 1099 for the deficiency. At the present time, The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. We recommend that you consult with your CPA for clarification on whether you qualify for relief under this act.
What if the property has more than one loan?
Both lenders must agree to complete the Short Sale. If the first loan is partially covered by the Short Sale proceeds, the negotiation takes place with the first lender and the first lender will propose a pay off to the second lender. If the first lender is paid off by the sale then the negotiation takes place with the second lender.
Won’t Private Mortgage Insurance (PMI) pay to cover the deficiency on my property?
It depends on the amount of the deficiency and reasons the homeowner has defaulted. PMI is for the lender’s protection and the lender will try to collect from the borrower first.
Can I qualify for a Short Sale if I am current on my mortgage?
Yes, in some circumstances lenders will entertain a short sale on a property that has not defaulted.
Can I start a Short Sale when a foreclosure has taken place?
If the homeowner has been evicted or the property sold at auction, a Short Sale is not possible.
Will a Short Sale hurt my credit score?
There is no clear answer. It depends on whether the borrower is current or in default. Some lenders mark the Short Sale as a settlement, which can hurt your score. However, the damage to your score is typically less significant than the damage as a result of foreclosure or bankruptcy.
Contact Information
Deanna Dopslaf - Team Red Truck Realtor
Keller Williams Realty
6240 Riverside Plaza Lane, Suite 100
Albuquerque
NM
87120
Cell 505-307-1129
Team Office 505-923-4662
Fax: 505-923-4747
