Short Sale FAQs

Common Questions Short Sale Sellers Should Never Be Afraid to Ask.

1. What should I do if I can no longer make my mortgage payments?
2. How can I find out what my home is worth today?
3. Who can qualify for the government-sponsored Making Home Affordable Program?
4. Can I qualify for a lender-approved short sale?
5. How can I determine the best listing price for my home?
6. Would a lender-approved short sale damage my credit?
7. How would a lender-approved short sale affect my income taxes?
8. Must I be behind in my mortgage payments to negotiate a short sale?
9. Do you work with all banks?

1. What should I do if I can no longer make my mortgage payments?
If you've missed payments or foresee that you won't be able to make payments in the future, contact your lender immediately and explain your situation. The longer you put off notifying your lender, fewer options will be available to you. Not only will contacting your lender early offer you more choices in terms of keeping your home, you'll avoid the penalties and fees that add up as missed payments accumulate.

Remember, it is in your lender's interest to help you find a way to stay in your home if at all possible. Your lender is not interested in owning your home; they simply want repayment of your loan. And because foreclosing is an expensive process for lenders, your lender may be willing to make changes to your loan or repayment schedule if the problem you're having is likely to be temporary. Don't let time run out.

2. How can I find out what my home is worth today?
Although you could order and pay for a professional appraisal to find out what your home is worth in today's market, the easier and less expensive way to determine your home's value is to call on us. We'll conduct a Comparative Market Analysis (CMA) to determine what your home is likely to sell for based on recent sales prices and current list prices of comparable homes in your area, along with other factors such as your home's age, condition, location, style, amenities, etc.

Bear in mind, the sale of your home involves not just paying off your first mortgage, but also satisfying other lien holders (perhaps a second mortgage or equity line of credit) and paying selling expenses such as attorney fees, brokers fees, unpaid taxes, etc. Although your home's value might equal of slightly exceed what you owe your primary lender, net proceeds from the sale might not be enough to repay that lender -- meaning your home sale would be a short sale.

3. Who can qualify for the government-sponsored Making Home Affordable Program?
The Making Home Affordable Program offers two opportunities for struggling homeowners to keep their homes. Following is a summary, but for complete information about these nationwide federal-government programs, including participating lenders/servicers, go online to www.MakingHomeAffordable.gov/about.html or call 888-995-HOPE (4673).

A key requirement for securing a lender-approved short sale is hardship. That is, you must prove to your lender -- through a hardship letter and supporting financial documents -- that you are unable (not simply unwilling) to pay your mortgage.

The hardship letter should clearly explain what happened that resulted in your inability to meet your financial commitments. Perhaps you or your spouse lost a job, or your family faces major medical expenses, or your loan's interest rate rose making mortgage payments unaffordable. In addition, supporting financial documents must prove that you do not have other resources -- investments, savings, etc. -- that could be used to pay your mortgage (rules vary but often retirement funds, such as 401(k), IRA or pension accounts, are not pursued). However, if you have other assets or you are current on your other bills for credit card, cable, phone, car payments, etc., a lender may require a cash payment or promissory not at closing before the lender approves the short sale.

Of course, your lender will also look at other factors in making their decision, especially the net proceeds they would accrue should the contract with your buyer go to closing/settlement.

5. How can I determine the best listing price for my home?
Setting the right listing price for your home is crucial to winning lender approval of your short sale. It's a delicate balance. We call it "Goldilocks Pricing." On the one hand, the listing price must be low enough to quickly attract a buyer who is willing to endure the complexities of the short-sale process. (Offering your home in the best possible condition is added motivation for buyers looking at today's bargain-priced properties, some of which are in less-than-ideal shape.)

On the other hand, the higher the price offered by the buyer, the more likely it is your lender will approve the short sale. Lenders agree to short sales when they believe the proceeds are likely to be higher than expected proceeds from foreclosing on the same property. For example, say a lender can expect to recover only 40% to 60% of a home's market value through foreclosure. That lender may be willing to accept a short sale that nets 80% to 85% of value after all settlement costs are subtracted. While some lenders will negotiate, responding with a counterproposal if they do not like the initial offer price, others will not.

To find the perfectly balanced listing price for your short sale, we'll prepare a thorough Comparative Market Analysis (CMA) that factors in the sales prices of comparable, recently sold homes in the area along with the area's pricing trends -- which we keep a close eye on -- in addition to other factors. Getting the listing price of a short sale right serves all parties involved.

6. Would a lender-approved short sale damage my credit?
Both short sales and foreclosures can damage your credit. However, the difference between a foreclosure and a short sale is the difference between broken credit and dented credit.

A foreclosure is a court settlement process, involving legal action and possibly attorney fees, that will appear on your credit report for years and dramatically lower your credit score.

A lender-approved short sale, on the other hand, is a negotiated settlement with the lender. While it is likely to show up on your credit report, a lender-approved short sale will not lower your credit score nearly as much as a foreclosure.

If you have a lender-approved short sale on your credit report -- rather than a foreclosure -- you'll have much better options sooner in terms of buying another home, qualifying for loans or credit cards, securing reasonable interest rates, finding rental housing, even applying for insurance.

7. How would a lender-approved short sale affect my income taxes?
Until recently, mortgage debt forgiven by a lender was considered to be part of the borrower's taxable income -- meaning the taxpayer would have to pay income taxes on the forgiven amount.

That rule changed on December 20, 2007, when President Bush signed into law the Mortgage Forgiveness Debt Relief Act of 2007, which excluded forgiven mortgage debt from taxation -- within limits. The exclusion applies to a taxpayer's principal residence, with the excludable amount limited to $2 million. Initially, this relief was available only for qualified indebtedness forgiven in calendar years 2007 through 2009. However, the Emergency Economic Stabilization Act of 2008 extended the relief time period by another three years, through 2012.

Some other restrictions apply; be sure to consult a knowledgeable tax professional for all the details.

8. Must I be behind in my mortgage payments to negotiate a short sale?
While it was true earlier in the foreclosure crisis that some lenders before they were willing to consider a short sale wanted a borrower to be delinquent (late payments) or in default (notice sent of formal foreclosure proceedings), that trend has almost entirely ended. Today most lenders are looking for verifiable hardship, monthly cash flow shortfall or pending shortfall and insolvency. If you meet these requirements and you are running out of money to continue paying your mortgage, a short sale may be your best option. Don't wait until the foreclosure clock has counted down before you have even less time left to act.

9. Do you work with all banks?
Yes, we have experience working with many different banks and lenders both locally and across the United States. Because our short sale sellers have mortgages with a wide range of institutions we do not limit which lenders we work with and which we do not.