Short Sale FAQ
What is a Short Sale?
A "Short Sale" or "negotiated settlement" or "short pay" occurs when a lender agrees to accept less than the amount owed to pay off a loan as an alternative to foreclosure. If the property is worth less than the amount owed on the loan, then even if the lender forecloses and takes back the property, they know they are going to take a loss. It is possible to convince the lender that it is to their benefit to take less than what is owed now rather than taking the property back by foreclosure and trying to sell int later.
How long will it take?
The Short Sale negotiation process is not short. It may take several weeks, or several months, to get an approval. Many lenders have several layers of bureaucracy, insurers, and investors that have some interest or authority over the decision. It is important to be patient during this long process.
My house is going to Foreclosure - will I have enough time?
Maybe, and maybe not. Attempting a Short Sale will not automatically stop a foreclosure. It is often possible, however, to convince a lender to stop foreclosure to attempt a short sale. There are no guarantees, but it doesn't hurt to try.
Can I stay in my house during a Short Sale?
Yes, but remember that the goal is to get the house sold before the bank completes foreclosure. Either way, you will need to move eventually and it may be easier to complete the sale if the house is vacant.
How do I know this will work?
The short answer is that you don't. No one can or should make any promises to you that it will work. Once a payment is missed, the lender is in charge and can proceed to foreclosure if they want to. The good news is that they don't want to, and it is possible to present them with options that they would rather accept than foreclosure.
Will I get any money from the sale?
No. A universal requirement of lenders in granting a short sale is that the borrower will not get any proceeds from the sale of the property. The lender is going to take a loss on the loan, so they won't let a borrower get any money from the deal.
What happens if this doesn't work?
Your home will likely go into foreclosure. A Short Sale is something we try after you have exhausted your other options.
What is a "Release"?
A lender may offer to "release" its security interest against the property in exchange for less than the total amount of the note. A release will allow the property to be sold without paying off the obligation of the note. However, this note is not satisfied. Advantage: This successful Short Sale will allow the property to be sold and thus avoid foreclosure. Disadvantage: The remaining debt on the property ("deficiency") still exists. Your are still liable for the note - you still owe the money. Reality: It is not likely that the lender will persue the deficiency unless you have other significant assets, and if the property goes to foreclosure you may have a deficiency anyway.
What is a "Satisfaction"?
A lender may agree to accept less than it is owed as complete and total satisfaction of the note and release its lien against the property. Advantage: Your note and obligation to the lender are satisfied for less than you owe. When the property is sold, the debt is paid of completely. Disadvantage: You may have some tax consequences that you should discuss with your tax advisor due to the fact that the lender is making money you owe disappear.
How can I help make my Short Sale successful?
The lender will require a review of a financial package and other information. Items almost always required include:
- Two months' bank statements
- Two months' pay stubs
- Two years IRS tax returns
- A statement of hardship
The leading cause of delay or denial of an offer to the lender is failure to deliver these items in a complete and timely manner.
More information about Short Sales can be found on our blog.
