FAQ
Frequently asked questions for a Short Sale Process:
- What happens to the seller’s credit rating when the lender approves the short sale of their property?
What typically happens is that the loan will show up as “paid” on their credit report; however there will be a notation that says “settled for less than originally owed” (or something along these lines). It is more favorable for a homeowner to short sell than to have a foreclosure on their credit report (less point takes away and better seen when you get ready to buy another property later). - What’s a Short Sale?
A short sale is really a form of pre-foreclosure sale and occurs when the mortgagee agrees to accept less than the loan amount to avoid foreclosure. A negotiated short sale results in a discounted purchase price for the buyer. The buyer would finance the acquisition much the same as in any conventional realty acquisition… (time frame is about 90 days for final sale depending on lender and hardship of the sellers). - Can an owner profit from a Short Sale?
The seller cannot profit (monetarily) from a pre-foreclosure short sale..But there are always exceptions to the rule (ex. FHA incentives ) - How do bankruptcies affect the possibility of doing a short sale?
Most mortgagees will not consider a short sale if the homeowner is in bankruptcy…why? Because negotiating a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcies. - Can somebody tell me what documents do I have to include in a Short Sale package?
Documents requests are different from lender to lender. Each lender has different requirements. It is typical to require hardship letter, purchase and sales contract, settlement statement (HUD 1), net sheet, (last 3) pay stubs, (last 3 months )bank statements, personal financial sheet (monthly budget), amongst other things, last 5 numbers of the social security related to the account. - What percentage of mortgage companies send someone out for an appraisal on a possible short sale?
All lenders order a BPO (Broker’s Price Opinions) or full appraisal of the property before making their decision to accept or reject the short sale offer. This is their only way of assessing the value of the property. They take into consideration the condition and possible repairs for the final price. - How late in the pre-foreclosure process can you start a short sale?
Try to allow a window of at least 90 days to effectuate a mortgagee approved pre-foreclosure short sale. - What is a Due on Sale Clause?
“Due on Sale” Clause (DOS) Provision in a mortgage or deed of trust calling for the total payoff of the loan balance in the event of a sale or transfer of title to the secured real property. A contract provision which authorizes the lender, at its option, to declare immediately due and payable sums secured by the lenders SECURITY instrument upon a sale of all or any part of the real property securing the loan without the lenders prior written consent. For purposes of this definition, a sale or transfer means the conveyance of real property of any right, title or interest therein, whether legal or equitable, whether voluntary or involuntary, by for deed, leasehold interest with a term greater than three years, lease-option contract or any other method of conveyance of real property interests. This is a standard language which states that the loan must be paid when a house is sold. - Will banks allow a short sale when the owner has some or a good amount of equity?
If a property has what the lender would consider a substantial amount of equity, chances are they would consider allowing the property to foreclose and then reselling it closer to the retail value. Focus on homes that do not have much equity. Your job will be to create the equity in the home by negotiating a successful short sale. - What is a “deed in lieu of foreclosure”?
This is when you ask the lender to take your property back because you can’t sell, maintain it or can’t keep up with it at all. Then, the lender will allow giving up the keys instead of foreclosing in the property avoiding most of the legal cost. The lender will have to approve this based on hardship and history of the attempts to “get rid of the property”. It can show as a foreclosure in your credit report. - Can I short sale more than one property?
Again, it will depend on the specific lender and their own financial situation. - Can I stay in the home until we finish with the short sale?
The short sale will not necessarily stops the foreclosure but the lenders nowadays like it better when the home is occupied because the lender then will not have to lose more money into the maintenance of the house. - Do I have to keep up with the tax and insurance payment until the foreclosure is complete?
We recommend you do this for a better and easier short sale but of course some financial situations will not allow this to happen.
For additional information, please contact one of our Panama City real estate short sale professionals directly (850) 774-6582.
