How to Short Sale My Home
What is a short sale?
A short sale, also known as a short payoff, allows a homeowner to sell their property for less than the amount owed to the lender. Many homeowners in Henderson and Las Vegas, Nevada are what we call up-side-down or underwater. They owe more on their mortgage than the market value of the property. Many Nevada homeowners have added default charges attached to the loan from either non-payment or loan modification terms. These charges can add up quickly and make the short sale process even more difficult. To avoid foreclosure the homeowner can short sale the property by paying off the mortgage holder through the proceeds of the sale. The lender must approve all the terms of the sale and accept the payoff amount from proceeds in an approval letter.
If I sell my home in a Short Sale when will I be able to purchase another home?
There are many options after your short sale depending on your situation.
The following guidelines are effective as of August 2014:
FHA Loan 1 year after short sale with 3.5% down, documented hardship, no late pays prior to short sale, and Mortgage Insurance approval
Conventional loan 4 years after short sale with 20% down
Conventional loan 4 years after short sale with 10% down if you can document and verify extenuating circumstances beyond your control
VA loan 2 years after short sale or less if you can document extenuating circumstances and you owe no other monies to the government.
With your specific circumstances such as death, severe illness, etc. there could be exceptions.
How much do you charge to help me with my short sale?
Nothing, our fees are paid by the bank at close of escrow.
Can I participate in a HAFA Short Sale if we list with you?
Yes, one of the first steps we take is to see what type of short sale you qualify for. I you are eligible we will supply you with the HAFA Guidelines and required HAFA Paperwork for your lender.
Can I Short Sale on a FHA loan?
Yes you can short sale on a FHA loan. There is one major difference in a FHA short sale we will be negotiating the short sale with the government agency of HUD (Housing and Urban Development) instead of the lender. The process is a little different in that FHA has different time requirements that they must follow per government guidelines. To ensure that we meet the time constraints we do the process backwards and request to do the short sale prior to getting an offer.
I’m not late on my mortgage yet, when can I get started?
Now, you don’t have to be late on your mortgage to start the short sale process. If you can see you are headed for trouble, it is time to talk to us about listing the property. In some circumstances you can short sale without ever missing a payment.
I’ve missed 3 or more payments, is it too late?
No, the bank has to adhere to guidelines for foreclosure and these guidelines take time. It is best to get started as soon as possible, but you still have time to get short sale done. In the state of Nevada, after three missed payments you will receive a Notice of Default and have 30 days to remedy the default. If after 30 days you are not able to pay off the defaulted amount the lender will file a Notice of Sale Date. It is always best to look at your options prior to the Notice of Sale. Some of the other Loan Resolution (Loss Mitigation) Options are as follows:
Short Sale:
Allows the owner to sell the home and use the proceeds to pay off the mortgage if they are unable to maintain payments, even if the home’s market value is less than the total amount owed. Avoids the lengthy legal process involved in foreclosure. Generally a Short Sale is less damaging to the credit rating than foreclosure.
Repayment Plan:
The delinquent past due amount is distributed over a period of time, usually no more than 10 months. The monthly amount is added to the usual mortgage payment. This brings the account up-to-date within a specified time-frame. With a goal in sight, the owner can move forward knowing that the home is secure.
Forbearance Plan:
An agreement to temporarily allow a homeowner to pay less that the actual amount due on their mortgage or it will suspend payments entirely the forbearance period. More commonly associated with Fannie Mae, Freddie Mac, FHA, and VA. Each has various requirements a homeowner must meet, it is very situation specific so the homeowner should contact the lender directly to see if forbearance is an option. The goal is to put the homeowner back on track to resume full regular payments.
Loan Modification:
A Loan Modification applies any past-due interest and escrow amounts to the unpaid principal balance, which is then re-amortized over a new term. The changes include new payment per month, new interest amount, and a new balance due. These changes are made to mortgage note itself, giving the owner a fresh start on managing their loan. It brings the account up-to-date immediately. There are many requirements to qualify for a Loan Modification; the homeowner must contact the servicing lender for details of their individual circumstances.
Partial Claim (only for FHA loans):
The Department of Housing and Urban Development (HUD) executes a promissory note with the homeowner that becomes a subordinate mortgage. This subordinate mortgage will reinstate the delinquent loan. The HUD loan is interest-free.
Deed In Lieu of Foreclosure:
When a Short Sale is not a viable option you may voluntarily transfer the ownership of your property to the owner of your mortgage in exchange for a release from your mortgage loan and payments. This option shows as a foreclosure on your credit however it shows to future creditors that you took proactive approach to the situation.
What if I file Bankruptcy?
Before you file bankruptcy please speak with your bankruptcy attorney as to whether you are able to short sale or not. If you are in a bankruptcy and decide to short sale the bankruptcy court will have to approve the short sale and provide documentation to the lender that you can move forward with a short sale. If we are in the short sale process and you file bankruptcy the short sale process will be canceled and the lender will transfer the file to their legal department. If you are exploring this option please let us know so we can properly prepare the short sale.
What’s the first step?
Contact us and we will set up a no obligation consultation to go over your options based on your circumstances, discuss the type of loan you have and go over the process and timelines you should expect. You will not be pressured into listing your property this is just an informational meeting to see how we can help you. It takes both the agent and the owner to complete a successful short sale. So we will only list your property when you ready to take on the short sale process.
What information will the bank need to decide whether to accept a short sale?
The Short Sale submission package from the Sellers (all Borrowers) should include the last two months of paycheck stubs, W-2 forms from employers (or a letter explaining the seller is unemployed), last two months bank statements(all pages), two most recent years of tax returns, Third Party Authorization form(gives The Gonzales Team Henderson Short Sale Specialists permission to speak with the lender)4506T form, the lenders short sale packet filled out, and a financial document outlining income and debt obligations. The bank will also need comps or a broker’s price opinion showing your estimate of value. In addition, the sellers should submit a “hardship letter,” explaining the circumstances that make it impossible for them to pay the full amount of the loan. These items are to show true financial hardship.
How should the property be priced in a short sale?
It is best to price the property at or near fair market value. Based on where you are in the foreclosure process will dictate how the property is priced and how quickly the price will be adjusted. The lender will perform a valuation on the property and will accept an offer or counter offer based on market value at the time the valuations are completed.
The property is listed, now what?
The property will be marketed just like any other listing. The Gonzales Team Henderson Short Sale Specialists will be in contact with your lender. You the Seller will still be receiving communications from the lender. Explain to the lender that you have the property listed as a short sale and direct them to speak with your Realtors the Gonzales Team Henderson Short Sale Specialists at 702-291-8126.
We have an offer, now what?
The Seller will sign off and accept an offer however it still needs to be approved by the lender(s). Submitting the offer and supporting information timely and correctly is one of the most important steps. The Gonzales Team Henderson Short Sale Specialists will take care of communicating with the lender(s) you have to make sure you are ready for any requests from the lender(s) and the approval. We will coach you through your responsibilities so the transaction closes smoothly once we have the bank approval(s).
How long does it take the bank to approve the sale?
That varies greatly depending on which bank holds the note and what type of short sale your loan requires. Some banks respond very quickly, others require 45 to 90 days to give an approval.
The bank has approved the sale, now what?
We start escrow just as if it was a regular sale. The title company address title issues and provides pay-offs, the buyer’s lender secures a loan, and you prepare to convey the property to the new owner.
What if the bank does not approve the offer?
The bank will counter the buyer on terms or price. The buyer can accept, counter or reject the counter. If they accept, you go to escrow. If they reject we put the property back on the market. If the buyer counters the bank will possible negotiate however this will extend the negotiations timeline.
Will the buyer wait for an approval?
We have a system in place to keep the buyer involved and informed. This helps them be patient with the process and keeps them interested in the property.
Will a short sale affect my credit?
Yes, unfortunately there is credit consequence for not paying, late paying or a short payoff of your mortgage. This varies based on the bank, terms of your loan and how many payments you miss. It damages your credit less than a foreclosure.
If my spouse is not on the mortgage will his/her credit be hurt?
Not usually.
Who pays commissions and closing costs?
The Short Sale bank(s) will pay the commission and closing costs however there are a few fees that they will not pay or shall I say not able to pay per short sale guidelines. The fees that the banks will not pay are upfront HOA demands, HOA Resale Packages, HOA Transfer fees, past due HOA fees, HOA liens, water liens, trash liens, sewer liens, and IRS liens(we can help you negotiate with the IRS to remove IRS liens). We understand that there is a financial hardship for the homeowners of a short sale so we do our best to negotiate for all the fees to be paid. We negotiate a “net” settlement with the bank in order for them to release the lien on the property. This net pay off is after all fees associated with a traditional real estate transaction: real estate commissions, title fees, escrow fees, buyer closing cost, home warranties, etc.
Do I need to pay my HOA fees?
Yes, you need to pay HOA dues on time. After 3 months of non-payment of HOA dues the HOA management company will transfer your file to an attorney for collections. This can sometimes be in excess of thousands of dollars, therefore we do ask you to try very hard to keep the HOA dues current. Current Nevada Laws allows the HOA to foreclose on the property from non-payment of HOA.
What tax liabilities will a seller have as a result of a short sale?
The IRS requires lenders to submit a Form 1099-c form stating the cancelled debt. Sellers who meet the Internal Revenue Service definition of insolvency (either in bankruptcy or with debts exceeding assets w/o bankruptcy) will need to file an IRS Form 982 for this exclusion. Ask your CPA for all details.
As a REALTOR®, we are not licensed as a lawyer or a CPA and cannot advise on all matters of the short sale process. Please obtain advice from a competent Nevada real estate lawyer on legal issues and discuss with your accountant on the tax ramifications that may be unique to your specific situation.
