Questions Regarding Short Sales? – Sherman Oaks Homes

by Mario Acosta on May 19, 2011

in Local Topics, Market Trends, Sellers, Short-Sale

Some Frequently Asked Questions:

What are the advantages of a Sherman Oaks short sale?
A short sale can minimize the damaging impact to your credit and can minimize your financial exposure and liability. A foreclosure can remain on your credit for up to seven years while a short sale usually gets reported as a “settled debt” and is significantly less damaging. With a short sale, your FICO score will not be as negatively impacted as it would be with a foreclosure, and you will be able to get into a new home much sooner as well. In certain foreclosure situations, the lender will ultimately sell the property at a significant discount once they foreclose and repossess the property. The homeowner can then be financially liable to the lender. While the same may be true with a short sale, the difference is with a short sale the homeowner is still involved in the process, and can therefore contribute their input and have more control over the sales price of the property and the potential associated liabilities. In a foreclosure, however, once the lender repossesses the property, the homeowner typically cannot control what follows next.

Why would my lender agree to a short sale?
In most distressed mortgage situations, foreclosure is a last resort for all parties involved. Simply put, both the homeowner and the lender usually want to avoid foreclosure at all costs. That is why lenders have come up with various alternatives to foreclosure, which they are typically very motivated to pursue prior to going to foreclosure. A short sale gives the lender the ability to cut its losses up front, thereby avoiding the expense and time of a foreclosure and potentially greater losses. Lenders want to make loans; they do not want to be in the business of owning and managing real estate. In many cases, a short sale offers a better return on the lender’s investment than a foreclosure.

Why shouldn’t I negotiate with my lender directly?
Just as most borrowers use a professional to initially get into a mortgage, we firmly believe that it is in their best interest to do so if they are in the unfortunate position that they need to get out of a mortgage. At best, you only get one shot to negotiate your way out of foreclosure, and while it is certainly possible to negotiate with the lender yourself, it is highly unadvisable. Most lenders’ loss mitigation departments are understaffed, and the overworked loss mitigators are usually overloaded with all parties vying for their attention. Unfortunately, the loss mitigator can be very difficult to get a hold of, and when you finally do get through, you have very little time with which to make your case. Because our short sale team works with all lenders and represent numerous homeowners in our area, we understand how to collect, prepare, and effectively present the information that lenders require to seriously consider a short sale. We have excellent working relationships with the lenders’ loss mitigation departments, and we will leverage our network and expertise to help you solve your problem.

What is my potential liability after completing a short sale vs. a foreclosure?
As with a foreclosure, there are several potential tax and liability considerations when doing a Sherman Oaks short sale or loan modification, however, they are typically less severe than they would be with foreclosure. After completing the short sale, your lender may decide to issue you a 1099 for the difference between the price your home sold for and what you owed, and you can later be taxed by the IRS and state taxing agency on this amount as income. It is important to note that if specific criteria are met, the IRS may release the borrower from this tax liability. In some states and with certain types of loans, following a foreclosure sale, lenders may have recourse in that they can pursue a court decision called a “deficiency judgment” making you personally liable for the remaining amount owed to them above the foreclosure sale price. The lender has sole discretion whether to pursue a deficiency judgment in those instances when it is permitted. With a short sale, by contrast, the lender often releases the borrower from the difference between what was owed and what the property sold for, thereby releasing both the lien and the loan. In some cases, however, while the lender may release the lien, they may also ask you to pay a portion of the remaining loan balance in the form of an IOU. Our team diligently apply ourselves to every situation with the goal of negotiating with the lender to eliminate the remaining balance, minimize your tax liability, and consider your debt as settled.  We cannot give you advice regarding the tax or legal consequences of a short sale, loan modification, other loss mitigation solution, or any other transfer of the property. We strongly encourage you to seek independent tax and legal advice regarding the advisability of entering into a short sale, loan modification or other loss mitigation solution.

As my Real Estate Agent, what other services do you provide during the Short Sale process? As local real estate experts, we are well versed in the intricacies of valuing, listing, marketing, and selling short sale properties. Once we begin working with you, we will take all the necessary steps to find the right buyer for your home.  The short sale process can not start until we have an offer from a buyer to submit to your lender for approval.  Pricing and marketing the property correctly, together with finding the right buyer will help to ensure that your short sale is a success.

How do I qualify for a short sale?
In order to be eligible for a short sale, a homeowner must be able to prove to the lender that they are a victim of a “hardship,” and are, therefore, unable to continue making payments on their mortgage. A hardship situation is one that is the result of some extenuating circumstance that forced the borrower into a position where they can no longer afford their mortgage payments.

How much will your short sale services cost me?
Absolutely nothing out of pocket. Our broker and negotiation fees are paid by your lender and we provide our services at no cost to the homeowner. Our short sale fees are never directly paid by the homeowner, and we are only compensated if we successfully negotiate a completed short sale.

How long does a short sale typically take to complete?
Every short sale is unique and follows its own timeline. Typically, a short sale is completed within one to four months from the time we have a complete short sale package ready to present to the lender. Having said that, we have successfully negotiated a short sale in as little as two weeks. Timing depends on how quickly we can begin negotiating with your lender.

When should I begin the short sale process?
As soon as you possibly can. Foreclosure situations tend to be extremely time sensitive. The sooner we can begin the negotiations with your lender, the greater the chances of a successful resolution.

What do I need to provide your team in order to get the short sale process started?
We would only need a few documents from you in order to open your file and get the process started. Here is what we need to get started:  (1) signed Residential Listing Agreement, (2) signed Authorization Form (one for each lender), (3) completed Property Profile, and (4) most recent mortgage statements for all loans on your property and any correspondence from your lender(s) regarding your mortgage(s).

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Post by Mario Acosta

Mario has written 117 articles.

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