Short Sales

SHORT SALES

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I've added another specialty to my Real Estate Business.  In light of what is going on in our economy and in the local housing market, and with so many people facing foreclosure or finding themselves upside down in their mortgages, I have taken special training on helping homeowner in distress, and I've been helping distressed homeowners for over 5 years now.  A foreclosed property in  a neighborhood can have an extremely negative effect on the entire marketplace, and one of my goals is to help homeowners avoid foreclosure completely.  One of the biggest problems according to all the statistices is that most people do not know of their options, if they are facing a financial difficulty.  One of the issues we've been trained in is explaining those strategies to the homeowners, so they can make the best decision for their future, free of charge.

During the past couple of years, foreclosures have become much more common throughout the United States.  During this period, the term "short sale" has been used more and more often.   Short sales are extremely important because, when done properly, they have the potential of allowing a property owner to avoid bankruptcy and foreclosure, even if the property owner owes more to the lender than the property is worth.  The purpose of this page is to provide some basic information about short sales.  For specific information about your situation, please contact me.

WHAT IS A SHORT SALE?

A short sale is the sale of real estate where the lender agrees to accept less than the amount owed on the mortgage as part of an agreed upon sale, instead of completing a foreclosure action of the property.  For example, if an owner owes $400,000.00 to the lender but can only sell the house for $380,000.00, a short sale would allow the owner to sell the property, pay all of his/her  closing costs and obtain a release of mortgage from the lender. 

WHEN WILL A LENDER APPROVE A SHORT SALE?

Although every lender has its own rules, a lender will generally approve a short sale request, if all of the following conditions are met:

• The price requested by the owner for the short sale must be fair and represent the true market value of the property.  The lender will verify the market value by obtaining its own appraisal of the property, often referred to as a broker price opinion (BPO).  In other words, although lenders do not want to foreclose a homeowner's property, they also will not take much less than the property is worth.

• The owner must not have the financial means to pay the balance of the mortgage.  The mere fact that a property owner is behind in mortgage payments and that the property value is worth less than the mortgage owed, is not sufficient for a lender to agree to a short sale.  The lender will need proof that the owner does not have the financial ability to pay the shortfall.  If an owner has the means to pay the shortfall, the short sale will not be approved.  A hardship letter and financial statement, as well as supporting financial information such as tax returns, pay stubs, W-2's and bank statements will all be required.

• Fully executed contract of sale showing a ready, willing and able buyer.  The lender will not approve a short sale request unless the owner already has a buyer ready to purchase. The lender will also require a copy of the listing agreement with the real estate agent.

• None of the proceeds from the sale can go to the seller.  If the owner wants to be able to sell the house without paying the lender in full, then the lender will not allow the buyer to receive any proceeds at closing.

• Proposed HUD Settlement Statement.  The lender will want to see exactly how much it will net from the proposed short sale before it agrees to the short sale request.  Your attorney will prepare a preliminary HUD closing statement and include it in the package being sent to the lender.  The lender will want to see that all of the closing costs are reasonable and that nobody is getting any funds that could be going toward the mortgage.

WHAT ARE THE BENEFITS OF A SHORT SALE?

If approved by the lender in a timely manner, the following are some of the benefits of a properly performed short sale.

• Avoid foreclosure.  The negative effect on one's credit, auction signs, deficiency judgments and other negative consequences of foreclosure may be avoided by the successful negotiation of a short sale.

• Avoid bankruptcy.  Even when a homeowner is behind in mortgage payments and owes the lender more than the house is worth, a successful short sale could allow a homeowner to avoid filing for bankruptcy.

• Eliminate the balance of any mortgage and home equity loan owed to the lender.  Such forgiveness is not necessarily the case in a foreclosure.

• If the owner is insolvent, the forgiveness of  debt is not usually considered a taxable event for the homeowner.  However, a homeowner should always consider all tax implications before agreeing to a short sale. 

WILL A SHORT SALE APPLICATION PREVENT OR STOP A FORECLOSURE ACTION?

Unfortunately, merely submitting a request for short sale approval will not stop a lender from starting or continuing with a foreclosure action.  Therefore, if a foreclosure action has already been started, the homeowner should obtain legal representation while the short sale request is pending because the lender could obtain a judgment of foreclosure before it approves or denies the short sale request.  Lenders take anywhere from two weeks to three months to make a decision on a short sale after all of the documentation is submitted.  This process is  unfair to the homeowner because in Connecticut, the lender's attorney can obtain a judgment of foreclosure in less than two months.  Therefore, it is important to work with an attorney in connection with a short sale, especially if a foreclosure action has already been commenced by the lender.

DOES A HOMEOWNER REALLY NEED AN ATTORNEY TO ASSIST WITH A SHORT SALE?

I believe that using an attorney with experience in the short sale process is important.  If you are behind in your mortgage payments and in danger of losing your home, you need to get advice from the right people.  Many people say to contact your lender as soon as you fall behind in your mortgage payments.  Theoretically, that is good advice.  However, anyone who has tried contacting the lender to work out a payment plan or to request a short sale,  knows that this is not always practical.  

An experienced short sale attorney can help perform the following services for individuals seeking assistance with a short sale: 

• Help you understand whether a short sale is realistic and advisable under your individual circumstances;

• Represent you in the foreclosure action.  If you have already been served with a foreclosure complaint, you may still have time to sell your property through the short sale process.  If you ignore the papers, you will almost certainly lose your home to your lender and may still owe the lender additional money after the foreclosure action is complete.   Contacting our office about the possibility of a short sale is one of many possible options.  If you choose to have our firm represent you in connection with a short sale and a foreclosure action, we may be able to appear on your behalf in court and possibly prevent a judgment of foreclosure from entering against you.

• Negotiate on your behalf with all parties involved in the transaction including your lender, your lender's attorney, and your buyer's real estate attorney;

• Prepare a contract of sale for a potential buyer to sign that can be used in connection with the short sale application;

• Prepare a short sale package for the lender's approval including a hardship letter, financial statement and preliminary HUD settlement statement;

• Prepare all closing documents on your behalf; and

• Complete the closing on your behalf, disburse all funds and obtain a release of the mortgage from the lender

 IF YOU DO NOT QUALIFY TO GET APPROVED FOR  A SHORTSALE, ARE THERE ANY OTHER OPTIONS BESIDES FORECLOSURE?

Yes.  There are several other options, and none of them are as bad for your credit as a foreclosure. These include:

• Loan Modification
• Repayment Plan
• Forebearance
• Deed in Lieu
• FHA Short Re-Finance
• Cash for Keys

For more information, please contact us using the form below.