Short Sales Explained

 What is a “Short Sale / Short Payoff”?

 A short sale is when a lender (s) agrees to accept an amount that is less than the total owed in exchange for a release of the mortgage lien on the property. During the short sale process the homeowner is still the owner on Title. A short sale allows the borrower to avoid a foreclosure action, which can be embarrassing and stressful to the borrower. A short sale also allows the borrower to recover their overall credit rating sooner, than with a foreclosure. The borrower must be under financial hardship, or a relocation that is more than 100 miles away. For the most part you must be at least 1 payment in arrears. 

Who benefits from a Short Sale? 

The Lender(s):

Lenders prefer the borrower continue to live in the property since this avoids further deterioration of property. The lender yields a higher savings by avoiding costly foreclosure expenses that can range from $1500-$4000 for the NOD / NOS. Which allows them to collect and cash-out 6-10 months earlier than if the property goes to foreclosure. Avoids eviction process that can cost $500—$4000. Avoids exceeding 3% of ‘Bad Debt’ on the books that many investors require their lenders not exceed. Avoids the cost of clean-up and possible rehab for lack of sale or vandalism on a vacant REO. Avoid receiving less with a Foreclosure than they would realize early on with a short sale.

The Borrower:

A short sale allows the borrower time to save money to move when the short sale process comes to it’s conclusion. The homeowner has time to relocate without the possibility of eviction or a deficiency judgment down the road. They are not under obligation to make payments during this process nor pay property taxes. Obviously for the reason they are suffering a financial hardship. With a short sale the borrower can lose up to 50-120 points, but recuperate this negative credit scoring within 2-3 years, as opposed to a foreclosure that can stay on their credit report as ‘bad credit’ and a public record for 7-10 years and a loss of 175 - 350 points.

The Realtor:

Is in a professional position to assist the borrower with experience, expertise and knowledge. Allowing the borrower to make informed decisions by navigating them towards the appropriate entities they should be consulting with such as Attorneys, CPA’s regarding possible tax or legal consequences.  

Short Sale Team Roles Explained:

Realtor:

Takes a short sale listing, qualifies the seller/ borrower. Collects the short sale data, prepares file, sends short sale package to lender. Reviews the preliminary report and starts negotiating with the second TD and other lien holders, judgments, lis pendens, etc. . . Follow-up calls with Lender, meets appraisers. Proves your case to the lender. Coordinates the regular real estate transaction to a successful close.

Seller/Borrower:

Provide Realtor with all necessary Financial documentation, understand the process of short sale. Seek the advise of a CPA regarding tax ramifications if any or tax strategies. Seek legal advise regarding any legal ramifications or legal strategies that may be available to them.

Lender:

Receives the short sale package and assigns a short sale negotiator to the borrowers case. They must work along with the investor whom is losing thousands of dollars and negotiate a short payoff or go to trustee sale. They will approve amount that goes to secondary lien holder, and all other charges. The negotiator will also request additional documentation or clarification from you to get from the borrower.

They will also order an appraisal or BPO. Process can take between 30 - 90 days, worst case 6 months to one year.

Title:

Upon receipt of your SI the title officer will prepare you preliminary title report. This is the most important report to a short sale. Call to update every 30 days to make sure nothing new has been recorded against the property or seller.

 Escrow:

The escrow officer will receive the preliminary report and request release of liens or payoffs from lien holders. They will also prepare your estimated HUD1 many times over. Important to have HUD1 done correctly.

Marjie Kosic and her team assists homeowners through a difficult time in their lives with the respect and dignity they deserve.

All information herein deemed reliable, but not guaranteed.