The Citrus County Dream Team
- NEED TO SELL NOW?
- FACING AN ECONOMIC HARDSHIP?
- BEHIND ON YOUR PAYMENTS?
- FACING FORECLOSURE?
has SHORT SALE SPECIALISTS who can help
you explore your options. Please review
the following information to better
understand this process.
After reviewing this information, if you live in Citrus County and would like one of our team members to contact you about a Short Sale please Click Here.
Frequently Asked Questions:
What is a Short Sale?
In the world of Real Estate, a short sale refers to the sale of real property for an amount less than the amount owed on the property. In the short sale scenario, the bank agrees to accept less than the full balance due on the debt, and usually ‘forgives’ all or a large portion of the difference.
Who qualifies for a short sale?
Banks will usually approve a short sale for an owner who has a legitimate hardship, who does not have assets to bring cash to the closing to pay the difference, and whose personal financial statement shows more monthly expense than income. Legitimate hardships can include: loss of a job, a job transfer, medical expenses, death in the family, divorce, and in some cases economic hardship caused by falling housing values and increasing expenses.
How does a short sale compare to a loan modification?
A short sale is the opposite of a loan modification. A loan modification should be the first choice for a homeowner who wishes to stay in their home. In a loan modification the owner will be convincing the bank they do qualify to continue to make payments if the payment amount is reduced (for a loan modification please contact your lender directly). A short sale is the best choice if a loan modification has been denied or the owner does not wish to (or cannot) stay in their home. In a short sale the owner is convincing the bank that they have a hardship that makes it impossible for them to continue to make payments on the home. If the bank does not work with the owner to short sale the home, the bank will be forced to take the home by the foreclosure process.
How will the Short Sale affect my credit?
Short Sales are still a relatively new concept. Banks have the option of submitting the short sale to the credit bureau as "Paid in Full" or "Settled for less than full balance". Some have the idea that this is like a bankruptcy or a foreclosure. That's far from the truth! In a short sale, the lender is simply allowing you to pay less than you owe!
If you are currently behind on your mortgage or facing foreclosure, the short sale may actually help your credit! How? Because once you are approved for the short sale, all collection activity will STOP and you will avoid foreclosure!
Who benefits from the Short Sale?
Short sales are a win-win situation. Lenders, Mortgagees and Realtors all benefit from the successful short sale. Mortgagors get the majority of their money back, Mortgagees get the relief they need and are able to sell their property and avoid foreclosure, and Realtors can facilitate the transaction and receive compensation (commission) from the sale of the property.
Why would banks forgive the difference?
To minimize their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property ‘back’ through foreclosure, a short sale often makes a much wiser business decision for the bank.
This sounds too good to be true!?
Not really. Things that are ‘too good to be true’ usually don’t make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is, Mortgage companies and banks are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.
Can FHA, Conventional or VA loans receive a short sale?
Yes! We have successfully negotiated short sales for each of these loan types.
Why does my property have negative equity?
Here are a few common reasons:
What is Negative Equity?
- Person bought at the height of the market and the market has now declined or paid more than the property was worth.
- The area has become less desirable for any number of reasons, so property values have declined.
- Person purchased the home with little or no money down and wants to sell within a few years of purchase… and the property value has not increased during that time. Therefore, costs associated with selling the property may create a balance due at closing.
- Person refinanced the home (with a high appraisal value) and now has little or no equity.
- Person bought in a brand new subdivision or recently developed area that has not been fully developed or has not appreciated (or has depreciated) in value.
- The market is soft because there is too much builder (new home) inventory or too many existing homes on the market (buyer’s market).
Also known as being "upside down" negative equity is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. For example, if your car is worth $10,000 and you owe $15,000 on it, you would have a negative equity of $5,000. Negative equity can result from a decline in the value of an asset after it is purchased.
Some areas decline in value. In other areas, prices may remain flat so that the properties in that area do not appreciate. If a seller wants to sell within 2-3 years of purchasing their property, they may be in a situation where they have negative equity.
What if I owe what my home is worth?
Even if you owe exactly what your home is worth, you may still need to do a short sale in order to pay for the costs of the sale (Realtor fees, Title Policy and other seller closing costs).
Why not just let my lender foreclose?
NO! What is the first thing banks do when they foreclose on a property? Hand it over to a real estate agent to get rid of it quick! The foreclosure process is a legal process. It involves attorneys and it costs MONEY. Once they get the property back via foreclosure they must often sell it for MUCH LESS than market value and pay Realtor commissions and all customary closing costs. Doesn’t it make more sense for them to take at or a little below fair market value before foreclosing?
And, even when they do sell it through foreclosure... this does NOT remove your obligation to repay the remaining balance! It is not wiped away!!
What if I'm not behind on my payments?
In many cases short sales work – even if you’ve never missed a payment!
Yes, I know… short sales have gotten a stigma of being only available for folks who are in foreclosure. But I have successfully negotiated dozens of short sales for folks who have never missed a mortgage payment! They just happen to be in a negative equity position and need the short sale in order to sell their home.
How long does it take?
Short sale approval can take 60-90 days.
What if my home is already in foreclosure?
Your foreclosure sale will usually be suspended during the short sale process. That's why it's imperative that you contact me right away!!
Will my lender send me a 1099 on the debt forgiven?
In 2007 the U.S. Congress passed the Mortgage Debt Forgiveness Relief Act and it is in effect until 2012. As a result of that act, borrowers no longer pay taxes on the debt forgiven on their primary residence. So if the property is your primary residence, then no, you should not receive a 1099 for the debt forgiven or have to pay any taxes on the forgive debt.
For investment property, the lender does have the right to report to the IRS the amount they have ‘forgiven’ in a Short Sale transaction, the amount of the resulting tax will be far less than the debt forgiven. For example, we had one client who did get a 1099 for $30,000 forgiven. This resulted in additional taxes of $1,300 for that year. The resulting tax is far superior to paying the difference of the debt. Also, if the property is in foreclosure, the foreclosure would have a much more devastating effect on you than the amount of the 1099.
We advise you to consult with the appropriate legal, tax and financial professionals.
How much will the short sale cost me?
We strive to complete the entire short sale process without having the seller bring any money to closing. In late 2007, some lenders changed their policies and there are certain expenses that the lender might not pay, such as unpaid Home Owners Association dues, certain escrow fees, and some minor closing costs. In most cases, these items total no more than $300 - $800. We will not know exactly how much they will be, if any, until we are closer to closing. It is a good idea to set aside $500 - $1,000 for these incidental expenses.
Although this may sound high, it is usually less than one month’s mortgage payment. The Citrus County Dream Team will work to get the lender to forgive your unpaid taxes, unpaid mortgage payments, pay all of the REALTOR fees associated with the sale and customary seller closing costs. The savings to you is typically in excess of $20,000, so the amount you might have to bring is a small price to pay for the large debt forgiven.
What Information will you need to provide to us for submittal to the Lender?
We have forms for the Authorization Letter and Financial Statement. Also we are willing to help you draft your Hardship letter.
- Complete loan information (including 2nd mortgage if applicable).
- A letter authorizing us to discuss your loan with the lender.
- A Letter stating what hardship is causing this short sale.
- A Personal Financial Statement.
- Copies of your last 2 months Bank Statements.
- Copies of your last 2 years Federal Tax Returns.
- Copies of your last 2 Pay Stubs.
What Additional Listing Paperwork is required?
For Short Sales, we use an addendum to a standard listing contract that has been drawn up by the Florida Association of Realtors®. A preview is represented below:
Short Sale Addendum to Exclusive Right of Sale Listing Agreement
FLORIDA ASSOCIATION OF REALTORS®
A short sale generally occurs when the Seller's net sale proceeds after payment of customary closing costs from the sale of real property are insufficient to pay outstanding mortgage and/or other lien(s) in full at closing. Typically, a short sale seller is in default of loan or lien obligations and is able to document the financial inability to meet ongoing repayment obligations.
The following provisions are made a part of the Exclusive Right of Sale Listing Agreement between (Seller) and (Broker) concerning the Property located
This addendum amends the above-referenced listing agreement between Seller and Broker. All other non-conflicting provisions of that agreement remain in full force and effect.
- Seller authorizes Broker and its agent (whether serving as transaction broker or single agent) to: (a) market the Property as a short sale or pre-foreclosure property in the MLS, in accordance with the MLS rules and regulations or other marketing medium; and (b) continue to market the Property for sale according to the MLS rules and regulations until Seller's lender(s) and/or lien holder(s) (collectively the "Lender") approves the short sale; and (c) disclose or provide any requested information or documentation to the Lender for the purpose of obtaining approval from the Lender in connection with the sale of the listed property; and (d) contact the Lender's loss mitigation or similar department to obtain loan and/or lien status, account and payoff -related information; and (e) provide comparables, broker price opinions (information regarding comparable properties, general condition of the community and the condition of the Property in relation to the other properties in the community), MLS and other data documenting the current value of the Property; and (f) provide any and all mortgage and/or other lien account and payoff information to prospective buyers and/or their agents or brokers; and (g) coordinate visual inspection of the Property by authorized representative(s) of the Lender.
- Seller authorizes Broker and its agent to include a contingency for: (a) approval of the purchase price and all other terms of the sales contract by Seller's Lender; and (b) Lender's agreement to accept a payoff which is less than the balance owed on the loan and/or lien; and (c) Lender's issuance of a release and satisfaction of the mortgage(s) and/or lien(s) upon Lender's receipt of the reduced payoff amount(s).
- Seller shall promptly (upon request) furnish the Lender with copies of the executed purchase and sale contract, preliminary closing statement prepared by the closing agent, seller's financial information such as pay stubs, tax returns, bank statements, medical bills, a hardship letter outlining Seller's financial difficulties to justify the short sale, proof of Seller's assets and liabilities, homeowner or condominium association lien status letters (when applicable) and any other documentation Lender deems necessary to substantiate Seller's inability to make repayment obligations to the Lender.
- Seller acknowledges that the commission offered to a cooperating broker under the listing agreement may be modified if Lender reduces the compensation to be paid to Broker.
- Seller acknowledges that: (a) Seller will not receive any net sales proceeds at closing and may be required by the lender to deposit own funds into escrow; and (b) sale of the Property is possible if the Lender agrees to take less than what was owed as a payoff and that the Lender may require the Seller to pay the difference of what was owed as a deficiency judgment; and (c) if Lender refuses to honor the approved discount(s) and closing is not possible, the Property could go to foreclosure; and (d) if the short sale is successful and there is no deficiency judgment, the discount received may become a taxable event to the Seller. Seller may also be taxed on gain in the value of the property from the date of Seller's purchase to the date of the sale. Seller is advised that other options, including but not limited to modification of the existing loan/lien, refinancing, bankruptcy, foreclosure or deed in lieu of foreclosure may be more appropriate than a short sale. Seller is advised to consult with the appropriate legal, tax and financial professionals.
BROKER__________DATE________ LISTING ASSOCIATE__________DATE________
ERSA-1 Rev. 10/07 © 2007 Florida Association of REALTORS® All Rights Reserved
The information on this web site has been provided as a service to the public. This information is deemed reliable but not guaranteed. We highly recommend that anyone considering a short sale contact their legal counsel and tax advisor. Keller Williams Realty and associates cannot be held liable for this information.
The Citrus County Dream Team is pleased to bring you this information on Short Sales. Specialists in our staff are assigned to handle your Short Sale from the beginning to the end. If you live in Citrus County and would like one of our team to contact you about a Short Sale please Click Here.
If you would like to sell your home but you do not qualify for a short sale we would be happy to list your home. Please Click Here.