Important Questions to Ask Before Starting the Short Sale of Your Home

Many time homeowners need to sell a home, but the homeowner cannot sell the home for enough to pay off the mortgage. One way of solving this problem – and avoiding foreclosure – is to sell your home in a “short sale.” With a short sale, you sell your home for whatever the current market will bear, and your lender agrees to accept the proceeds of that sale and release the lien on the home.

A short sale is not to be taken lightly. Before you pursue a short sale of your home, you should consider these important questions:

  1. Do I have a Qualifying Hardship? Lenders generally will accept a short sale when the mortgage holder has a bona-fide inability to meet their current mortgage obligation, or a “qualifying financial hardship.” There are a number of reasons why a homeowner may face financial hardships — job loss, divorce, and medical bills are just a few. Although a hardship is not required to pursue a short sale, a hardship will allow the short sale a greater chance of success.
  2. Who are the lending institutions for my loans, and how do they handle short sales? Every lending institution has a different set of guidelines and policies to process short sales. Some work quickly and some work slowly. Knowing how your institution works is an important part of being successful. Most Realtors that process short sales should be able to guide you as to how your lender operates.
  3. Does my Realtor understand how to work short sales with my lending institutions? Short sales are a relatively new type of sale that many independent Real Estate Agents are unprepared to manage. If your agent is part-time, new to the process, or has not closed many transactions of this type, be concerned. The bank you are about to negotiate the short sale with is likely processing thousands of these transactions and is fully prepared to get the best deal it can. Make sure you have a Realtor that is fully prepared as well.
  4. What are my tax consequences? When should I talk to a CPA? In every short sale, there are potential tax consequences that a seller must manage. Asking your CPA or tax advisor about your situation and possible consequences is a very important part of planning for your future.
  5. Are my loans “recourse” or “non-recourse” loans? Could I be held liable for the loans later? Most loans are written as “non-recourse,” meaning that the lender will not be able to pursue you in the future for a loss incurred. However, some loans are recourse loans in which the financial institution may choose to pursue legal and collection avenues for the loss. Even this aspect can be negotiated – after all, the lender does not want your house back, and stands to lose thousands if there ends up being a foreclosure instead of a short sale. Make sure your Realtor is prepared to help you negotiate if you are in the “recourse” category.

In many situations, a well-planned short sale of a home has significant advantages over a foreclosure. If you are facing financial hardship, if your home is worth less than what you owe on it, if you are unable to pay the bills, if you need to sell due to relocation of a job, then pick up the phone and give us a call – we can help.

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Freddie Mac Not Pursuing Deficiency in Short Sales

In their Feb 15th, 2012 Bulletin to their servicers, Freddie Mac stated that in the event of a successful short sale closing where all parties have acted in good faith they will accept the proceeds of the sale and will not pursue the borrowers for the deficiency (entire amount owed on the original mortgage note). Furthermore they have instructed all servicers to release the lien and mark the mortgage note as “Satisfied”.

This is good news for those sellers who have Freddie Mac as the investor on their loan and who need to do a short sale.  Most servicers are acknowledging the regulation change with adding deficiency language to their approval letters. Of the major lenders Aurora is the only one we have come across who is thus far refusing to add the proper deficiency language. (Shame on you, Aurora)

To see the Freddie Mac Servicer Bulletin please go to: http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1205.pdf

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