| Lower Keys Office | |
| Address: |
29967 Overseas
Highway Big Pine Key, FL 33043 Key, FL 33043 |
| Toll Free: | 800.488.3050 |
| Cell: | 305.240.1047 |
| Phone: | 305.872.5265 |
| Fax: | 305.872.4220 |
| EMAIL ME | |
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PLEASE NOTE: The information provided here is meant to generate a basic
understanding of the SHORT SALE process and is not to be considered legal
advice. It is recommended to consult
with a reputable real estate attorney and/or tax consultant for a better
understanding of each individual situation.
A SHORT SALE is a sale of
real estate in which the sale proceeds fall short of the balance owed on the
property's loan. It often occurs when a borrower cannot pay the mortgage loan on
their property, but the lender decides that selling the property at a moderate
loss is better than pressing the borrower. Both parties consent to the short
sale process, because it allows them to avoid foreclosure, which involves hefty
fees for the bank and poorer credit report outcomes for the borrowers. This
agreement, however, does not necessarily release the borrower from the
obligation to pay the remaining balance of the loan, known as the deficiency.
How it works: In a
short sale, the bank or mortgage lender agrees to discount a loan balance
because of an economic or financial hardship on the part of the borrower. The
home owner/debtor sells the mortgaged property for less than the outstanding
balance of the loan, and turns over the proceeds of the sale to the lender.
Neither side is "doing the other a favor;" a short sale is simply the most
economical solution to a problem. Banks will incur a smaller financial loss than
would result from foreclosure or continued non-payment. Borrowers are able to
mitigate damage to their credit history, and partially control the debt. A short
sale is typically faster and less expensive than a foreclosure. It does not
extinguish the remaining balance unless settlement is clearly indicated on the
acceptance of offer.
Lenders often have loss
mitigation departments that evaluate potential short sale transactions. The
majority has pre-determined criteria for such transactions, but they may be open
to offers, and their willingness varies. A bank will typically determine the
amount of equity (or lack thereof), by determining the probable selling price
from an appraisal, Broker Price Opinion (abbreviated BPO), or Broker Opinion of
Value (abbreviated BOV).
Lenders may accept short sale
offers or requests for short sales even if a Notice of Default has not been
issued or recorded with the locality where the property is located. Given the
unprecedented and overwhelming number of losses that mortgage lenders have
suffered from mortgage failures that in part triggered the financial crisis of
2007–2010, they are now more willing to accept short sales than ever before. For
"under-water" borrowers who owe more on their mortgage than their property is
worth and are having trouble selling, this presents an opportunity for them to
avoid foreclosure as a result.
A
FORECLOSURE, on the other hand, is the legal process by which a
mortgagee, or other lien holder, usually a lender, obtains a court ordered
termination of a mortgagor’s equitable right of redemption. Usually a lender
obtains a security interest from a borrower who mortgages or pledges an asset
like a house to secure the loan. If the borrower defaults and the lender tries
to repossess the property, courts of equity can grant the borrower the equitable
right of redemption if the borrower repays the debt. While this equitable right
exists, the lender cannot be sure that it can successfully repossess the
property, thus the lender seeks to foreclose the equitable right of
redemption. Other lien holders can also foreclose the owner's right of
redemption for other debts, such as for overdue taxes, unpaid contractors' bills
or overdue homeowners' association dues or assessments.
What are the credit implications to the Seller?
- Short sales are a type of settlement, and they adversely affect a person's
credit report. The negative impact may be less than a foreclosure, but in some
cases the effect is the same. Like all entries except for bankruptcy, short
sales do not show on a credit report according to the Distressed Property
Institute. The credit will restore within 18 months or so. Depending upon other
credit information, it is possible to obtain another mortgage 1–3 years after a
short sale, or less if the borrower is current at the time of the sale.
While lenders sometimes forgive
the remaining loan balance, other lien-holders likely will not. Further, it is
possible for a lender to omit updating mortgage balances zero balance after a
short sale. However, willfully misrepresenting information on a credit report
can constitute libel in some jurisdictions, and lenders may be sued in civil
court for engaging in this behavior.
If I sell my property as a Short Sale, will I be responsible to pay back any
part of the loan? - By
nature, all short sales will have a deficiency balance. Laws governing the right
of the lender to pursue a borrower for the deficiency balance vary state to
state. States considered recourse states allow the lender to pursue.
Non-recourse states generally prevent this, though some allow pursuit of
deficiency though set forth limits on the amount that can be pursued.
If a lender can legally pursue
the deficiency and does not specifically waive its right to pursue the
deficiency, the borrower is at risk for a deficiency judgment.
Borrowers considering a short
sale should be aware of this risk and ask every party involved in the process
(Realtor, lender, third party, ...) what can and will be done to protect against
a deficiency judgment. Consult an attorney in the state where the property
resides to determine specific risks.
Once a short sale has been
completed, a Chapter 7 bankruptcy is a possible remedy the borrower can use to
remove the risk of the deficiency or discharge the judgment itself.
Am I responsible for the Real Estate commission?
– No. After your Realtor presents
you with an acceptable offer, she/he will submit it to the Lender along with a
packet of information supplied by you for final approval.
How long does a Short Sale take? - Short sale success rates vary from state to state and from bank to bank.
Bank of America short sales, as of 2009, had the longest approval times and the
highest failure rate. Smaller "local" banks tend to have their own rules, but
will typically approve the short sale in days, not months.
How can I get a list of properties being sold as a short sale or bank
foreclosure? – Since new
listings can become available every day, it is best to contact
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