…You can sell your home even if you owe more than your mortgage?
At Marine View Law & Escrow we receive many calls from homeowners who are behind on their payments and are unsure what to do. There are several options to be considered, but one alternative to consider may be a “short sale” of the property in question. Due to the real estate downturn which began in 2007-2008, lenders have become more receptive to short sales and in many cases will even pay sellers to complete a short sale. An important tax bill currently expires at the end of this year so it may be best to consider your options as soon as possible.
Frequently asked questions and answers about short sales:
What is a short sale?
Answer: A “short sale” is a real estate purchase where the proceeds of the sale are not sufficient to pay the secured creditors (lenders) of the property, and the seller does not have the funds to pay the difference. Since the lenders are receiving less than what is owed to them, all of the lenders must consent to receiving less than owed in a short sale transaction in order for them to release their lien(s) on the property and allow the sale of the property to close.
How does a short sale work? As the seller, what do I need to do?
Answer: First, consult an experienced real estate attorney who is familiar with short sales, and the foreclosure process, who can independently advise clients about their options. Second, be prepared to complete lender forms, as well as a hardship letter, financial worksheet and to submit updated financial documents such as bank statements, paystubs and tax returns. Next, be prepared to list your property for sale.
Can I still sell my property in a “short sale” if I am in foreclosure?
Answer: Yes, if you have chosen a good real estate attorney, it is likely that the attorney can get the foreclosure date postponed if you have received an offer on your property and are in the process of “short selling” your property. However, there are never any guarantees that the lender will in fact postpone the foreclosure so it is important to receive an offer as soon as possible so the lender has time to review the offer and approve the short sale.
How long does it take to sell property in a short sale?
Answer: That depends on how soon you can get your property in the market, and receive an offer. After you receive the offer, and submit your paperwork to the attorney, the process can take from two to five months to get approved and then the buyer will generally need 30 days to close after that. The entire process can be completed in as little as three months or it can take as long as six months. .
Since the bank is getting less than what is owed on the mortgage, will I have to pay it back later?
Answer: That depends on the terms of the short sale approval letter you will receive from the lender, and those terms have been negotiated with the bank during the short sale process. Your attorney should carefully review the letter and advise you of the terms under which the short sale has been approved. The lender may be accepting the short sale as full settlement of the amount owed, and has agreed to “waive the deficiency”. In other cases, the deficiency is not addressed in the letter, and the Seller should understand that the lender may still have the option to pursue you personally for the debt. If you have a second mortgage as well as a first mortgage, the lender will often accept a small amount to release their lien, but may or may not “waive the deficiency” In cases like this, the lender will accept a settlement or payment arrangements to address the balance. Individual cases vary so it is best to consult an attorney for advice in your particular situation.
How much will it cost for me to sell my property in a short sale?
Answer: Generally the lender will pay the traditional seller closing costs involved in the short sale, such as real estate commissions, excise tax, title insurance and escrow. Occasionally there are fees that the lender will not pay, and these may be paid by another party to the transaction. However, if your attorney has negotiated a settlement with one of your lenders, you would be responsible to pay the settlement amount. Most of the time, when our firm represents sellers, they are able to sell their home without making a contribution to the loan payoff. We work directly with the lenders in order to make sure the lenders”waive” the deficiency balance at the conclusion of the short sale.
How do I know if a short sale is the best option for me?
Answer: Consult the real estate attorneys at Marine View Law & Escrow, who are experienced at negotiating short sales and advising clients. They will explain your options, and help you make a determination about how to proceed in your particular situation. You can call our office to make an appointment for a confidential consultation. Alternatives discussed may include foreclosure, short sale, bankruptcy, and settlements. There are often additional factors which may influence their recommendations such as whether you occupy your home or whether it is an investment property, how many loans you have on the property, your financial situation, as well as your short and long term goals. After speaking to one of our real estate attorneys, you should also consult an accountant and credit advisor for more information regarding potential tax liability and impact to your credit rating.