Below you will find some Frequently Asked Questions & Answers about Short Sales. Please note that each homeowner's situation can affect how a potential short sale is handled. If you have additional questions about your situation, please email RosaAgencyRealtors@gmail.com or call Manuel "Manny" Rosa, Jr. at (917) 518-7861.
What is a Foreclosure?
When a homeowner purchases a property, they sign legal documents that allow their lender to re-possess their home if they do not pay their mortgage in full and on time. The legal process that lenders use to enforce this right is known as Foreclosure.
What is a Short Sale?
A Short Sale is an attractive alternative to Foreclosure for homeowners unable to pay their mortgage. In a Short Sale, a lender agrees to accept less than what is owed on the property when it is sold.
What is a HAFA Short Sale?
HAFA stands for Home Affordable Foreclosure Alternatives, and it is HUD's Short Sale program for mortgages owned by Freddie Mac & Fannie Mae. To qualify for a HAFA Short Sale, you must:
- Reside in the home in question
- Have purchased the home prior to Jan. 1, 2009
- Have an unpaid mortgage balance of $729,750 or less
- Have not purchased a new home within the last 12 months
Banks understand that a Short Sale is a preferable option to foreclosure for both the homeowner and the lender (see below). To motivate homeowners to consider Short Sale options, many lenders now offer compensation to the Seller at the time of closing. A HAFA Short Sale borrower incentive can total up to $3,000; other Short Sale programs can offer up to $30,000 in seller incentives at the time of closing.
Why would a lender allow a Short Sale rather than Foreclosing on a property?
To be frank, a Short Sale is a better option for the lender because foreclosing on a property is a time-consuming, costly process for lenders. Additionally, lenders do not want to be in the business of owning property; they want to make and service loans. Short Sales have proven to be an better return on investment for lenders than foreclosing.
Would a lender consider a Short Sale even if the homeowner is current on their mortgage?
Yes. In fact, recent changes to the Home Affordability Foreclosure Alternatives (HAFA) specifically make this possible. If a hardship can be shown, and it is reasonable to project that at some point in the future the homeowner will not be able to make their mortgage payments, a short sale can be approved.
What is a Hardship and what does a lender consider an acceptable Hardship?
A Hardship is a reason or reasons that a borrower cannot pay his mortgage any longer. Each borrower's situation is different, but some common hardships include:
- Reduction of income of one or both borrowers
- Loss of employment by one or both borrowers
- Marital difficulties, including divorce and/or separation
- Illness and/or increase in medical bills and/or loss of medical insurance
- Excessive and unmanageable debt, including credit cards, student loans and auto loans
- Loss of rental income (if the property is a multi-family)
- Unexpected problems with home, including unscheduled repairs
- Relocation for job or care of a family-member
If I have more than one loan or additional liens (i.e. taxes, association dues, etc.), can I still request a Short Sale?
Yes. It is becoming more and more common that Short Sales involve multiple lien holders. While this can add additional layers of communication and time, it is possible to receive approval from multiple lien holders and have all liens dismissed in a Short Sale.
I cannot afford to pay any fees (Realtor's Commission, Attorney Fees, etc.). Can I still request a Short Sale?
Yes. In a Short Sale, your lender will pay for all your fees, including my commission, your attorney's fees and any other closing costs at the time of closing. There are no upfront fees to the homeowner.
What are the tax consequences of a Short Sale?
If the subject property being sold is your principal residence, there is NO tax due on the forgiven debt. The Mortgage Forgiveness and Debt Relief Act provides that mortgage debt on principal residencies not be taxable through 2012.
How will a Short Sale affect my credit?
If you are thinking about a Short Sale, you probably have missed mortgage payments or been late on your mortgage already, which means your credit score has probably already been affected. Not to worry, you can recover from that if you do not let the problem fester.
On average, a Short Sale will drop your FICO score by about 50 points, and will show up on your credit report as "Settled for less than balance."
If you do nothing, and allow yourself to be foreclosed, the the resulting damage to your credit is far worse. Your FICO score may drop by as much as 300 points, and your credit report will show "Foreclosure," a major red-flag for any future loan applications. What's worse, you will have a Judgment of Foreclosure filed against you, meaning the entire amount of the loan will be a recorded judgment against you. This Judgment will follow you forever, until you repay it.