So Just What Is A Short Sale?
A
short sale is when a bank or mortgage lender agrees to discount a loan
balance due to an economic or financial hardship on the part of the
mortgagor. This negotiation is all done through communication with a
bank's Loss mitigation department.
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 in full
satisfaction of the debt. In such instances, the lender would have the
right to approve or disapprove of a proposed sale
A Short Sale Occurs When; A negotiation is entered into with the homeowner’s mortgage company or companies to accept less than the full balance of the loan at closing. A buyer closes on the property and the property is “sold short”
A short sale is not a way to just get out of a mortgage!
A
short sale is not a way to just get out of a mortgage. It is a tool
for a borrower to use whey they truly can’t pay their mortgage.
Qualifying For A Short Sale
The
qualifications for a short sale are slightly different than for a
traditional listing. The major difference is that in order for a bank
to accept a short sale, the borrower must have a demonstrable financial
hardship. They will have to prove this hardship through a signed
letter that will be submitted to the mortgage company along with
additional documentation.
| Evaluating a Short Sale versus Home Foreclosure | ||
| Short Sale vs. Foreclosure - Homeowner Consequences | ||
| Issue | With A Foreclosure | With A Short Sale |
| Security Clearances | Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA, Security or any other profession that requires a security clearance in almost all cases clearance will be revoked and position eliminated. | A short sale on its own does not change most security clearances. |
| Current Employment | Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is ground for immediate termination or reassignment. | A short sale is not reported on a credit report and is therefore not a challenge to employment. |
| Future Employment | Many employers are requiring credit checks on all job applicants. A foreclosure is noe of the most detrimental credit items an applicant can have and in most cases will challenge employment. | A short sale is not reported on a credit report and is therefore not a challenge to employment. |
| Deficiency Judgement | In 100% of foreclosure cases (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgement. | In some successful short sales it is possible to convince the lender to give up the right to pursuit of a deficiency judgment against the homeowner. |
| Deficiency Judgment (amount) | In a foreclose the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgetment. | In a properly managed short sale the home is sold at a price that should be close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency rating. |
| Future Fanny Mae Loan (primary residence) | A homeowner who loses a home to foreclosure is ineligible for a Fanny Mae backed mortgage for a period of 5 years. | A homeowner who successfully negotiates and closes a short sale will be eligible for a Fanny Mae backed mortgage after only 2 years. |
| Future Fanny Mae Loan (non primary residence) | An investor who allows a property to go to foreclosure is ineligible for a Fanny Mae backed investment mortgage for a period of 7 years. | An investor who successfully negotiates and closes a short sale will be eligible for a Fanny Mae backed investment mortgage after only 2 years. |
| Future Loan With Any Mortgage Company | On any future 1003 application, a prospective borrower will have to answer YES to question C in section VIII of the standard 1003 that asks "Have you had a property foreclosed upon or given title or deed lieu thereof in the last 7 years?" - this will affect future interest rates. | There is NO similar declaration or question regarding a short sale. |
| Credit Score | Score may be lowered 250-300+ points. Typically this will affect your score for a period of 3 years. | Only late payments on a mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower your score as little as 50 points if all other payments are being made. A short sales affect can be as brief as 12-18 months. |
| Credit History | Foreclosure will remain as a public record on a persons credit history for a period of 10 years or more. | Short sale is NOT reported on credit history. There is no specific reporting item for "short sale". The loan is typically reported as "paid in full, settled". |