Short Sale FAQs

What is a Short Sale?
A short sale occurs when the seller's lender is accepting less than the mortgage balance to release an existing mortgage and allow a sale of the property. 

Won't a Short Sale hurt my credit?
You may experience delinquency reporting during the short sale process due to being behind on mortgage payments.  Once the short sale is complete, lenders have the option of submitting the short sale to the credit bureau as "Paid in Full" or "Settled".  This is far better for your credit score than a Foreclosure or a Bankrupcy. 

If you are currently behind on your mortgage or in pre-foreclosure, the short sale will actually help your credit because you will have avoided foreclosure.     After a short sale, you may be eligible to purchase a home again within 1-2 years.

Why would my Lender allow a Short Sale?
Short sales are a win-win situation. Lenders are able to avoid costly foreclosure expenses and obtain a majority of their money back while helping borrowers with a hardship move on from the property.

Will the banks forgive the difference?  Why?
Some banks will forgive the difference and others may ask you to contribute or sign a note for a portion of the difference.  In some cases, lenders may reserve the right to decide what to do at a later time.  When a lender agrees to forgive the difference it is because they are saving costly legal fees to foreclose or collect and/or they may be compensated a mortgage insurer or government program.

Can I do a short sale on my FHA or VA loan?
Yes! Absolutely!   We can handle this for you!

Are many others in my situation?
Yes!  35-45% of all sales in our area are short sales or foreclosures.  Approximately one in four homeowners are "upside-down" on their properties.  Here are a few common reasons:

1.   Property owner bought within the last 8 years and the market has now significantly declined.

2.   Property owner purchased the home with little or no money down and property values have not increased.

3.   Property owner refinanced the home (with a high appraisal value) during the boom.

4.   Property owner bought in a brand new development of homes or condos.

What is Negative Equity or "Upside-Down"? 
Negative equity is when the total value of your mortgages and line(s) of credit against your home total more than the current market  value.  The difference is Negative Equity.  For example, if your mortgage on the home is $500,000 and the market is offering $400,000, you have $100,000 negative equity.   A short sale can wipe out this negative equity and allow you to move on and get a fresh start. 

I owe what my home is worth.  I don't think I need a short sale.
Even if you owe exactly what your home is worth, it's still a good idea to sell it as a short sale in order to pay for closing costs.   Also, short sales are usually "as is" and you can reflect any repairs needed in the price, relieving you of that obligation as well.

What's the difference?  I think I'll just let the bank foreclose.
There is a BIG difference!   Just because the banks foreclose, does NOT relieve you of the obligation to repay the debt you owe.  Yes, they will deduct any amount they receive for selling the property, but foreclosures are typically sold at a significant discount and the bank will incur sizable attorney's fees.  The bank has a right to sue you for the entire deficiency. 

Also, a foreclosure remains on your permanent record, which may affect your ability to get hired for some jobs and may preclude you from purchasing another home for 7 years.  

A short sale will limit your losses, give you a chance to be forgiven of the difference and allow you to purchase another home within as little as 2 years.

Why should I do a short sale?  I am thinking of claiming bankrupcy.
We recommend that you short sale your property before claiming bankrupcy.  It's MUCH better avoid having a foreclosure on your record.   You can recover from bankrupcy withing a couple of years.  A foreclosure and a bankrupcy is the double kiss of death to your credit.  Also note that a foreclosure on your record may preclude you from being hired for certain jobs.

What if I'm not behind on my payments?
Some local or smaller banks do not require you to be behind on your payments.  However, most large mortgage companies will not consider your request for a short sale unless you are at least 30 days behind.  Call us today and we'll be happy to discuss our experience with your lender.

How long does it take?
We've received lender approvals within 3 days up to several months.  It depends on the policy and process of your particular lender.  We do everything possible to ensure the lender has everything they need to expedite the process.  The average processing time is 90 days.  Call us to discuss our experience with your lender.

What if my home is already in foreclosure?
Typically we are able to put off foreclosure during the short sale process. We haven't had any lender go ahead with final foreclosure during our negotiations.  That's why it's imperative that you contact me right away!!!

Will I owe taxes on the amount forgiven?
Thanks to the Mortgage Debt Forgiveness Relief Act of 2007, borrowers do not owe taxes on the debt forgiven on their primary residence.   So if the property is your primary residence, then you should not receive a 1099 for the debt forgiven or have to pay any taxes on the forgiveness.  This Act is in effect until 2012. 

You may be obligated to pay taxes on the forgiveness of any debt related to an investment property.   There may be no taxes due if you are insolvent.  Also the forgiveness may be netted against any loss on the property.  Please check with your accountant to see the affect on your taxes.   Regardless, any taxes due would be SIGNIFANTLY less than the original debit you were just forgiven.  Still a great deal for you.

What fees or costs will you charge me for the short sale?
Our commission and fees are paid by your lender.  We strive to complete the entire short sale process without any out of pocket costs to you.  Occassionally a seller may choose to pay for incidental expenses for a buyer in order to close the sale.  An example of this would be termite treatment needed in order for a VA or FHA buyer to qualify for their loan.   You are not obligated to pay these items, but it's a good idea to save back $500-$1000 just in case, so that you can ensure that the short sale is completed smoothly and you are able to receive relief from your debt. 

What kind of marketing will you do on my property?
We are ranked among the Top 10 REALTORS® in South Pinellas County and we are one of the top Short Sale Teams in the region.    We spend thousands of dollars every month on marketing all of our listings. 

What we find to be most successful on our short sale listings is heavy internet marketing and most importantly, PRICE. We review your pricing and make adjustments every week based on the activity generated until an offer is received.   We find that flyers, open houses and broker's opens are not necessary for these properties. 

Our goal is to receive an offer within 30 days.  The only exception would be on a very high end or unique property.

Should I do a Loan Modification instead?

If you want to keep your home and you can afford it with a slightly lower payment, then YES, we absolutely suggest that you try to do this.  You will need to prove to your lender that you can afford to keep it once they reduce your payment.

If you want to proceed with this option, contact your lender.   A lender will not process a short sale while you are considering a loan modification.  Please check with them to see if you qualify and if not, we are happy to proceed with helping you with a short sale.

Should I lease out my house during the short sale process?

 We don’t recommend it.  Tenant occupied properties are more difficult to show and sell.  There is also risk of damage to the property or an unwillingness to vacate upon the sale.  Also, lenders are not sympathetic to sellers who are collecting rent payments and not making their mortgage payment.

How will you decide on the list price of my home?
We set the list price based on recent comparable sales in the area.  If we don't receive an offer, then we systematically reduce the price until we do.  This way we can prove to your lender that we received the highest possible market price for the property.

What should I do to get my home ready for sale?
Don't do anything that will cost you money. We can sell your home as-is. We will price your home according to its current condition.

Contact us for more details!
Lockhart & Associates
Keller Williams Gulf Coast Realty
263 Corey Ave
St Pete Beach, FL 33706    
(727) 543-3653
Fax (727) 367-6170

Short Sales@LockhartTeam.com