Loan Workout | Short Sale
WHAT IS A SHORT SALE?
A real estate short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens recorded against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished. Creditors holding liens against real estate can include primary mortgages, second mortgages, other junior mortgages, home equity lines of credit (HELOC), homeowner association liens, mechanics liens, IRS and State Tax Liens, all of which will need to approve the sale in return for being paid less than the amount they are owed. The lien holders do not have to agree to accept less, but they often do since the alternative is to let the property go to foreclosure in which case they will receive less or nothing at all.
A short sale is a more beneficial alternative to foreclosure for the property owner and creditors and has become commonplace in the United States since the 2008 real estate recession.
WHAT IS A DEED IN LIEU OF FORECLOSURE?
A Deed in Lieu of Foreclosure is a direct transfer of title from you to your lender. This can only be done if you do not have a second lien. The lender will not consent to a Deed in Lieu unless the property has been listed with a third party for a reasonable time and it has not sold. Deed in Lieu is part of the government HAFA program and its valuable benefits. Email Marilyn at the orange Contact Us link to the right if you want help with a Deed in Lieu.
CAN WE STILL DO A SHORT SALE OR DEED IN LIEU NOW THAT THE GOVERNMENT PROGRAMS HAVE ENDED?
In 2009 the government implemented the Making Home Affordable Program (MHA) to address the real estate recession and the need to help homeowners deal with their real estate loans. Its primary components were loan modification and foreclosure alternatives including Short Sale and Deed in Lieu. These government programs expired on 12/31/2016.
That doesn't mean you can't get a Loan Modification or do a Short Sale or Deed in Lieu of Foreclosure. Borrowers still need help and lenders do not want to foreclose. The one good thing about the real estate recession is that each lender now has the formula and staff to successfully implement these programs, whereas before the recession these programs were nearly unheard of. Contact Marilyn by clicking on the orange Contact Us link to the right if you are unsure of which direction to go in, or if you have any questions at all. As a specialist in all of the Making Home Affordable Programs, she can help you find your way.
ELIGIBILITY FOR SHORT SALE OR DEED IN LIEU
You may be eligible for short sale if you meet the following basic criteria:
- You are struggling to make your mortgage payments due to financial hardship.
- Your property has not been condemned.
- There will not be enough proceeds from the sale of your property to pay real estate commissions, closing costs and all liens on the property
- For Deed in Lieu, the property must also have been listed at market value for a reasonable period of time without selling.
BENEFITS OF A SHORT SALE OR DEED IN LIEU
- You are released from deficiency liability to all Creditors.
- The credit damage is less than at foreclosure.
HIRE A SALE FACILITATION SPECIALIST AT NO COST TO YOU
A specially trained Short Sale Facilitation Specialist [SSFS] will handle the entire short sale process at no charge to you since the Specialist is paid by the sales commission. As a dual licensed real estate broker and attorney, Mariyn is ideally suited to the SSFS job which she has performed for hundreds of clients nationwide. Her attorney licensing confers the all-important attorney-client privilege which insures that your sensitive financial information is confidential and safe. And, she has the legal clout to shepherd the sale quickly and to overcome legal issues that arise. Marilyn handles the entire process from selecting the property's listing agent to negotiating with your lenders and making sure the transaction closes.
THE SHORT SALE FACILITATION JOB
A short sale is a highly complex process that is still a mystery to most. These are the steps in chronological order:
- Obtain a Preliminary Title Report from the title company or closing attorneys, depending upon your state custom. Contact all Lien Holders of record to determine the steps they require to approve the sale. [Sometimes there are 5 or more including a first loan, a home equity loan, an IRS tax lien, mechanics lien holders, court judgments, HOA liens, etc.]
- Request the short sale package from the lien holders.
- Assemble the package of documents to submit to the lien holders consisting of an application, proof of your income, bank account statements, a list of your income, expenses and assets.
- Interview Real Estate Agents in the vicinity of your property to determine which would most competently handle the sale listing.
- Obtain Comparative Market Analyses of properties for sale and recently sold in your area.
- Determine a Listing Price and obtain lienholder approval to the list price.
- Hire the real estate agent to list the property and enter into a Listing Agreement, submitted to all Lien Holders.
- Initiate showing procedures that strike a balance between the seller's need for privacy and the ability to show the property with few impediments.
- Review offers to purchase your home as they are presented. Help choose the one with the best terms and most likely to appeal to the Lien Holders.
- The offer is accepted with a Short Sale Addendum.
- Escrow is opened with the title company or attorneys depending on your state's custom. The Estimated Closing Disclosure statement is received from them showing the net proceeds that are available to each Lien Holder.
- The Closing Disclosure and package of sales documents is faxed to each Lien Holder with a request to approve the sale.
- The Lien Holders will each obtain a confidential valuation of the property. If the offer meets their valuation, they will strive to approve the sale. If it does not, they will not approve the sale. If a Lien Holder’s valuation is unrealistic, evidence must be submitted to the lien holder to dispute the valuation. How will you know the valuation differs from the offer? They will counter the sale reject the sale on this basis.
- The reason short sales take so long is because it takes constant follow up, meaning at least once a day, to move the transaction through the many different departments of the lien holders.
- The second and subsequent lien holders will not approve until all lien holders prior to a lien holder approve of the sale. Each approval is sent to the subsequent lien holder, and so on.
- Negotiation becomes necessary if a lien holder will not accept the funds earmarked for them.
- Once all Lien Holder Approvals are received, the Short Sale Condition is released. The Seller then completes their Seller Disclosures while the Buyer begins to satisfy their contingencies: the physical inspection contingency, appraisal contingency, loan contingency, and so on.
- In the approval process all Lien Holders agree in writing to waive any deficiency between the amount they are owed and the amount they receive from the sales proceeds (which is often a great disparity).
- The transaction closes. If the seller or seller’s tenant has been granted a relocation fee, this amount will be disbursed at closing.
WHY A SHORT SALE FACILITATION SPECIALIST
During the real estate recession, Short Sale Facilitation Specialists evolved to take on this multi-faceted challenging job. Prior to the advent of Short Sale Facilitation Specialists, the real estate sales agent was expected to undertake the very arduous job of shepherding the sale through the seller’s lenders’ many different departments in order to obtain sale approval. Sales agents are sales oriented and not disposed to the more mundane, tedious and time-consuming job of working through the lender’s maize. The result was that a majority of short sales ended up behind the door of Mystery instead of at the Closing Table.
Enter the professional Short Sale Facilitation Specialist who expertly facilitates the Short Sale process at no additional cost to the seller. In order to best respond to the challenges of short sale, your Short Sale Facilitation Specialist should ideally be a dual licensed attorney and real estate broker, although dual licensing is not required. The real estate licensing qualifies your Specialist to effectively interview agents to handle your sale and monitor the process as it proceeds while legal expertise qualifies the Specialist to effectively negotiate with your lender(s) and address legal aspects of your loan and the sale. Marilyn is a dual licensed SSFS.
Contact Marilyn by clicking the orange Contact Us link to the right if you have questions about the short sale or deed in lieu process or are ready to hire her to facilitate your short sale or deed in lieu. Marilyn handles transactions in any state, not just California, since the short sale process is lender-specific not state-specific. She also consults with some of the large real estate firms when they need an attorney to intervene with a short sale when warranted. Review Marilyn's Reviews page to understand the relief clients experience when Marilyn represents them. Each testimonial was provided in writing by a client. Below is the most recent review:
"It was a privilege to have had Attorney/Real Estate Broker Marilyn Sullivan working on our behalf. Marilyn's impeccable knowledge of the law and real estate, together with her utmost patience, perseverance, professional tenacity and ongoing client support, led to a successful outcome of an unusually lengthy short sale journey.
Marilyn is an extraordinary lady. Her standard of excellence was reflected in everything she pursued and accomplished for us. We are forever grateful! " John & Dianne Stone, Stockton, CA
SHORT SALE FAQs
What is a short sale?
A short sale occurs when the property is sold for less than the loan amount(s) and sales expenses with the cooperation of the lender(s) and all lien holders. It permits more owner control over the process and less credit consequences than a foreclosure.
What are the qualifications for a short sale?
Both your property and you have to qualify for short sale consideration. Personal qualification is much less stringent than for a loan modification.
How does the property have to qualify for a short sale?
Comparable sales must substantiate that your home is worth less than the unpaid balance of your loan(s) plus sale costs.
How do I qualify for a short sale?
Qualifying for a Short Sale is similar to qualifying for a loan modification, but less stringent. You complete the same application but indicate that you want to sell. You must prove a hardship that makes it impossible to continue making loan payments.
What if I am not experiencing a personal financial hardship? It’s really my loan and the value of my home that creates the hardship.
For some people, their loans have adjusted up so rapidly that it doesn’t makes sense to pay such high loan payments for a property that has declined so much in value. For some lenders, these factors alone spell sufficient hardship to qualify for a short sale, especially if you are in default on your loan. The bottom line they look at is will we lose less if we short sale than if we foreclose.
What if I have assets?
Many lenders do not consider your asset-based status. They generally just look at your debt to income ratio.
Must my loan be in default?
Yes. The lender's confidential test for hardship is whether you have been two months late. They feel that if you have sustained this type of credit damage, you are experiencing hardship.
What is the objective of a short sale?
There are two objectives of a short sale. The first is for a buyer to make an offer to purchase your property for fair market value. This is the job of the real estate agent. The second is facilitating the short sale to insure it will be approved, presentation of a multi-part package to the lender, forgiveness of the loan amount shorted, and mitigation of the resulting liabilities to you. This is the job of your short sale facilitator.
The Real Estate Agent Job
Real estate agents are trained in the first aspect of a real estate short sale -- selling the property. They are not trained in the second phase of a short sale: legal assessment, deficiency liability analysis, evaluating tax consequences, negotiating with lenders, assembling the short sale package and scrupulously following up with your lenders until approval is received. Phase two is the job of the Short Sale Attorney.
Do I pay more for you to Perform the Short Sale Facilitation Job?
No. When we facilitate your sale we share the job and the commission with your real estate agent. Your agent lists the property for sale while we handle the short sale legal aspect of the transaction. Generally, we are paid 2%, the listing agent is paid 1.5% and the selling agent receives 2.5%.
How will a short sale impact my credit?
Following a short sale you should be able to obtain a home loan in two years whereas you would have to wait about seven or more years following a foreclosure.
Will I have liability for the difference between my lender pay off on short sale and the loan amount?
In just about every short sale these days, deficiency rights are released in the lender(s)' approval letter or by law.
Do I still need to understand the nature of my loan and deficiency liability?
Yes, for tax purposes. You will receive a 1099-C for cancellation of debt from your lender. This will be for the difference between what you owe on your loan(s) and the net proceeds the lender received at short sale. 1099-C income (yes, it is considered income because you were relieved of the debt) is considered ordinary income. If your loan is a non-recourse loan, meaning a purchase loan for an owner occupied property, you should not receive a 1099-C, but you probably will anyway. If your loan is a non-recourse loan, there is no cancellation of debt because the lender agreed to accept the security (the house) in full payment of its loan. You need to understand this distinction so you or your accountant may refute the 1099-C you are likely to receive. You will need to consult with your Accountant.
If my loan is non-recourse, will I receive a 1099-C following short sale?
Yes, however, if the short sold home qualifies as your principal residence, you may claim an exemption from payment of debt relief income under the Debt Forgiveness Act of 2007 if it is still in effect at the time of the sale. There are other exemptions you may qualify for, such as the insolvency exemption. You may still have to report debt relief on your state return, however, unless your state has parallel exemptions available.
Are there other tax liabilities I need to be aware of?
Yes, you still have to consider the other tax liabilities resulting from your sale of real property, such as capital gains. Did you buy this property at a low price and sell it at a higher price? If it is your principal residence, does the gain exceed the amount you are allowed by law? If so, you will incur capital gains tax. If it is not your principal residence, you will have a capital gain unless you replace the property in an exchange.
What are the benefits of a short sale as opposed to a foreclosure?
The primary benefits of a short sale are to limit and control damage in these ways:
- The highest possible sale price is important to you since you may have tax liability for the difference between the loan and the short sale proceeds, or in some situations owe this amount back to the lender in the form of a deficiency judgment. In a short sale, you take proactive steps to receive the highest possible price on the open market. In a foreclosure, the price will always be significantly less, which increases your liability.
- Per Fannie Mae, your ability to obtain a real estate loan will be negatively impacted for three to five years less than a foreclosure.
- To be proactive and in control of your life. In a short sale, you are in charge. You hire our facilitator and the agent to list your property for sale. You decide what the list price should be and you respond to the offers that are received. You are involved when we negotiate acceptance of the offer by the lender. We work with you and the lender to minimize any resulting liability to you. You know when the time is right to move on to another home. You feel far more empowered because you are in control and have taken the best steps to minimize and control your loss.
When Should I begin the Short Sale process?
At the latest, in California, when you receive the official Notice of Default (recorded document). This will give us at least 3 1/2 months to sell your house. In other states, allow at least a few months before a foreclosure sale date to sell your property short.
How Long Does a Short Sale Generally Take?
It should not take longer than two to three months to obtain an offer. The approval process should not take longer than six weeks to two months at most from the time we have an accepted offer.
Can the process be expedited if I am facing foreclosure or an auction date has been set?
If the foreclosure sale is imminent, we can usually have the sale date postponed as long as we have a fair market offer to purchase. Don't wait until a sale date is set to list for short sale.
It all sounds so negative. Where are the positives of a short sale?
Losing your home is high on the list of life challenges. But, it can represent an opportunity to realize that life is so much more than the temporary loss of a home that has become too expensive or is significantly upside down. Do you have family by your side? Are you healthy? Do you have a faith in something greater than yourself? Life is full of challenges. It is all up to you how you respond to them. You will be most likely be able to have a home again in two years if you sell short, and in the interim, take a break from house payments. Lease a house, pay a lease price and sit back and count your blessings as you save the down payment. Then, when you’re ready, scoop up a deal on your next home. Maybe this time you will be a short sale buyer yourself.
Why are we different from other short sale facilitators?
When you speak with Marilyn you will know that you have a highly skilled multi-licensed professional to get you through what can be a complicated, lengthy process in the best possible way. Marilyn is not only a skilled real estate attorney and mediator, but is also a real estate broker and developer. The real estate market is her lifeline. With her in your corner, you will feel empowered instead of disempowered. You will understand that there is light at the end of a tunnel that is not as long as you thought. And, since Marilyn does not get paid until the job is done and the commission pays her fee, you will not have to come up with funds at a time when your supply is low. Marilyn also provides something no one else does, a Short Sale Certification, she believes is essential for credit restoration purposes.
What does your short sale certification consist of, and why is it so important?
When your short sale is over, you join the pool of your average short sale seller. But, if you’ve done the process with us, you will have saved yourself and your lender significant time and expense. Those who extend you credit going forward should be aware of this. Our short sale certification describes your sale results (price and timing) and lists the ways in which you minimized loss to your lender and took steps to preserve your credit standing. This certification is signed under penalty of perjury by Marilyn, the attorney who negotiated your sale, and may be able to help to pave the way to a more positive, creditworthy future. As a licensed member of the State Bar, future lenders should give our certifications considered weight since we are bound by law to make full and accurate representations. Let Marilyn's clients answer this for you by reviewing her Reviews page. Each review was provided in writing by a client.
The above is for educational and information purposes and does not constitute legal or tax advice.