Below are the most frequent questions I get on short sales. For information on the types of short sales and the process I follow, see this page.
Q: What is a short sale?
A: A short sale is where the lender agrees to accept a discounted payoff in lieu of the full amount owed.
Q: Does a bank have to agree to a short sale?
A: No. The bank does not have to agree to a short sale. However, if you have a legitimate hardship and you work with the right people to create your submission package your chances are very good.
Q: If I do a short sale can I still get a mortgage on another property?
A: Under some conditions, yes. See the FAQ section below.
Q: What is the key differences between a short sale and a foreclosure?
A: I believe a few of the key differences are as follows:
Short Sale |
Foreclosure | |
|---|---|---|
Impact on credit rating (FICO) |
Small to Medium(1) |
Huge - Up to 10 year impact |
Length of time where the bank can come back to you for all losses? |
6 Years |
6 Months |
Notes:
1: Late payments or collections can have a greater impact on your credit than a short sale.
Q: How do you apply for a short sale approval?
A: Getting short sale approval is a lot of work and not one you want to do on your own. You need to work with a Realtor and attorney who exclusively handles short sales.
Q: Do I (Eric Fernwood) handle short sales?
A: Yes. I work with a law firm that specializes in short sales. Basically, I handle the marketing and sale of your property and the law firm handles the planning and execution of the short sale.
Q: Does a short sale approval release you from liability for the shortage?
A: No! Unless you are specifically released in writing by your lender, the lender has 6 years to pursue a judgment against you for the shortage and additional expenses/fees.
Q: What about a HELOC?
A: A HELOC is not a mortgage and a short sale does not address the HELOC; you will have to settle the HELOC separately from the mortgage.
Q: I heard that I can receive $3,000 if I do a short sale?
A: In many cases, this is true. On April 5th, the Treasury Department established a new short sales program called the Home Affordable Foreclosure Alternatives Program or HAFA. HAFA is designed to streamline short sales by providing a uniform process and standard forms, as well as incentives for families and their mortgage servicers to complete the process. It offers homeowners who sell their homes under HAFA $3,000 to help cover their moving costs.
Q: How do I know if I qualify for HAFA?
A: Before I provide the eligibility requirements, know that the requirements can vary by lender. HAFA is a voluntary program and lenders can choose whether they will offer HAFA for each individual loan even if the individual loan meets all the HAFA requirements. So, use the following as the basic requirements.
Q: What if I don't qualify for a short sale?
A: Most mortgages do not qualify for HAFA so a standard short sale is the path for most people.
Q: What are the key differences between a standard short sale and a HAFA short sale?
A: I put together the table below listing a few of what I consider the most important differences between a HAFA short sale and a standard short sale.
|
Standard Short Sale |
HAFA Short Sale |
Future liability for any shortage |
Lenders have 6 years to file for a judgment. Getting the bank to waive the future judgment requires intensive negotiations. |
None. Part of the HAFA program features is that the lender has to waive the right to future judgment. |
Time to complete a typical short sale |
6 to 9 months |
3 to 4 months |
Sales process |
The Realtor "guesses" at the amount the lender(s) will accept. With the offer plus a submission process the package is submitted to the bank. If the lender(s) approve the short sale them have the right to change the price or terms; the lender(s) can and do alter the price and terms. This can be a big issue for the buyer who may have waited months only to find out that they cannot afford the property. |
The owner applies for a short sale and the bank specifies what price they are willing to accept. Thus, you know up front what an acceptable price will be. Once you have an offer, the time for the bank to process the short sale is relatively short. |
Additional benefits |
None |
The seller will receive $3,000 to help them move. Yes. You actually get a check. |
Q: What lenders are participating in HAFA?
A: There is an ever growing list. I believe this is the most comprehensive list. Note that on June 1, 2010, Fannie Mae introduced its own Home Affordable Foreclosure Alternatives (HAFA) Program, which, like the HAFA program issued by the U.S. Treasury, is designed to mitigate the impact of foreclosures on borrowers who are eligible for a loan modification under the Home Affordable Modification Program (HAMP) but ultimately did not complete a modification. For details, check the following links:
Q: Why is there so much conflicting information on short sales?
A: Short sales are lender and and borrower specific. Plus, the rules are changing over time and may vary by state. You need answers that are specific to your individual situation from an expert. This is why I work with a law firm; only a lawyer who specializes in, and has significant experience in short sales can keep up with all the changes and ramifications.
Q: What are the tax consequences of a short sale?
A: None. See this IRS publication for specifics.
Q: I see all sort of fees that I have to pay up front; what are your fees?
A: Zero. You pay nothing. The law firm and I only get paid upon a successful short sale and we are paid by the lender, not by you.
Q: What guarantees do you offer?
A: None. And anyone who does is not being honest. There are too many variables to make any guarantees other than we do not get paid if we do not complete the short sale. Further, even if the short sale is completed we can not guarantee that the lender will waive the option to future recourse. So much is dependent on your personal situation and the lender and their investors. Working with a law firm that has in depth experience is your best bet.
The key thing is to be proactive; don't try to ignore the situation. Find someone you trust and work closely with them. Pay special attention to the 6 year possible judgment term; this is a huge unlimited liability and not one you want to passively accept.
Contact me if you are considering buying or selling Las Vegas real estate. You will be glad you did.
...Eric
Eric Fernwood
RE/MAX CENTRAL
8400 W. Sahara Ave
Las Vegas NV 89117
Email: EricFernwood@gmail.com
Website: www.EricFernwood.com
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Cell: 702-358-8884
Fax: 702-202-2020
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