About Short Sales

WHAT IS A SHORT SALE??

A Short Sale is when a lender accepts less than what is owed on an existing mortgage. To a homeowner, it can be the best possible option to avoid a possible foreclosure, auction, or bankruptcy when the homeowner is faced with a situation where they cannot afford their mortgage payments or are dealing with some type of life circumstance where the homeowner has to sell and the property is worth less than what is owed.

In today's day and age, lenders are open to negotiate a settlement for less than what’s owned. I specialize in renegotiating the short sale of your property with your lender allowing you to sell the house at a price suitable for all parties involved.  When it is all said and done, you can walk away from your toxic debt and live a foreclosure-free life.

I specialize in SHORT SALES in Santa Monica, CA and surrounding Los Angeles areas. Most of the people I work with who are facing foreclosure tend to be upside down on their property meaning that they owe more than the property is worth or cannot afford to sell their property and pay all costs associated with selling. This is where a short sale makes sense. A homeowner is in a situation where they cannot afford to sell their property and walk away without owing the lender money.

Many tend to think, why would a lender allow this? Consider the following points:

• In California, the foreclosure process is a lengthy one. It can take a bank up to 7 months or more, which can also be delayed if you have the proper representation.
• The foreclosure process costs the lender money. While the actual foreclosure process itself may not be very costly ($3-5K), the amount of time that the lender does not receive payments, takes the property over, then tries to resell it later all amount to very high costs.
• Lenders do not like excess inventory or foreclosures on their books, especially in this market. They already have enough properties to sell!
• Lenders risk losing even more money if the property goes to auction.
• Lenders are not in the business of selling properties. They are in the business of loaning money to people.
• Foreclosures are a headache to a lender, and most of the time it is worth it to just let the property go at a discount.

One point you should remember: lenders are in the business of loaning money to people who buy real estate. They are not in the business of taking them back and then reselling them. The last thing a lender wants to do is foreclose on your Los Angeles home.

WHY SHOULD A SHORT SALE BE AN OPTION FOR YOU?

The answer is simple, to avoid FORECLOSURE. A foreclosure is just about the most damaging thing that can appear on anyone’s credit report. As a matter of fact, a foreclosure can stay on your credit report for up to 7 years. It’s actually better to file for bankruptcy than to go into foreclosure from a credit standpoint.

Think about this: We live in a credit driven society, so keeping a decent credit rating should be high on your list. If you do have something damaging on your credit report it can affect everything you do from renting an apartment to buying a car to getting a job. All creditors will look at your credit when you apply for anything.  When a property, the largest asset that most people ever obtain is showing up turned back to the bank, they will think twice about lending you money.

SHORT SALE VS. BANKRUPTCY

When faced with foreclosure many people tend to turn to bankruptcy as an option of solving their problem. Now there is a large difference that many of the “professionals” fail to tell you. Filing for bankruptcy will consolidate your debt and can wipe out your liabilities, but it will not save you from having a FORECLOSURE. Instead, now you will have both a bankruptcy and a foreclosure on your credit. If you plan on eventually turning back your property you WILL STILL HAVE A FORECLOSURE ON YOUR CREDIT REPORT. Trying to conduct a short sale while in bankruptcy can hold up the process, but it is possible. My best advice is to consult with a knowledgeable bankruptcy attorney prior to making any decision, especially should you have additional debt that you are unable to control besides your property. I can help by making referrals to some great bankruptcy attorneys.

A key point to keep in mind: if your home is the only debt that is creating an uncontrollable situation for you then a short sale is most likely your best bet versus a bankruptcy. If you should need additional help with debt consolidation I can help with referrals here as well and put you in touch with people who will look out for your best interests.

WHAT QUALIFIES ME FOR A SHORT SALE?

Many people can qualify for a short sale. Most lenders will want to see some type of financial hardship. While a short sale may bail you out of a foreclosure, the lender can lose lots of money so not all short sales will be accepted. If the process were that easy everybody would be doing it considering how the real estate market has declined over the past few years. These are a few situations that could make you qualify for a short sale.

• Borrowers unable to keep up with current mortgage payments
• Failed loan modification
• Divorce
• Death
• Relocation
• Over valued properties
• Predatory lending situations/mortgage fraud
• Loss of job
• Reduction in income
• Medical issues
• Unable to sell property traditionally due to market conditions
• Loan amount is higher than you can currently sell your property
• and many other reasons…

WHAT HAPPENS TO THE LOST MONEY?

Many people ask me what happens to all the money that is never paid back to the bank? The result of a lender taking less money than what they are owed is called a deficiency. There are several ways a lender can handle a deficiency amount.

Forgiveness- The majority of the time when a short sale occurs the deficiency amount is forgiven and we get this in writing.

Promissory Note- A lender can issue the borrower a promissory note which specifies that the borrower can pay back the amount owed over an extended period of time (anywhere from 5 years to 20 years) in the form of interest-free monthly payments.

1099 Tax Form- The lender may choose to tax the borrower on the deficiency amount as earned income. They basically write off their loss as your gain, therefore making it taxable. In many circumstances the client involved in the short sale is in a financial hardship so may be able to claim insolvency. This can eliminate this obligation. There are also some solid tax laws in place to offset this taxable income. but you should consult with a good tax professional. Again, I’m happy to make solid referrals to CPAs that know the tax rules when it comes to short sales.

Cash Contribution- Sometimes the lender may just ask for cash at the time of closing. I have worked on many transactions where we have been able to get the buyer to make this contribution.

These are remedies for the lender to cure or mitigate their loss. Once you speak and consult with a real estate professional, there are also remedies you as a homeowner are given as well. Since each situation is different results will vary. The most important part is that none of these listed above are any worse than having a foreclosure on your credit.

FREQUENTLY ASKED QUESTIONS…

What if I have several mortgages on my property?

Most people in your situation do. Negotiations take place with each lender. The more lenders needing to agree to a short payoff, the more time and complexity involved. But there are so many variables – who the lienholders are, what type of debt, present property value vs. amount owed on each loan, offer price...

How much time does it take?

From the day you sign a contract with a real estate agent that specializes in short sales,  the time that it will take can be 90-120 days on the inside and as much as a year or more on the outside. This means that homeowners can stay in their home during the short sale process. There is much paperwork involved and negotiating which takes time, especially dealing with bureaucratic backs who are completely backlogged.

What if I have already filed bankruptcy?

Just because you have already filed bankruptcy does not mean that you cannot do a short sale. Most “professionals” do not want to do a short sale because of the amount of work and time associated with it. As mentioned before the last thing you want is a foreclosure and bankruptcy on your credit. Bankruptcy may cure your debt and liabilities but it will not save your credit. Depending on if you file for a chapter 7 or 13 bankruptcy you can still do a short sale, there is just more paperwork involved and it will take a bit longer to complete.

What about property taxes I did not pay?

They get paid by your lender (or the buyer) at closing. Title has to be free and clear when transferred to a new buyer.

Are all short sales accepted?

No. If the lender believes they will net more money for your property through a short sale vs. taking the property back then they will most likely agree to complete the short sale. Many lenders are encouraging them vs. taking the property back. It is in the lenders best interest in all cases to accept a short sale vs. foreclose on the property.

GREAT, HOW MUCH DOES THIS COST?

It costs you nothing. When conducting a short sale, or any real estate transaction, you must always deliver free and clear title to the new purchaser of your property. While we are conducting a short sale with a lender all costs are taken into account and paid for by the lender. Part of the amount that you are shorting the lender includes all the closing costs typically associated with selling a home. These costs are viewed as a wash for any lender because if they took the property back they would have to pay them since the property would have to be free and clear when resold. These include property taxes, title costs, attorney fees, back assessments, and even commissions, which is how I am paid. MY SERVICES ARE COMPLETELY FREE TO YOU.

Occasionally, a deal is just shy of reaching the lenders required net amount and you may have to go into your pocket to pay the difference, but that is rare. If you use the right representation you can avoid that!

HOW DO I START A SHORT SALE?

We specialize in both marketing and positioning your Los Angeles property while simultaneously finding a buyer who will buy your home for a discounted price. My team and I will negotiate with your lender. Selling your house through a short sale requires more than three times the amount of work of a traditional sale. I feel safe saying that over 95% of Realtors in the Los Angeles area either do not know what a short sale is or do not know how to conduct one. Putting together a detailed short sale package to submit to your lender is very time consuming. From the marketing of the property, to finding the right buyer, to ensuring back up offers, to having enough patience to see the deal through can be very challenging.

I have assembled the very best team to handle every aspect of the short sale process. From a marketing coordinator, a real estate attorney specializing in default situations, negotiator, and an administrator. We have an outstanding team, fully equipped team to make this very stressful time easy on you. We strongly recommend using proper representation with a specialist shall if a short sale is an option for you. All of our consultations are fully confidential, free, and I will come to your property or we can manage the entire process over phone and email...your choice.

Call direct at 310-487-0099 to ask any further questions you may have about the process or even set up a consultation. You can also e-mail us directly at dana@danaehrlich.com