Completing a short sale today is much quicker and easier than ever before so let’s dispel the myths and review the facts that every homeowner should know.
Completing a short sale today is much quicker and easier than ever before because Fannie Mae, Freddie Mac, and the major banks have made key changes to their programs.
It remains strange that despite all the process improvements and knowing that short sales are an important tool for helping homeowners with hardships to avoid foreclosure & eliminate their mortgage debt… they remain a mystery to many who might benefit from them.
So what I’d like to do is spend a few minutes and dispel the myths or un-truths about short sales and give the facts that every homeowner should know.
#1 – The homeowner will be responsible for the entire amount owed on the mortgage. The truth is that borrowers who complete a short sale in good faith and in compliance with all laws and bank policies will typically not be pursued for the unpaid mortgage balance. However, in very rare occasions, if a borrower has the financial ability, they may be asked to make a one-time payment or sign a promissory note for a portion of that balance.
#2 – Short sales are not possible for an investment property or second home. This is not true…the important factor is whether the borrower meets the program’s eligibility requirements, not the status of the property itself.
#3 – You must be delinquent on the mortgage to be eligible for a short sale. You do not need to be late… A homeowner who is current must still meet the general eligibility requirements for the program and show upcoming financial distress or one of many other hardship reasons why it’s necessary that they sell the home.
#4 – Homeowners think they won’t qualify because of their servicer’s strict guidelines. Again, not true. Both Fannie, Freddie, and many of the major banks have increased the authority of its servicers to approve short sales for qualifying hardships without a separate and potentially time-consuming review.
#5 – A short sale will affect a homeowner’s future eligibility for a mortgage. If the financial difficulties of not being able to make payments arose from circumstances outside the borrower’s control such as job loss, death, divorce, or a health emergency they may be eligible for a new mortgage with a minimum of 2 years after the short sale. There is also a new program that was recently announced from FHA that may qualify the homeowner after only 1 year.
#6 – Short sales can take a long time. Many of the banks and newer guidelines make the timelines shorter than ever. Servicers now have 30 days to make a decision once they receive a completed application and, once approved, the sale should take less than 60 days to close.
#7 – Having a second mortgage will make a short sale impossible. Not true. If other eligibility requirements are met a second mortgage is generally not a barrier because Freddie and Fannie can offer up to $6,000 to settle the debt and release their lien. Many of the other banks and programs will also typically offer money to the 2nd mortgage to close the sale
#8 – A short sale will ruin a homeowner’s credit. While only the credit reporting agencies can determine how a credit score will be computed a short sale is far less damaging than a foreclosure. In both cases, your score will drop. Short sales typically drop 50-150 points depending on the number of late payments and shows up as a settled debt while foreclosure will drop up to 300 points and appear on your credit history for up to10 years.
#9 – Banks would rather foreclose than bother with a short sale. In fact, foreclosures are very expensive for the lender and they prefer short sales because they lose far less money.
#10 – Short sale agents must have special training and meet certain requirements to short sale homes. In fact, the department of real estate does not require any specific certifications. However, it is a very complex transaction so it’s important to work with a real estate agent who does have the training and experience so that they can properly negotiate with your lender on your behalf to further speed the process and make the sale happen.
So now that I have dispelled these myths and given the correct information about short sales… you may be asking when a homeowner should consider doing a short sale.
Well there are 3 good reasons:
- They are financially distressed and do not qualify for any options such as a loan modification to keep the home.
- They have a non-financial hardship that requires them to move such as job transfer, divorce, illness, and many more.
- They don’t think the home will sell at a price that will cover the outstanding mortgage amount.
The first step in the process is to determine who owns your mortgage and I have put links below this video for Fannie Mae and Freddie Mac to find out if they do. If your loan is not with them, all banks allow short sales so you can absolutely still do one and it will follow the facts that I outlined.
Now if you or someone you know could use help in any real estate matter or considering selling or buying, contact me Frank Verni at firstname.lastname@example.org or 916-719-6161 and I’d be happy to answer any questions and help any way I can.