FAQs

  1. How do I know if a Short Sale is really the best way for me to go?   The answer is found by meeting with a Realtor certified in Short Sales and in talking to your lender, your tax professional, and maybe even a bankruptcy lawyer.  Short Sales are not the answer for everyone, especially if you want to keep the home.  The Short Sale route should be considered if you cannot get a loan modification you can live with, or are in imminent danger of being foreclosed on.
  2. Will the bank come after me later for the rest of the money I owe after the Short Sale?  In California the State law prohibits lenders from getting deficiency judgments against people who short sale after the short sale is completed. Once the lender(s) agree to the transaction they relinquish their right to get a judgment for the difference after the sale closes.  This law covers the 1st mortgage, the 2nd mortgage (including a line of credit), and junior liens.  (Note:  Be careful of requests to sign promissory notes from the banks.  You may unwittingly give up an important right or change the character of the loan if you sign without having an attorney review the note first.)   
  3. What about federal taxes on the forgiveness of debt?  Right now, and this is very important to know, the Forgiveness of Debt Relief Act is still in effect, but without extension, it ends after 12/31/2012.  Anyone who completes a short sale before that deadline will be assured of the benefit.  But, if it is not extended, then you may be liable for taxes on the amount you were forgiven as though it were income. There may be some exceptions with regard to cash out loans.  Your tax preparer can determine that aspect.
  4. What do I have to pay up front on a Short Sale?  Nothing.  All you need is to list your property with a qualified Short Sale agent.  In fact, while there are negotiations with the lender(s) during the transaction, you (The Seller) are not expected to pay any of the normal expenses in a real estate sale.  The costs for the Real Estate Agents’ commission, county & city transfer taxes, and other costs are paid out of the proceeds of the sale.  The reason you are getting approval to Short Sale in the first place is that you can not afford anymore extra expenses.  In fact, there are several bank and federal programs that pay you for doing a short sale. You are free to use that money however you like, but it can be what sets you up in a rental after the sale.
  5. Why do I need an attorney, can’t my agent just advise me?  It’s true that agents deal with legal forms all the time, however, the banks send their own versions of addendum and communications during the transaction.  Often there are terms or conditions included that the lender is asking you to sign off on that the agent is not qualified to assess.  A real estate attorney is your best source of advice in this case.
  6. I am embarrassed about Short Selling.  Will my neighbors know?  It is possible they would find out, but these listings are advertised to the public in the same way a regular listing is.  Of course the Buyers’ agent will tell the Buyer, but normally nothing is put out publicly.  One of the biggest benefits of short sales is that it is a more dignified solution than foreclosure.  Short Sales are much more common than you may realize.  There have been hundreds of Short Sale homes coming on the market every month in Sonoma County for the last few years and every neighborhood has had them.
  7. I have had it with trying to get through to the bank!  Will I have to go more rounds on the phone with them?  No, once you have decided on a Short Sale, you will sign a standard form authorizing the Realtor to speak to the bank on your behalf.  So, no more phone calls for you to make once the Short Sale process is begun.  As their agent, I handle all the bank calls related to the short sale for my clients, and, if the bank does call them, they refer the call to me.
  8. Do I have to miss payments on my mortgage before my bank will talk to me?  This used to be the case a few years ago, and the banks are still pretty good at the run-around, but it is no longer necessary.  In fact it is better for your future credit recovery to keep up the payments if you are able to do so..  (Note: Real Estate Agents can not legally negotiate a loan modification for you.  They can only negotiate with the bank on your behalf in relation to a short sale.)
  9. How do I know whether my loan is Fannie Mae or Freddie Mac?  You can call your loan officer and they can look it up, or you can go to www.fanniemae.com/loanlookup/for Fannie Mae and go to www.freddiemac.com/corporate for Freddie Mac.
  10. I have two loans on my house, a 1st and a 2nd.  What happens in that case? If a property goes to foreclosure all lien holders behind the first mortgage get little to nothing of what they are owed. Most second mortgage holders will negotiate, even then, to avoid the cost of curing the first mortgage and then bearing the expense of the foreclosure process.
  11. Why do Short Sales take so long?   About 80% of all mortgages were sold on the secondary market to investors.  So, they are no longer owned outright by the bank. When these loans come up in a short sale the bank has to put it in front of the investor for approval.  This takes time.
  12. What is a portfolio loan?  It is a loan that was never sold to an investor.  It is still owned by the bank.  Some banks, like Wells Fargo, have a fair number of portfolio loans. In the case of Wells Fargo, they acquired portfolio loans when they brought out Wachovia and Washington Mutual.  If your loan is one of these, it can be much easier and quicker to short sale since there is no third-party investor involved in the decision.
  13. Why do so many Short Sales fall through?   Short Sales are slower to close and the Buyers have to be patient and willing to wait it out.  It is very important that your agent give consistent, regular, updates to the Buyers’ agent.  Even if there is nothing to report, it helps the Buyers to know they are not forgotten.
  14. How does a Short Sale look on my credit report?   Short sales are reported by the Credit Rating system as code 13: “Paid in full, account closed” or as code 65: “Paid as agreed, foreclosure started as applicable”.  They do not drop your score nearly as many points as a foreclosure or a bankruptcy and the go off your report in about 2 years vs. 7-10 for the other two options.
  15. When will I be able to buy another home?  Generally in about 2 years for a conventional loan with 20% down, or a FHA loan with 5% down.  More than likely you’ll find that shopping for a home, once your credit has recovered, will be in a much cooled market with more reasonable prices than before.  There are some exceptions.  For example: If you short sold a FHA or VA loan, even though a conventional loan may be available to you,  you may have to wait a few more years to get another government backed loan.
  16. My Adjustable Rate Mortgage has gone up and I can barely afford the payment does this qualify as a hardship?  The fact is that it is a hardship.  The market is such that, where you would have refinanced for better terms and a fixed rate, now with no equity or negative equity you no longer have that option.  If you can not afford for any unexpected expenses, you are in danger eminent of defaulting.
  17. The Buyer wants buy my dining room set from me, can he just write me a check?  The answer is “No”.  All money that passes from the Buyer to the Seller in Short Sale transactions MUST be listed on the closing statement.  Absolutely no side deals.  8 out of 10 of Short Sales are reviewed for signs of fraud and the Buyer passing money to the Seller outside of the escrow is considered fraud.  It’s an innocent thing to sell a piece of furniture, and it may not even be much money, but it will land you in hot water.
  18. What is the Home Owner’s Bill of Rights?  It is a California State law signed by Govenor Brown effective January 1, 2013. Among other things, it stops dual tracking (the practice of allowing the foreclosure to proceed even though a loan modification is in progress), and it requires the bank to give a single point of contact to the borrower (so when you call, you are talking to someone who knows who you are and is up to date with your loan).  As Jerry Brown said, “These new rules make the foreclosure process more transparent so that the loan servicers cannot promise one thing while doing the exact opposite.”

 

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