Frequently Asked Questions

It is understandable to have questions when coping with a new and challenging situation, especially when a home is at stake. The reality is that millions of homeowners across the country are finding out that they have more questions than answers. We hope that the following information will help you better understand the circumstances. If you have further questions not addressed below, or would like additional information resources, feel free to Contact Us.

What is a Short Sale?

A short sale is the sale of a property when sales proceeds do not fully pay off the existing loan(s) and lender(s) accepts a discounted payoff to fully satisfy the loan.

Is a Short Sale right for me?

If you are unable to meet your obligation on your mortgage, your lender would prefer to settle the matter with you as opposed to taking the property through foreclosure. Remember, your lender is looking to limit any potential loss on your loan. By completing a Short Sale, your lender has arrived at a solution that is, for them, much better than a foreclosure.

If I do a Short Sale, how much will I have to pay to sell my home?

In most cases you will pay literally no sales costs if your lender approves the Short Sale. All commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the Short Sale approval.

Do I qualify for a short sale?

The qualifications for a short sale include any or all of the following:

Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

What sort of hardship would my lender consider legitimate?

Generally, so long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.

Examples of acceptable financial hardships are:

Loss of Job
Business Failure
Damage to Property
Death of a Spouse
Death of family members
Severe Illness
Inheritance
Divorce
Mandatory Job Relocation
Medical Bills
Military Service
Payment Increase or Mortgage Adjustment
Insurance or Tax Increase
Reduced Income
Separation
Too much debt
Incarceration

I am current on my mortgage, will my lender consider a Short Sale?

Some lenders will accept a Short Sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent.

Why would a mortgage company agree to accept a Short Sale?

A mortgage company has several reasons why they would approve a Short Sale. Here are a few;

Legal Concerns – Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
Wall Street is Watching – Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender's ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved quickly.
Asset Management Expenses - If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets - homes – spread throughout the region, the state and possibly even the nation. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful Short Sale eliminates most of these costs.
Reserve Requirement - Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful Short Sale lets the lender put more money to work.

Do lenders approve all Short Sales?

No not always. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved.

My property is in rough shape and needs work; can I still do a Short Sale?

Yes. Lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. The lender knows the risk of loss goes up when they foreclose on a property that needs lots of work.

I am concerned about my credit. How will a Short Sale affect my credit?

Well the important element here is to avoid foreclosure. A foreclosure is the most damaging event your credit status can encounter. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit.

By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such).

My income problem was temporary. Do I need to sell my home?

You may be able to keep your home. You need to convince your mortgage company of two things:

the problem that caused you to miss payments was beyond your control – illness, injury, temporary disability or forced job changes are a few examples.
you are now solidly in a position to stay current on your mortgage payments and make some progress towards making up the delinquent amount.

What is a Forbearance Agreement?

A Forbearance Agreement is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:

You promise to remain current on the mortgage going forward.
Some plan for making up the delinquent interest and other charges.

How late in the pre-foreclosure process can you start a short sale?

This depends on individual state law and regulations. Timelines starts from the date the notice to the borrower is filed. In some states a foreclosure can proceed as quickly as 35 days. Do not delay. In most cases you have no more than 60 days from the date of the notice, to contact lender to effectuate a lender approved short sale.

What documents are necessary to proceed with a short sale?

The documents necessary to proceed with the short sale will depend on the lender. Typically the lender will require hardship letter detailing the circumstances behind the short sale. A signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender. There will be additional requests for more detailed information on the financial condition of the seller, i.e.; pay check stubs, bank statements, a personal financial statement and monthly budget assessment, to name a few.

Will a lender allow the seller to make a profit on a short sale?

The seller is not going to make a profit on the short sale. They may have extracted equity from a previous refinance of the home, but their current loan balance will be higher than the selling price of the home.

If a seller is in bankruptcy, will that affect the short sale of the property?

Yes, most lenders would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding.

Will the bank or lender require an appraisal on the home in a short sale?

Yes, lenders will require a full appraisal to be submitted in the short sale package. The lender will need some formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer.

Are there tax implications in the short of real estate.

Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost a debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount of debt forgiveness

How do I get started on a Short Sale?

It’s simple. If you would like to get prequalified for a Short Sale, please call us at 206-790-7874 to set up an appointment. Or if you would prefer email, please email us at enrico@seattlebydesign.com.

Can I deed my property to someone else and avoid the hassle?

Deeding your property to someone without paying off the loan is nearly always a bad idea. First place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit.

Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property. Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.

What is a mortgage modification?

A mortgage modification is a process through which your mortgage lender changes any or all of the following:

Your interest rate
Your principal balance (through a reduction)
Your loan terms (example: from an adjustable to a fixed rate)

This process can allow borrowers to stay in their property when they can no longer afford their current mortgage payments.

Why would a lender modify my mortgage?

Lenders have realized that in some cases it is better for them to work with current borrowers to lower payments or possibly improve terms in order to keep homeowners in their properties. The average foreclosure can cost a lender from 35-50% of the value of a property, so keeping borrowers in their homes is a good option for everyone.

What do I need to qualify for a mortgage modification?

According to the Making Home Affordable Web site (www.MakingHomeAffordable.gov), you will need the following information for your lender to consider a modification:

Information about your first mortgage, such as your monthly mortgage statement
Information about any second mortgage or home equity line of credit on the house
Account balances and minimum monthly payments due on all of your credit cards
Account balances and monthly payments on all your other debts such as student loans and car loans
Your most recent income tax return
Information about your savings and other assets
Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources

If applicable, it may also be helpful to have a letter describing any circumstances that caused your income to reduce or expenses to increase (job loss, divorce, illness, etc.)

How do I qualify for a mortgage modification?

The first call you make should be to your lender, have the information above ready to discuss with them and call your customer service line to ask them what options you have available. If the person you speak with does not understand what you are asking, you can ask to be referred to one of the following departments (different lenders have different names for these departments):

Loss Mitigation
Mortgage Modification
H.O.P.E.

Prior to contacting your mortgage lender you can quickly complete an eligibility test at www.MakingHomeAffordable.gov. This test will let you know if you are eligible for a modification through the government-sponsored Home Affordability and Stability Program (HASP). For a list of mortgage lenders and servicers, visit www.HopeNow.com.

What if I don’t qualify for a mortgage modification, can’t afford my home, and owe more than it’s worth?

You are not alone and foreclosure is not the only option. If your mortgage lender or servicer will not work with you to reduce your payment, you may want to consider a short sale. Agents like me, with the Certified Distressed Property Expert® Designation, have undergone extensive training in how to process and negotiate short sales. A short sale allows you to sell your home for less than what you owe and avoid foreclosure. Speak to your market expert to see if you may qualify.

What is a Home Affordable Refinance?

If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a Home Affordable Refinance. This will allow you to refinance your home and often lower your payments.

What are the qualifications for a Home Affordable Refinance?

According to the resources released by the government, following are a list of qualifications:

You are the owner occupant of a one- to four-unit home
The loan on your property is owned or securitized by Fannie Mae or Freddie Mac (see Useful Links)
At the time you apply, you are current on your mortgage payments (you haven’t been more than 30 days late on your mortgage payment in the last 12 months, or if you have had the loan for less than 12 months, you have never missed a payment)
You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house
You have income sufficient to support the new mortgage payments, and the refinance improves the long-term affordability or stability of your loan