Did You Know?
Short Sales are the “New Normal”. Without a negotiator, you’re missing out on 20% of the market. Learn More
We no longer have an Agent Fee Agreement. Our new fee models protect your commission. Learn More
You have a direct point of contact with the file manager assigned to you. Learn More
We protect your liability as every file is reviewed by one of our lawyers before closing. Learn More
*We have a 95% success rate on closing files. Learn More
Potential Buyer Paid Model in warranted negotiations. Learn More
**We can work with Buyer Agents too! (See Below)
As with most legal questions, it depends.
First, it depends on which state the property is located in. There are some states with anti-deficiency statutes that preclude banks pursuing the remaining balance on the loan (the legal term for the remaining balance is “deficiency”). However, anti-deficiency statutes are not common, so this question will often require another level of analysis.
Next, it will depend on the investor of the loan. Loans that are backed by Fannie, Freddie, FHA, and VA will allow for a full waiver of deficiency upon completion of the short sale and full compliance of the terms of the short sale approval. However, there are some narrow exceptions that may require the seller to make a cash contribution at closing to offset a sum of the outstanding balance in order to be granted a full waiver of the rest. These requested cash contributions are the exception to the rule and can even can be countered by the seller in some circumstances.
Finally, if a private investor has backed the loan, the waiver of deficiency will depend on that particular investors policy. Some privately held banks will negotiate the deficiency on a case-by-case basis. Although policies can vary, most of these private banks will primarily focus on the seller’s financial position in determining whether to waive all or part of the deficiency.
A short sale is when a homeowner is able to sell their home for less than what they owe their lender for their mortgage. If banks never accepted short payoffs, then the homeowner would have no choice and either could never sell their home, or they would have to bring the cash difference to the table (typically tens of thousands of dollars), or they would walk away resulting in a foreclosure, which would devastate their credit. Millions of homeowners are behind on their mortgage due to job loss, loss of income, medical problems, death of a spouse, losing a business due to the economy, divorce, a bad loan they never really qualified for. Up to the recession and market crash of 2008, the only generally accepted option was foreclosure.
Solution: Short Sale. Get the lender to accept an amount below the mortgage payoff and waive the deficiency against the homeowner. In most cases, all closing costs are built into the deal where the lender pays the closing costs. Lenders generally demand fair market value for the property – which in a short sale is significantly below the mortgage balance.
The number one reason a distressed homeowner should proceed with a short sale is to protect their ability to obtain financing in the future. Most short sales result in a “settlement” status on their credit report as opposed to “foreclosure”. Fannie Mae and Freddie Mac guidelines are much more favorable to borrowers with short sale on their credit report, typically allowing a borrower to obtain financing for a new home within a couple of years. In sharp contrast, a foreclosure remains on a credit report for seven years, making it very difficult to finance another house, a car, open a new business, or even qualify for credit cards. Any loans received will most likely bear very high interest rates. Bottom line: the end result of a short sale is minor when compared to the consequences of a foreclosure. Foreclosures have a devastating effect on credit history, job security, employment opportunities, security clearances, military and law enforcement careers, and the most serious of all – the ability to purchase a home in the future. Also, a foreclosure becomes public record, which is searchable by anyone, and can never be removed.
A Short Sale offers a fresh start, eliminating debt, while minimizing damage to credit and avoiding eviction proceedings.
A crucial part of the SHORT SALE process is negotiating the terms of the short sale. In order to provide the best possible result, we gather the relevant information from the seller, prepare a hardship package to submit to the bank, perform a preliminary title search on the property to determine what liens, mortgages and taxes are due on the property if one has not already been done, and negotiate with the bank in an attempt to have them accept a lower payoff on the mortgage than is currently due…potentially avoiding the credit impact and economic ramifications of a foreclosure or bankruptcy. Most importantly, regular updates and status reports are provided to realtors and homeowners as to the short sale process. Communication is everything and will never be compromised. We will be a team in the short sale process requiring a continuous flow of communication. The Firm assists in each of the following steps, which are all critical in the path to short sale approval:
- Prequalifying the homeowner
- Assemble excellent lender packages
- Directly and immediately respond to negotiators’ calls and emails
- Immediately provide well-written market narratives and critical analyses proving price
- Ensure that appraisers and bank BPO agents understand the subject property’s challenges
- Immediately provide additional documentation required by the lender
- Keep the parties well-informed and in the deal
- Document all tasks in detail for transaction-saving reference
- Provide creative solutions to banks’ demands such as promissory notes and cash contributions
- Applying 17 years of negotiations skills to ensure success
Foreclosure is devastating to one’s credit report. Someone who goes the short sale route generally can buy a home in less than 2 yrs, compared 5 yrs + after a foreclosure. Many employers run credit checks on prospective employees and foreclosure is one of the top items that will put a potential new hire in jeopardy. Also, current employers may run credit checks and a foreclosure can put a current position in jeopardy. Security clearances (law enforcement) and government positions can be jeopardized by a foreclosure. Additionally, interest rates will be markedly high on credit cards and any credit with a foreclosure or a deed in lieu on one’s credit report.
- The lender can still pursue the former homeowner with a Judgment for any deficiency after the property sells under foreclosure which is typically 25% more than the deficiency resulting from a short sale if it is not waived. This foreclosure deficiency tacks on attorney fees, costs to sell the property, property preservation fees, insurance, taxes, and the like.
- Foreclosures eliminates the chance of a homeowner to repurchase another home for years after a foreclosure is reported on one’s credit. So, realtors are excluded from the foreclosure process and transactions, plus they have just lost another potential buyer of another home. . . for years.
- From the lenders standpoint – see Loss Severity Rate above! Enough said.