What is a short sale?
A short sale is a real estate transaction where the lender, or lenders, agree to a sale where the net proceeds will not cover the total mortgage obligation, closing costs, and real estate commission. In most short sales, the lender releases and forgives the mortgage lien on the property at closing and does not require the mortgage holder to make up the loss. In some situations, the homeowner must make arrangements with the lender to settle the remainder of the debt – typically at a fraction of what was owed with payments spread out over multiple years.

Do lenders approve all short sales?
No. According to national statistics less than 20% of all short sales are approved. We have found that one of the biggest reasons short sales are not approved are that homeowners and inexperienced real estate agents are not prepared properly to handle short sale negotiations with the bank.

We have a 40+ person short sale team including former banking executives, licensed Realtors, and former mortgage company employees committed to getting your short sale approved. We specialize in short sales and are committed to getting your short sale approved.

How long does it take to complete a short sale?

The length of time varies from lender to lender, but most lenders are currently averaging 60-90 days from the time the offer and complete short sale package is received until it is approved. Unfortunately there are still some lenders that can take 6+ months to approve a short sale.

The actual closing of the property would take place at a time negotiated between the buyer, the seller, and the bank typically 15-40 days from the date of the short sale approval.

Why does the short sale process take so long?
A short sale is a structured multiple step process between the lender(s), our short sale negotiation team, the seller, and the buyer.

In some situations additional parties may be involved since the lender is simply the company that services the loan and the loan is owned by another party such as Fannie Mae, Freddie Mac, or HUD. Also many loans are insured by private mortgage insurance firms and additional time is needed to work with them as well.

The lender will need time to have third party inspections of the property and typically at least two BPO’s completed. A BPO is a Broker Price Opinion of the value of the property. The bank contracts with local real estate agents and pays them a fee to provide a report on the value of the particular property. Since the lender may be based across the country they do not have the insight into the local market and the BPO is essentially their eyes into the current local market.

The lender also wants to ensure that the property is not being sold to a related party for the sole purpose of reducing the mortgage debt obligation.

Mortgage lenders are also working with a reduced staff and a huge increase in short sales, foreclosures, and refinances – they simply do not have the staff needed to handle a short sale in a quick timeframe.

Can I do a short sale if I have a first and second mortgage on my property?
Yes. In fact, second mortgage holders are typically more flexible than first mortgage holders.

What if my two mortgages are with different lenders?
Yes, you can do a short sale on a property with two loans with different lenders. The process can take slightly longer since each loan will need to be negotiated separately. When the primary mortgage on property is foreclosed, the second mortgage lender losses everything so they are highly motivated to agree to a short sale. (When both loans are with the same lender, typically one negotiator can handle the entire process.)

Do I have to move out before the property closes or on the day of closing?
No. Our standard short sale contract allows the homeowner to stay in the property for up to 3 days after the closing at 5:00 PM. This will allow you time to move out of the home and leave it clean for the new buyer. Only on properties that are vacant or if you specifically agreed would possession be given to the buyer at closing.

I have heard of borrowers getting paid by their lender to do a short sale. How does that work?
On mortgages backed by HUD (U.S. Department of Housing and Urban Development), borrowers are eligible to receive a small amount of compensation for keeping the home out of foreclosure and to make sure the home is left in good condition at the closing. This payment typically ranges from $100 to $1000.

What if my home needs work, can I still apply for a short sale?
Yes. Lenders are highly motivated to agree to a short sale on a home that needs work since it will be an additional expense for them if it is foreclosed.

Am I required to make repairs to my home for a short sale?
No. All of our short sale listings are marketed as an “as-is” sale meaning that the homeowner will not be asked to make any repairs. In addition, all of our short sale contracts allow a buyer the opportunity to inspect the property but do not require the seller to make any repairs.

What does the lender need to approve a short sale?
A lender will need a complete short sale package to approve the short sale. We will send you a complete check list of the documents needed including all necessary forms. You will simply need to complete some fill in the blank forms and provide us with copies of some financial documents. We handle the preparation of the short sale package and the submission to the lender.

The standard items needed by most lenders are

• Hardship letter
  • A hardship letter is a detailed explanation explaining why you can not afford the property. Typically it’s about 3/4 to a page long and it must explain your situation in detail. The letter is designed to have the mortgage company sympathize with your situation so the short sale is approved.
• Authorization letter allowing our short sale team to speak to the bank on your behalf.
• Last two years of income tax returns or a or written statement explaining why you don't have them
• Two most recent pay stubs (or a letter explaining why you don’t have them if you are out of work)
• Two most recent bank statements
• A copy of your real estate listing agreement
• A complete copy of the offer on your home including the buyer’s proof of funds or mortgage approval letter
• Marketing history, showings, and feedback for your home
• Repair estimate for any repairs needed
• A preliminary HUD-1 showing the bank what their proceeds will be from the sale
• A preliminary title report showing the seller still has clear title

Some lenders also may require some items to be completed on their specific forms or may request the latest copies of bank or pay stubs at the time of approval. Also you will need to provide current up-to-date documents when requested by the lender throughout the course of the short sale.

I have provided copies of financial documents to my lender(s), do you still need these items from me?
Yes. Even though you have submitted some of this information to the lender before, we will need to submit it again in order to have a complete short sale package. Lenders are notorious for claiming that they are missing items from a short sale package. By submitting a complete short sale package each time an acceptable offer is received on your property, we greatly reduce many of the pitfalls experienced with short sales and greatly decrease the time needed for approval. One of the main reasons that short sales fail is because an incomplete short sale package was sent to the lender.

Will my lender consider a short sale if my mortgage is current?
Some lenders will accept a short sale on a non-delinquent loan while other lenders will not approve a short sale until the loan is delinquent.

Many lenders have guidelines that state that a short sale can not be agreed to if the borrower has the means and can continue to pay on the loan each month. However in the current market conditions, many lenders have changed their guidelines and each short sale is reviewed on a case by case basis.

In our experience, lenders typically assign a much higher priority to delinquent loans -- but again each situation is unique and each lender’s guidelines are different. We have also had lenders that originally said they would approve a short sale where the mortgage was current and then suddenly changed their mind and told the borrower that they needed to stop making their mortgage payment in order for the short sale to be approved.

Does my home have to be for sale for a certain length of time before a short sale will be accepted?
Some lenders and/or mortgage underwriters require that your home be on the market for a period of 60-90 days before they will approve a short sale. This does not mean that you must wait this entire period before accepting a short sale offer from a buyer. This simply means that your lender will not issue a short sale approval letter until you have met their time on market requirements.

Are there any tax consequences to the seller of a short sale?
The Mortgage Debt Relief Act of 2007 (H.R. 3648) generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through a short sale qualifies for the relief. Prior to this change in the tax code, banks would record this loss as income for the seller and would report this as a taxable event to the IRS.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).

Note that the exclusion only applies to the sale of a home that is considered your principal residence at the time of closing, so investment properties, second homes, etc. would not be eligible under H.R. 3648.

If the property is not a principal residence, your tax consequences are limited to the amount of debt that exceeded your amount of insolvency immediately before the cancellation. You were insolvent immediately before the cancellation to the extent that the total of all of your liabilities exceeded the fair market value of all of your assets immediately before the cancellation. For purposes of determining insolvency, assets include the value of everything you own (including assets that serve as collateral for debt and exempt assets which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account). Liabilities include: The entire amount of recourse debts, and the amount of non-recourse debt that is not in excess of the fair market value of the property that is security for the debt.

More information, including detailed examples can be found in Internal Revenue Service Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. We suggest you consult with a qualified tax advisor for any specific questions related to this matter.

Does a lender forgive all mortgage debt with a short sale?
Typically a short sale will release the borrower from all mortgage debt but not always. Each short sale situation is unique. Our goal is to get the lender to agree to forgive the mortgage debt “without recourse” with the closing of the short sale ending the borrower’s obligation to the lender. However, there are some lenders that will only approve a short sale “with recourse” where the lender reserves the right to pursue the loss from the borrower. (Please note that there is new legislation that requires lenders to release mortgage debt without recourse for certain borrowers and types of loans. For more information see the Home Affordable Foreclosure Alternatives Program below.)

In loan situations where a mortgage insurance company is involved, the mortgage insurance company may want a contribution from the borrower to approve the short sale. Also some second mortgage holders may ask for additional compensation in order to release their mortgage. These contributions can be made in lump sum payments or done as a promissory note with payments spread out over multiple years.

Lenders and mortgage insurance companies typically agree to accept a fraction of the loss as payment in full. They also typically will allow it to be paid back with zero to little interest over an extended period ranging from 3-15 years or more.

We work to negotiate these amounts down to the smallest amount possible. Also in cases of severe hardship, we have had many lenders change their initial terms from requiring a payment to not.

Does a foreclosure or a "deed-in-lieu" release a homeowner of all mortgage debt?
No. In Georgia, when a property is foreclosed or if the lender accepts a deed-in-lieu of foreclosure the lender can still get a deficiency judgment against the borrower. This deficient amount will be the difference between what was owed on the home plus all penalties, interest, late fees, legal fees, etc. minus the net proceeds from the sale of the home.

Since the homeowner has no control over the final sales price of the home nor the additional expenses involved in a foreclosure, the amount the lender seeks for a deficiency judgment can be astronomical. In addition, foreclosed homes often sit vacant for months where the additional expense of theft and vandalism effects the proceeds from the foreclosure sale - and increases what the homeowner might owe in a deficiency judgment.

With a short sale, the seller is involved in the process and the loss to the bank is greatly reduced. Even if a homeowner has to agree to pay a small negotiated settlement or agree to a promissory note for a bank to agree to a short sale, the financial impact is substantially less than the risk of a deficiency judgment with a foreclosure or deed-in-lieu of foreclosure.

What about HOA fees? Does the lender pay them in a short sale?
Technically HOA fees as well as any utilities or other fees or assessments billed by a Homeowner’s Association are not considered part of your mortgage and would not be the lender’s responsibility. However some lenders will often pay HOA dues/fees as part of a short sale. Each situation is unique and will vary from lender to lender.

How does a short sale affect my credit?
The impact on your credit will vary greatly depending on the specifics of your situation and what is actually reported by your lender. We have had many instances where nothing was reported by the lender and there was no impact on the seller’s credit. Sometimes the bank may report the sale to the credit bureaus as having a negotiated or settled payoff – meaning they accepted an amount that was less than the original loan amount as payment in full. Other times the bank simply notes the account as paid in full and closed.

If you are behind on your mortgage payments they typically will report that you are 30, 60, 90 etc. days late on your account. Sometimes these late payments get removed when the short sale is finalized. If all other accounts besides your mortgage are kept current, a short sale may only lower your score by 50-100 points.

While there may or may not be an impact on your credit report, the impact is usually short term and is substantially less than a deed-in-lieu of foreclosure, a foreclosure, or a bankruptcy.

When a property is foreclosed or the seller does a deed-in-lieu of foreclosure, your credit can be severely impacted for 7 years and may effect your ability to obtain credit, rent or buy a property, buy or lease a car, obtain insurance, or even prevent you from being hired for certain jobs. A foreclosure remains on your credit report for 7 years and on public record FOREVER. And if you are considering filing for bankruptcy, you should note that a bankruptcy legally can remain on your credit report for up to 10 years.

A foreclosure can lower your credit score 150-200 points or more, and a bankruptcy can lower your score 350 points or more. These credit reductions also will impact your score for a much lengthier period than a short sale.

While no one can guarantee what each lender will do in each specific situation or how it will impact your particular credit score, the bottom line is that a short sale has the least amount of potential impact on your credit report compared with a foreclosure, a deed-in-lieu of foreclosure, or a bankruptcy.

How soon after a short sale can I purchase another home?
Fannie Mae and Freddie Mac will allow borrowers who have gone through a short sale to obtain a new mortgage loan 24 months after the closing of the short sale.

The path back to home ownership is drastically shorter with a short sale than what you will experience with a foreclosure or deed-in-lieu of foreclosure. If a borrower has a property that goes into foreclosure they will not be able to get a Fannie Mae or Freddie Mac backed loan for 5 years. However it will likely be 6-7 years before you can actually qualify for a mortgage if you have had a foreclosure. This is because lenders require higher credit scores if you have experienced a foreclosure and additional time will be needed for your score to improve.

All in all, a short sale is a much better option than a foreclosure for a borrower that is planning to own a home again in the future.

Are there any things I can do to prepare for a short sale?
With credit markets tightening, we have seen other creditors tighten their credit accounts and even close them when you are behind on your mortgage.

If you are someone that depends on credit cards to manage your finances, pay for reimbursable work expenses, etc. and do not own at least three major credit cards (MasterCard, Visa, American Express, or Discover), it might be wise to quickly obtain additional credit.

Credit card companies have begun to cancel credit cards in perfectly good standing if they fear you might be in a situation where you can not repay them. Also they often will reduce your credit limit to a fraction of what it was previously. We have seen credit limits of $30,000 reduced to $5,000 and limits of $10,000 reduced to $300.

Also if you have credit cards that you have not used for a while, it is important to use each card at least once every 2-3 months and pay the bill in full to keep the card active and current.

I currently have my checking (or savings) account at the same financial institution that services my mortgage. Is that recommended?
No. Many banks have clauses that you may have agreed to when you made an online mortgage payment or even opened your account, that allow them to obtain funds from your accounts when your loan is deficient. To have the best level of protection, it is wise to open a new checking and/or savings account at a bank that is totally unrelated to your lender

How do I determine if Fannie Mae or Freddie Mac owns or guarantees my loan?
If you are getting the run-around from your mortgage company determining if Fannie Mae or Freddie Mac guarantees your loan, please visit the links below.

You will need to enter your address EXACTLY like it is on your monthly mortgage statement.

Please make sure all abbreviations such as "St" for street or "Cir" for circle, etc. match exactly how your address is on your statement.

If you have trouble using the loan lookup tools, toll free numbers for Fannie Mae and Freddie Mac are provided as well.