What is a Short Sale? – and Do I Qualify to Sell this Way?
Not a day goes by that I’m not asked about Short Sales. In today’s market, the reality is they still represent over 60% of all real estate transactions.
With so much time and effort dedicated to this particular type transaction, you’d assume that everyone was relatively educated about what a short sale real estate transaction is and if interested in selling, whether they qualified to sell their property in this manner.
Unfortunately, the subject is filled with misconceptions, misinformed agents and brokers, apathetic lenders and worse yet, predatory greedy slime balls presenting themselves as “short sale consultants” and advising and teaching their “clients” to commit bank fraud!
So What is a Short Sale?
A “short sale” occurs when a lender agrees to accept less than the amount owed on a promissory note (mortgage). It is often utilized when a seller cannot pay the mortgage on their property. Often, both the seller and the lender will agree or consent to the short sale process because if allows both parties to avoid foreclosure. This agreement, however, does not necessarily release the seller from the obligation to pay the remaining balance of the loan known as the deficiency. Only the lender can release the deficiency at their own discretion.
What are the Signs of a Short Sale?
Short Sales are usually thought to be useful to both mortgage companies and sellers in situations where:
* The seller is legitimately behind in their payments or is thought to be in imminent danger of becoming delinquent
* The seller has a legitimate hardship; and/or, the seller has little or no equity (generally 8% or less)
What’s Constitutes a Hardship?
A “hardship” is typically limited to job loss, decrease in income, increase in expenses, divorce, medical emergency or death. Most lenders will consider a short sale if mortgage payments or property taxes are too significant for the seller to pay.
What to Expect After the Short Sale is Agreed to by the Lender?
Although the lender is not “a party to the sales contract”, (this is between the seller and buyer only) – they do hold the cards with respect to final acceptance of the buyers offer. Regardless, unless the lender releases the seller without recourse for the deficiency, they still have the right to sue for the balance, 1099 you for income tax purposes, or attach this amount to any other assets owned by the seller.
The lender may ask the seller to sign a promissory note for the difference at closing as well. Even if this does not happen, they do reserve the right to sue the seller for up to six years after the the closing date for the deficiency. This is especially true if any subsequent investigation uncovers a fraudulent hardship or attempt to hide sufficient assets to satisfy the original loan.
What is Mortgage Fraud as it Relates to Short Sales?
Any material misstatement, misrepresentation or omission (filtering of information) relied upon by the bank, their lenders or investors and used in the decision making process to approve the short sale transaction.
This can happen as the result of a number of various situations and willing parties. Examples include but are certainly not limited to the following:
* The seller willingly and knowingly withholding or hiding sufficient assets to qualify for a short sale transaction
* The agent/broker artificially pricing the home significantly below true “market value” to induce a sale and then withholding information or subsequent offers to avoid delaying the sales process
* Colluding with an agent/family member/organization to conduct a follow up “flip” of the property back to the original seller after the short sale transaction has been completed
What is a Deficiency?
A deficiency stems from a seller defaulting on a promissory note. A promissory note is a promise to pay. The fact is, a short sale is a default. Although it does not carry the same stigma or consequences as a Foreclosure or certain types of Bankruptcies, it’s still a default and WILL have a negative affect on the sellers credit. Before a short sale is accepted and the transaction is complete, all sellers should consult with a tax advisor regarding any possible tax implications
What Next?
The worst thing a home owner can do is to stick their head in the sand and not get involved immediately to help mitigate their situation. Become informed, be careful, ask lots of questions.
Our best advise? Call FARKAS & Associates Realty Group We’ll help you navigate through the confusing process and advise you every step of the way.
You’ll find we’re one of the best educated and informed Short Sale teams available. Our team includes our managing Broker who was instrumental in composing the short sale contractual exhibits in use today and, were also affiliated with one of the leading Real Estate Law Firms anywhere, complete with a separate department of specialist specifically dedicated to Short Sale transactions.
We look forward to speaking with you soon and assisting in anyway we can.
