We frequently teach free short sale classes at real estate agencies around the state of Maine. Here is a list of some recently asked questions and our responses that we felt the real estate community might benefit from. If you would like to have your questions answered, or if you would like us to come to your office, please send us an email.
1. What is a Short Sale?
2. How is a short sale different from a normal sale?
3. What do I need to provide for the short sale?
4. What are the benefits to me?
5. What happens to the unpaid balance created by a short sale?
6. My cousin really wants to buy my property. I won’t be living in it and she won’t be renting to me, and I know she’s a really solid buyer. Will this make the process easier?
7. Which lenders are the hardest to work with? The easiest? Will all mortgage companies work with MH Solutions?
8. How long will it take to get all applicable approvals so we can proceed to closing?
9. Will I have to pay the bank anything out of pocket at closing?
10. When will I have to move out?
11. What about my other liens: property tax, IRS tax lien, State income tax lien, mechanics liens?
12. I haven’t paid a utility bill or mycondo/homeowners association for the property for a while – I don’t have a lien yet, but can I expect the bank to pay the bills?
13. I’ve heard of a lot of programs that pay sellers at closing: will any of these programs apply to me?
14. Should I stop paying my mortgage?
15. Am I going to be thrown out on the street by my lender?
16. If we need more time to close is it possible to get an extension?
1. What is a Short Sale?
A short sale means that lien holders and mortgage companies have approved a property to be sold when the mortgage debt is more than the current value of the property.
2. How is a short sale different from a normal sale?
The big difference is that the mortgage company and any other lien holders need to approve the sale. This process takes time because the mortgage servicer will need to analyze the value of the home and also get the approval from their investors to accept less than what is owed.
3. What do I need to provide for the short sale?
Generally you will need to provide a written explanation of why you require a short sale, called the “hardship letter” along with financial information such as bank statements, pay stubs, tax returns and W2 forms. You will also need to fill out a financial worksheet and some other lender and MH Solutions specific paperwork. MH Solutions will provide you with a comprehensive list.
4. What are the benefits to me?
The short sale will allow you to sell a property that otherwise wouldn’t sell. Your credit most likely won’t be as negatively affected and you’ll qualify for a new mortgage sooner by doing a short sale as compared to giving the property back to the bank (a deed-in-lieu) or letting the property be foreclosed upon. Finally, you have more control with a short sale since we negotiate to get you the most favorable terms from your lenders and lien holders.
5. What happens to the unpaid balance created by a short sale?
Typically a lender will write this off as a loss and you will receive a 1099C for canceled debt income. If the property is your primary residence you can almost always write off any 1099C income created from the short sale. If the property was a vacation home, second home, or investment property, then you may have a tax liability and should speak with your tax professional.
6. My cousin really wants to buy my property. I won’t be living in it and she won’t be renting to me, and I know she’s a really solid buyer. Will this make the process easier?
All short sales must be an “Arm’s Length Transaction”. Many of the banks will require that all parties sign an affidavit of arm’s length transaction. That is, all parties must attest that the transaction has been negotiated by unrelated parties, each of whom is acting in his or her own self-interest and that the sales price is based on the fair market value of the property. The banks simply want to make sure that the buyer and seller are not related family members or business associates and that the bank is getting what is fair market value for the property being sold short.
7. Which lenders are the hardest to work with? The easiest? Will all mortgage companies work with MH Solutions?
Every short sale file is different: even within the same mortgage company, no two files are ever exactly the same. There are so many factors involved: does the file have mortgage insurance, requiring additional review time? Who is the investor? Is the negotiator inundated? Small, local banks are most often very easy to communicate with, but can also be the most challenging in terms of negotiations. We work with every lender, every lien holder, and every attorney and tax office necessary to move towards approval.
8. How long will it take to get all applicable approvals so we can proceed to closing?
The short sale timeline begins when the file is complete and prepared for presentation to the lender. Again, every short sale file is different and there can be many different factors involved in lender review times, but we typically expect results in 90-120 days.
9. Will I have to pay the bank anything out of pocket at closing?
It’s possible, but we’ll do our best to avoid that. Mortgage insurance companies often demand a cash contribution and/or a promissory note before the investor can approve for short sale. This is part of the negotiation process and will always be discussed openly with you for the best possible outcome. There are also circumstances in which a subordinate lien will demand more for payoff than what is allowed to them from the proceeds of the sale itself by the primary lender, at which time a contribution at closing must be presented.
10. When will I have to move out?
Once a short sale is approved, the lenders will typically allow 30 days to close. It is important to start seeking alternative housing as soon as the short sale process has begun, however, and to be prepared to pay for security deposits and moving expenses, etc.
11. What about my other liens: property tax, IRS tax lien, State income tax lien, mechanics liens?
In most cases a lender will agree to pay at least a portion of these liens. MH Solutions will communicate with all lien holders to negotiate lien releases on your behalf.
12. I haven’t paid a utility bill or my condo/homeowners association for the property for a while – I don’t have a lien yet, but can I expect the bank to pay the bills?
Lenders will very rarely pay any property fees that do not reflect as liens.
We highly recommend that you contact the parties to whom you owe overdue payment and work out a payment plan. Explaining your hardship and your intent to the sell the property often helps communicate to collections that their assistance with working out a plan is necessary.
13. I’ve heard of a lot of programs that pay sellers at closing: will any of these programs apply to me?
Some borrowers qualify for the HAFA program, and would then be allowed up to $3000 at closing. FHA loans offer up to $1000 to sellers, and there are currently some independent programs through Chase and Bank of America that also consider an “incentive” payment to sellers. It is a case-by-case basis and it is often the lender who has to advise of seller eligibility. We will inquire about options as is applicable.
14. Should I stop paying my mortgage?
Only you can decide if you can afford to keep paying your mortgage. You must remember that every month you don’t pay your credit will be negatively affected.
15. Am I going to be thrown out on the street by my lender?
If you haven’t made your mortgage payments your lender will most likely start a foreclosure action against you. The foreclosure process in Maine can take anywhere from several months to over a year to complete. First you have to be served official court paperwork notifying you of a foreclosure. You will have an opportunity to go to a mediation session (MH Solutions strongly suggests that you do this). Before you can be kicked out of your home, your lender will have to hold a public auction of your property and conduct an eviction. We recommend you take a close look at any paperwork that comes from your lender or the court so that you can keep up to speed on where you are in the foreclosure process. As an MH Solutions client you are given the opportunity to speak with an attorney, free of charge, if you need assistance making sense of any legal documents.
16. If we need more time to close is it possible to get an extension?
Although all lenders want closing to occur as scheduled, most will allow one extension. However, some lenders will charge for any additional extension beyond the first one issued. HSBC for example will allow one extension, then charge $500 for the second, an additional $500 for the third and then revoke their approval if it does not close after the third extension.