Q. What is a short sale?
A. A short sale occurs when the purchase price is or may be insufficient to enable seller to pay the costs of sale, which include but are not limited to the Seller’s closing costs and payment in full of all loans or debts secured by deeds of trust on the Property due and owing to one or more lender(s) and/or other lien holders. The seller also does not have sufficient liquid assets to pay any deficiencies. The lien holders agree to release or discharge their liens upon payment of an amount less than the amount owed, with or without the Seller being released from any further liability.

Q. Who qualifies for a short sale?
A. As a homeowner, you must be either in default on your mortgage or in imminent danger of default. This must be as a result of a proven hardship that is preventing you from paying your mortgage. Examples of hardships are:

• Loss of a job
• Reduction in pay / overtime / loss of bonus
• Medical bills
• Divorce
• Death of a spouse or loved one
• Overwhelming Debt
• Incarceration 

Q. How do you know if you're approved for a short sale?
A. There are a number of factors that go into approving one for a short sale, one of which is an offer. Only once an offer is received and the short sale packet is sent to the bank will you know if the bank has accepted your short sale proposal.
 

Q. Does it cost anything for a short sale?
A. In most cases, the bank covers all of the fees for the short sale including real estate commissions and fees generated by the closing attorney and / or 3rd party negotiator. You will not receive any equity from the short sale of your property.
 

Q. In what areas do I accept short sales listings?
A. My team and I will generally accept a listing for short sale in Minneapolis, Eden Prairie, Edina, and many other South & West suburbs. 

Q. Can you guarantee a successful short sale?
A. No. Anyone who says they can guarantee a successful short sale is delusional, has never worked a short sale, and is not someone you should hire. My goal is to work out a successful short sale with the bank.  However, there are a lot of variables that neither I nor any 3rd party negotiator has control over.
The only guarantee is that we will do all that we can to prevent a foreclosure.
 

Q. What if the bank rejects the short sale proposal as presented? Am I still obligated to sell the home to the buyer?
A. No. Under a traditional sale, you could be sued for specific performance if, as the seller, did not meet the terms of the contract. However, a short sale requires the approval of the contract by the bank. In the scenario where the bank rejects the packet, we would need to correct the items that caused the rejection and re-submit.
 

Q. What's the difference between a short sale and a reo (bank owned)?
A. A short sale occurs prior to the bank foreclosing on a defaulting seller.  Should the seller or the bank not receive an offer that's acceptable, the bank will foreclose on the seller and sell the home at a public auction.  Should no one outbid the bank for what is owed, the bank purchases the home back and that property becomes an REO.
 

Q. Will a short sale damage your credit?
A. Yes.  From MyFico.com "Credit bureau reports are limited in how they represent foreclosures today, so it's generally not possible to tell from the credit report if a reported foreclosure is a short sale, deed in lieu of foreclosure, settled account, regular foreclosure, or some other variation. 
The FICO® score treats all of these descriptions that appear on credit reports as serious delinquencies, so they have an impact on the score similar to the impact from a charge off, tax lien or account included in bankruptcy."

How long will the delinquency remain?
 
Active positive information can remain indefinitely (if an account is closed that has been positive, then it will typically remain on your report for 10 years after the date the account is closed).

Collection Accounts:
A collection account remains for 7 years from the initial missed payment that led to the collection.

Public Records:
Chapter 7, 11 and 12 bankruptcies remain for 10 years from the date filed.
Completed Chapter 13 bankruptcies remain for 7 years from the date paid, and 10 years if not completed.
Tax liens remain for 7 years from the date filed if paid and remain indefinitely if not paid.
All judgments remain for 7 years from the date filed.

Inquiries: 
Inquiries remain for 2 years.

Credit Accounts:
Negative information remains for 7 years from the initial missed payment that led to the delinquency.

So if my credit score will still get hurt, why wouldn't I just declare bankruptcy?

"While both foreclosures and bankruptcies are considered very negative items by your FICO score, a foreclosure can be isolated to a single account (your mortgage account). Often, bankruptcies involve multiple accounts that are "not paid as agreed", so bankruptcies have the opportunity to be farther reaching than foreclosures. However, if you're unable to pay other credit obligations in addition to your mortgage, you may need to consider bankruptcy. Here's a post on the FICO Forums that lists some good resources regarding bankruptcies.
While the reality of losing your home to foreclosure is difficult, there is a real possibility that you can rebuild your credit in a relatively short amount of time. Keep in mind that a foreclosure is just one negative item on your credit file and as time passes, it's impact on your FICO score will lessen."

Q. If I just mail the keys to the bank, will the bank go easier on me than if they just foreclose?
A. No. It's still a foreclosure.  
 

Q. I heard that the deficiency of the mortgage will be credited to me as additional income on my taxes and I will receive a 1099 for the balance.  Is this true?
A. The IRS recently lifted that penalty for primary residences only.
 

Q. How can I get started with the short sale process?
A. Call me today at 612-616-2902 to schedule a confidential appointment where I can evaluate your situation.
 

The Short Sale Process

For Sellers
There are a few important distinctions between selling your home traditionally and selling your home through a short sale.
Your mortgage company is thoroughly involved in the selling process. The bank will review a whole host of documents and will need to agree to a short sale proposal. The proposal will consist of your hardship letter, proof of your hardship, a listing agreement, a sale agreement with a buyer, sample HUD-1, a CMA, and other requested documents.
As a result of their involvement, the home will need to be listed for sale "As-Is" with you not making any repairs requested as a result of the inspection. Also, any agreements must be submitted to the bank for approval. This takes time and so as a result, it may be a number of weeks before a short sale is approved.
If the home has both a first and second mortgage, both will need to be negotiated independently, which may further delay the process.
All commissions and attorney's fees are set by the bank upon agreement of the short sale and as a seller, you will not receive any proceeds from closing.

For Buyers
Purchasers looking for an opportunity to own a home below market value should look into short sales. However, there are a few things you must remember before you make an offer.

1. Be Patient. Short Sales Take Time!

 Among the chief complaints I hear from Buyer’s Agents and Buyers is the amount of time required to get a response to their offer on a short sale. This comes from a general lack of understanding of the process that is occurring between the seller, the bank and their vendors. Here’s a summary

An offer comes in
 

• The seller signs it
   
• The agent compiles the offer with about a hundred pages of other documentation on the seller and sends it to the bank
   
• A file is open with the bank
   
• The file is processed in loss mitigation. If the file isn’t 100% complete, 9 times out of 10, it hits the trash. No call is made to the listing agent that there was a problem.
   
• An appraisal is ordered if one hasn’t been done already.
   
• BPO data is gathered
   
• A negotiator is assigned
   
• Negotiator reviews the file
   
• Consults with the investor behind the loan (most people never knew that the bank wasn’t the final end-all to that mortgage process)
   
• Sends a response to the agent
   

This entire process can take a few weeks or a few months. Most Loss Mitigation departments are handling tens of thousands of files and your negotiator may be handling 2,000 short sales personally.

 
2. If the home has a second mortgage, the process will take even longer!

 
Rarely is the first and second mortgage with the same bank. If if that is the case, the two mortgages may be handled by different negotiators. That means that it could take an additional couple of weeks to get a response from the second mortgage after a response has been received from the first. The banks work on a time line so if the second takes too long or if the listing agent doesn’t communicate properly, the process with the first will have to be restarted all over again.

 
3. If the home has multiple leins, it could take even longer

 
Need I say more.

 
4. The Listing Agent Doesn’t Know What The Bank Will Accept Unless an Offer Has Been Received Beforehand

 
In a normal real estate transaction, a seller will list a house for sale at a price that is acceptable for them. In a short sale, the bank / investor on the actual loan has the final say on the price and they don’t share what they will accept with the seller or their agent until an offer is received. This puts the listing agent in an awkward position and could result in a home being listed for sale below what the bank is willing to accept.

 
5. Short Sale Listings are Sold “AS-IS”

 
Like an REO property that is owned by the bank, short sale listings are sold “AS-IS” with the seller unable to make any repairs. This is more CYA by the bank than anything as they don’t want to get sued for non-disclosure. Therefore, you need to still get an inspection of the property to know the true condition. Also, you need to make your lender aware that you are buying a short sale property and be upfront about the condition. Often times, I have shown a short sale listing in utter disrepair that could not support certain types of mortgage programs like FHA.

 
6. The Bank Won’t Play Games

 
In the past I’ve had buyers demand that sellers respond within a short period of time or they decrease the offer for the seller’s delay. If that’s your mindset, don’t bother with a short sale. The seller and the listing agent have little control over the bank’s response time. In my listings, I generally put “expect a response from the bank between 3-6  weeks” as way to set expectations. If I have already had an offer that fell apart for some reason, the second offer usually receives a response fairly quickly in comparison to the first.
 

Short Sale Documents for Sellers

Short Sale Client Information Sheet
This worksheet is the basic information that we will need to start working on your short sale listing file.

Authorization Letter
The Authorization Letter allows us to speak with the bank on your behalf. We will need this document back and signed along with the listing agreement.  We will need one for each mortgage.

Financial Worksheet Info & Sample Hardship Letter 
This financial worksheet contains all of the documents that we will use to demonstrate your insolvency to the bank.  Keep these documents handy since we may need to update a few items once an offer is received. 

If you prefer, you can ask your accountant to compile for us what is necessary and send us a  personal profit and loss statement.

You will also need to write a hardship letter and submit it with your financial information. 

IRS Form 4506: Request for Copy of Tax Return
This form allows the mortgage company to receive a copy of your filed tax return to ensure that the information that you've provided is accurate.

Household Income and Expense Worksheet
For salaried or unemployed clients only.  Self-employed clients must provide a profit and loss statement of their business.

We will get you these forms, and examples when requested.