Kentucky Short Sales

Lake Cumberland, Somerset and Pulaski County

ANSWERS TO YOUR QUESTIONS ABOUT SHORT SALES

What is a short sale?

A ‘short sale” is when a bank agrees to accept less than the full amount that they are owed when a house is sold. Because the bank will not receive all the money they are entitled to, they must approve the terms of the sale, and the amount of money that they WILL receive. Sometimes other lien holders, such as a 2nd mortgage holder, holders of judgments or mechanics’ liens, will also need to be involved in the negotiations since their rights are also at stake. Why would a bank (or other creditor) agree to a short sale if they are getting less money than they are owed? Because the foreclosure process is long and expensive, a lender may decide that its better to settle for less than what they are owed, and save the time and money involved in foreclosure. Also, if the value of the home has dropped, as we’ve seen in the last few years, the lender may lose even more money if they decide to foreclose and then try to re-sell the home. How do I start a short sale? First, you will need to show your lender that you can no longer afford to stay in your home. Basically you need to “un-qualify” for your loan(s). To get started, contact your lender(s) and ask for a short sale package. They will send you the forms you need. You can also contact your Realtor, who will often have standard forms available that most lenders will accept. What will I need to submit to my lender?

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To “un-qualify” for the loan(s), you’ll need the following:

• An Authorization to Release Information to allow your Realtor to discuss your loan and your short sale with your lender.
• A Hardship Letter, written by you, explaining why you can no longer afford your home, and what circumstances led up to you getting behind (or about to be behind) on your payments (i.e., you lost your job, got a divorce, had high medical bills, etc.) Your Realtor will be able to assist you with this letter if need be. If you have supporting documents, such as copies of medical bills, child support orders, or other paperwork supporting your decreased income or life change, its even more helpful.
• A Financial Statement, or listing of your monthly income and expenses. This is intended to show your lender that your income cannot cover all of your expenses and your house payment. Your lender or Realtor can provide you with the proper form.
• Paystubs from your last 2 months worth of paychecks.
• Your last 2 months’ bank statements.
• Some lenders also require copies of your last two years’ tax returns and/or W-2 forms.
• You will also want to provide your Realtor with a copy of a recent monthly statement from each of your lenders.

When is the best time to start a short sale?

As soon as you get behind with your loan payments or are about to miss a payment, it’s time to start the short sale process. Because of the huge number of foreclosures and short sales, many lenders are behind in processing, so it pays to start early. Some lenders will suspend any foreclosure actions while a short sale offer is pending. Others will let the foreclosure process work, selling at the foreclosure sale or to a short sale buyer, whichever comes first. Unfortunately, there is no way to know what your lender will do, so its best to start the process as quickly as possible if you get behind in your payments.

Who will buy my house & when will I have to move?

Your Realtor will list your home for sale as a “short sale”. The price will likely be set below market so that offers will come in quickly. The selected offer will contain the closing date and you should plan to move by that date. Delays in securing lender approval for a short sale may necessitate a change in the closing date. If this happens, your Realtor will help you with an “Amend-Extend” form to change the closing date. You may move at any time prior to the closing date. (If you have an FHA loan, you should plan to occupy your home as long as possible as special rules will apply.)

What can I expect to happen if I apply for a short sale?

Following submission of your short sale documents (see above), your lender(s) will order a Brokers Price Opinion (BPO) to establish the value of the property. In most cases, your Realtor will attend the BPO visit to explain any repair issues, decreases in value, or problems with the property to the BPO agent. Once your lender reviews the BPO value, they will made a decision on the offer they have received. They may accept it as is, reject it outright, or make a counter-offer. Your Realtor will work with your lender(s) and the new buyers to come to a resolution.

Will I have to bring money to closing?

Usually short sale sellers don’t have to bring money to closing. It is possible, however, depending on the bank’s opinion of the value of the home, the amount of the offer, and if there is a 2 nd mortgage, the amount that the 2 nd will accept. You will know this in advance of closing, and you may refuse to continue with the short sale if need be. In this event, you will want to carefully consider your options.

Do I have to go to the closing?

Generally you do NOT need to attend the closing, however you are always welcome to do so. If you choose not to attend, the title company will send a notary signing agent to your home (or other convenient location) to obtain the necessary signatures. If you do choose to attend the closing, the title company will coordinate everything, much as they did when you bought your home.

What are the ramifications of a short sale?

Short sales are legal transactions and they carry consequences. You will need to carefully consider all of your options before deciding to pursue a short sale, let your home go to foreclosure or seek alternative financing. You should also obtain legal advice pertinent to your own circumstances.

A few things to consider are:

) Deficiency Judgment: Your lender has the right to pursue a deficiency judgment to collect the difference between the balance of the mortgage and the amount they receive in a short sale. We will always request, though we can’t guarantee, that your lender waive their rights to a deficiency judgment. In our experience, first mortgagees rarely pursue such a deficiency judgment.

2) 1099: Instead of a deficiency judgment, your lender may issue a 1099 form for the forgiveness of debt. If you are selling your personal residence, this event usually does not create a taxable event (for short sales ot personal residences after 1/1/08). You should consult with your tax advisor to be certain about your unique circumstances. If you are selling an investment property, your tax advisor will be able to give you a clear understanding of what impact the 1099 will have on you.

3) Impact on your Credit. Missing even one house payment will negatively impact your credit, and each successive missed payment will subtract points from your FICO score. (This is one reason you should act quickly once you have decided that you can no longer afford to make your payments.) Under current lending guidelines, a foreclosure will make you ineligible for a new home loan for a significantly longer period of time than will a short sale. Also, depending on how your lender reports a short sale to the credit bureau, the impact may not be as harsh. Unfortunately, there is no way to know how the sale will be reported prior to it actually occurring. The worst case scenario is that it will be treated like a foreclosure, and you will not be able to obtain a home loan again for three years.

The process of buying a foreclosure, REO, Bank owned or Short sale home can be a very stressful and tidieous transaction. Having a realtor who knows the ins and outs of this form of sale is essential to your home buying experience. Let me help to guide you through the process of buying your Foreclosure, short sale, Bank owned or REO Home, and together we will succeed!

Thank you, and I look forward to working with you and helping you find the home of your dreams!