NPHS has provided these Frequently Asked Questions to better assist you in determining your situation from a Non-Profit perspective.
*UPDATE: Fannie Mae has recently released information revising their credit guidelines and penalties associated with foreclosures, short sales, deed-in-lieu, etc. Please follow the link to view our NEWS POST for more information: http://nphsrealestate.org/fannie-mae-credit-update/
Frequently Asked Questions (FAQ)
What is a Hardship?
- Recent Unemployment or Reduction of Income
- Divorce or Separation
- Death of a Spouse
- Disability or inability to work due to a health condition
- Overwhelming medical bills
- Failure of a business
- Employment Relocation
- Recent adjustment in mortgage payment
- Unable to Refinance
- Increasing credit card debt and/or monthly expenses
- Recent property damage and/or property requiring extensive repairs
- Any other unforeseen circumstances that may cause financial hardship
What is a real estate short sale?
A short sale or “short pay-off” is a consent granted from a lender for a struggling borrower to sell their property at an amount less than that due on their loan. A win-win solution for both parties, a short sale offers an optimal alternative to foreclosure for distressed homeowners and saves banks the expense and hassle of the foreclosure process.
What are the benefits of a short sale?
For homeowners facing foreclosure, short sales are a beneficial alternative. A short sale relieves the homeowner of responsibility over the property with considerably less credit damage than foreclosure. You will not be burdened by any up front costs with a short sale. All fees including closing costs, broker commissions and escrow fees are covered by your lender. Do I qualify for a Short Sale
What are the advantages of a short sale vs. a foreclosure?
The main advantage of a short sale is preventing foreclosure. Short sales are considerably less damaging on credit ratings than foreclosures. Remaining on your report for up to 7 to 10 years, a foreclosure is often times deemed more damaging than a bankruptcy, and may cause you to wait up to 3 years to re-qualify for a home loan at a sensible rate. Short sales may report on your credit for up to 3 to 5 years however, are noted as “pre-foreclosure in redemption” and are spared the more harmful “debt discharged due to foreclosure” marks. Individuals have successfully recovered from a short sale and re-qualified for a reasonable home loan within 18 months.
What is my potential liability after completing a short sale?
A short sale allows the homeowner to sell their property for less than the outstanding mortgage debt. That amount causes a “deficiency” and is written off as a forgiveness of debt by the lender. Typically, lenders would provide the IRS with a Form 1099 quoting the amount that has been forgiven and it is then treated as income and is subject to tax for the borrower. However, under the Mortgage Cancellation Tax Relief Act of 2007 (H.R. 3648) any amount forgiven on a mortgage debt secured by a principal residence can not be taxed. We highly recommend to seek the advice of an attorney or your CPA and not relay on this information to make final decisions.
Visit our Foreclosure Law section for more IRS and liability inf0rmation.
What is a deficiency judgment?
A deficiency judgment is a civil judgment the lender may file to recover the difference between the loan amount and the pay off amount. Depending on the State, unless the loan is a purchase money loan secured by your principal residence, the lender can obtain a deficiency judgement and hold you liable to pay back all/or a portion of the “deficient” amount in an IOU.
I’m facing foreclosure, do I still have time for a short sale?
On average, from the time we present a completed short sale package to the lender, it can take from 1 to 4 months, depending on the situation. Each situation is approached with measures necessary according to their individual needs, so every file dictates their own timeline. If time is of the essence, and you are facing foreclosure or have a set auction date, we can expedite your request and negotiate your lender to postpone those dates. Typically, a short sale procedure consists of the following steps:
1. Pre-qualification of your financials and your home.
2. Pre-qualification of your loan and your lender.
3. Set the starting listing price and prepare possible price reductions.
4. Gather and review your financial documents and prepare short sale package.
5. Document any previous lending voilations.
6. Submit and work offers with the lender.
7. Discuss and negotiate any post-sale liability and credit issues with the lender.
If I file bankruptcy, can I still qualify for a short sale?
Bankruptcy is typically used as a last resort causing a temporary delay or “stay” in a foreclosure situation, while the property is sold to satisfy debts. We strongly suggest you to seek the advice of a bankruptcy attorney if you are considering this option.
How much will it cost to do a short sale?
There are no up front fees or costs to you in a short sale. All fees, including title, escrow, closing costs and real estate commissions will be paid by your lender at closing. These are nominal fees for them compared to the larger expenses that apply to the foreclosure process.
What paperwork will I need to provide?
Each lender is unique in their requirements for a short sale package. They will want a letter explaining your situation and what financial hardship is preventing you from affording your property. Along with the hardship letter, all lenders require the following documents:
- Financial Statement
- Recent Bank Statements
- Recent Pay Stubs
- Last 2 Years Tax Returns
- Other Related Items
If my mortgage is still current, will my lender consider a short sale?
Each lender is unique in its requirements. There are lenders that will not accept a short sale file until the loan is delinquent, and there are some that will approve files on loans still current. If you find yourself contemplating a short sale, at not cost or obligation we can get your file started and contact your lender for their specific requirements.
Is a short sale still possible if I have more than one loan on my property?
Yes. We will negotiate with both lenders to put together a short sale package. Neither lender benefits from having the property go into foreclosure.
Can a family member buy my home on a short sale?
Most banks will have you sign a “Arms Length Transaction” document that is part of the short sale documents
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