Frequently Asked Questions
How Do The Banks Define A Short Sale?
A short Sale is when the homeowner owes more on the property than the current market value and is unable to sell the property for the amount owed to the bank. The bank allows the homeowner to sell the home for less than the amount owed BUT with the obligation to recover as much loss as possible to the Investors and Insurers. The Short Sale must be less costly to the bank than a foreclosure. Hence, the secrete to a Success Short Sale transaction. HOPEwithShortSale through Project H.O.P.E (Helping Owners Prevent Eviction), cannot impress upon the homeowner more, the understanding of Short Sales from the perspective of the Loss Mitigation side. A MUST in Helping Owners Prevent Eviction through a Successful Short Sale closing.
How will the Short Sale affect my credit?
The credit consequences of a short sale and foreclosure vary slightly. The general consensus is that a short sale will show up on your credit report as a 'settlement', 'settlement for less than owed' or a "pre-foreclosure in redemption". Also, since some lenders will not consider an application for a short sale until a few payments have actually been missed, you may have a few late pays on your credit report. It is universally understood, a short sale can drop your credit score. However, many professionals are able to determine an exact amount it may drop. This is simply because each homeowner has a unique set of circumstances and credit worthiness prior to the short sale. This along with many other factors can contribute to the factors associated with the adjustment of the FICO score. We can explain this later in our consultation appointment. Let it be known, through negotiation with the lender, sometimes you can avoid having the short sale reported to a credit agency.
A foreclosure on your credit report can create severe consequences to the credit score (FICO) and could take up to 3 or 7 years (or longer) to remove or rebuild. A foreclosure should be the last choice for the homeowner and only be considered after exhausting all viable options that best suite the homeowner. In a rare case, depending on the credit worthiness and homeowner’s financial situation, investments, and family situation, the attorney may suggest a foreclosure as the best option once we have given them your scenario. Thus, the reason we strongly advise the homeowner to get the answers needed to be certain of the process they wish to proceed with. We've provided great resources on our website to counsel with prior to the Short Sale, at Contract Acceptance, and at the time of Successfully Closing Escrow. This will give the homeowner the complete saticfaction & relief knowing they made the right decisions for their situation.
Once the homeowner has established there are no better alternatives, pursue a short sale aggressively and avoid foreclosure.
Who benefits from the Short Sale?
Successful Short Sales are a win-win situation! When completed properly, a Short Sale can be most beneficial to all parties. When the bank sees the homeowner utilizing their ability to assist with minimizing the loss taken by the bank and the cooperation of professional assistance, it all makes wise business sense. The banks are not in the real estate business and do not want the property back in foreclosure. Therefore, the Short Sale must be less costly to the bank than a foreclosure, bottom line. This is where our Team of professionals assists the homeowner in understanding this simple formula. We work together to make this happen. Once this process is determined and utilized, the homeowner gets the relief they need and are able to sell their property and avoid foreclosure.
What Can The Homeowner Do To Assist With The Process?
Most Important – The homeowner should communicate their financial situation or hardship with the bank. Be proactive, honest and truthful with their circumstances; sometimes fabricating can hurt! Try to have a budget established when communicating the financial or personal struggle with the bank. Our Team will assist you in this area if you do not have one already. Seek legal and tax counsel concerning potential liability and get recommendations in writing. This may help later in supporting the Short Sale and what terms work best for the homeowner. Thus the reason we have great tax and legal sources on our website for a nominal fee for their professional guidance in this area. We can help guide you to the proper professions to assist.
When calling or communicating with the banks, keep good records of whom, what, and when. WHO you spoke to, WHAT you spoke about, and WHEN. Be prepared to take on a personal obligation, if they are financially able and offer this option as a partial solution to the Short Sale. Make sure the homeowner shares any and all correspondence they have with the bank, with their Realtor. The best form is via email. This important communication is to insure all parties are on the same page of understanding and keep the process moving forward. Lastly, Be Patient!!
Can FHA, Conventional or VA loans Receive A Short Sale?
Yes! Successful transactions are negotiated daily through short sales for each of these loan types.
What If I'm Not Behind On My Payments?
Yes, Short sales work – even if you’ve never missed a payment! In some cases of “Involuntary” relocation due to job transfers or such, homeowners are able to temporarily afford the double cost of living expenses. When the homeowner needs to sell in a volatile real estate market like ours, they are in a negative equity position. The Lost Mitigator understands this and the Short Sale will be granted due to this scenario even though the homeowner never missed a payment.
Our Team has been involved in transaction just like this. The homeowner’s credit was affected ever so slightly and was able to purchase a new home shortly after the Successful Short Sale transaction right here in Arizona!
What Is “Debt Forgiveness" And Will My Lender Send Me A 1099?
In 2007 the U.S. Congress passed the Mortgage Debt Forgiveness Relief Act and it is in effect until 2012. As a result of that act, borrowers no longer pay taxes on the debt forgiven on their primary residence if the loan is still original purchase money (you did not refinance and pull money out to be used for other things).
It is important to know that there are two types of 1099s:
1. 1099a - Abandonment of Debt, or Foreclosure.
2. 1099c - Cancellation of Debt, or Short Sale.
Before the homeowner considers a short sale, foreclosure or deed in lieu of foreclosure, they should consult a tax and / or legal advisor. We have a great source of advisors on our website that can assist the homeowner at a very low cost for such valuable legal information.
Why Would Banks Forgive The Difference?
To mitigate their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property ‘back’ through foreclosure, a short sale often makes a much wiser business decision for the bank if presented right.
How Much Will The Short Sale Cost?
We strive to complete the entire short sale process without having the seller bring any money to the closing. Our Team and processors will work hard to get the lender to forgive the unpaid real estate taxes, unpaid mortgage payments, pay all of the REALTOR Commissions associated with the sale and customary seller closing costs. The savings to the homeowner can be an excess $20,000, so the amount a homeowner may have to pitch in is a small price to pay for the large debt forgiveness of their negative equity loan they are currently responsile for.
Due to the time involved and the risk factor on our behalf, even with a bona fide buyer, the property may not close escrow. In this instance, it normally due to homeowner and lender not agreeing to the terms laid out of a short sale as it best suits the homeowner. Even through all the work of our Team, if the Short Sale terms of acceptance does not benefit the homeowner at the advise of an attorney... we do not proceed with the closing. Our brokerage charges an up front non-refundable nominal retainer of $350.00 to assist with some of the upfront expenses associated with the short sale process. This may included, Short Sale documents, overnight mail, long distance phone calls, signage, marketing efforts lock box and monitoring of such. Currently, this fee will be waived to the seller due to the demands of the economy. We do not want our customers to delay due to this nominal cost for our services. Our Team will incur this cost to help get your Short Sale started right away.
How Will You Decide On The List Price For The Property?
This is very important. An accepted short sale is not determined by amount the homeowners financial obligation of financed debt still owed vs. the sales price. Actually one of the most neccessary items to be met by the bank is that the homes FMV (Fair Market Value) was met through the Short Sale. There is a bigger picture involved in this phase of the process. Also, through the real estate professional, the homeowner, and the services of other professionals, the home sells with the obligation to recover as much loss as possible to the Investors and Insurers. We must show the Short Sale transaction presented is to be less costly to the bank than a foreclosure. This FMV is, in most cases, the cause of homeowners needing to sell with a short payoff known as a Short Sale.
As with any listing, the listing price will be based on an extensive market analysis and a determination of FMV. This may need to be adjusted during the term of the listing due to new properties sold, listed, or a rise in bank foreclosures in the neighborhood. This is monitored very closely and addressed immediately by our Team on a regularl bases, through our processing department. Once we have obtained an offer we will submit it to the bank. As part of the Short Sale review process, the bank will complete their own independent FMV by which a representative will come out and view your home, and send in their valuation in effort to evaluate the offer.
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Helping Owners Prevent Eviction
Team Patterson Homes
Keller Williams Realty, Professional Partners
14239 W. Bell Rd., Suite 100
Short Sales: 623-337-8858
Office: 623-344-8005
RoseAnn@HOPEwithShortSale.com