Short Sale Process - Top 10 Most Frequently Asked Questions

This article will provide answers to the top 10 most frequently asked short sale questions from consumers like you. Let's begin by answering the following questions.

1. What is a short sale?

A short sale is simply where your mortgage lender accepts less than what you owe on your home. If you are upside down and need to sell due to a hardship, you may qualify to short sell your home. Mortgage lenders accept short sales because it make more sense and costs them less money then taking the home back as a foreclosure.

2. Will the seller's credit rating report be affected if they allow a short sale on their property?

While it is up to the individual lender to decide, what often happens is the loan will be reported as paid but it will likely be referenced that says settle for less than originally owed. It is more advantageous to have a short sale referenced versus a foreclosure.

3. If there is only one spouse on the note and deed, does the other spouse have any liability in the short sale process?

Only the Individual list on the note is responsible for the current mortgage and any liability resulting from the short sale.

4. My property has gone to sheriff's sale and is currently in the redemption period of the foreclosure. Is it still eligible for a short sale?

Yes, a short sale can take place during the foreclosure process. Once a short sale offer has been submitted to the mortgage loan company or bank, along with their specific documents requested and the offer is reasonable with market conditions, the foreclosure process can be halted.

5. I am current on my mortgage, will my lender consider a short sale?

A common myth with short sales is that you must be delinquent in order to start a short sale process. You do not need to be behind in payments but the bank will need to see that you have a hardship. A hardship can be a loss of a job, divorce, a catastrophic medical event, job relocation, or a death in the family. Even if your hardship is not mentioned, you may still qualify for a short sale.

6. I have two mortgages can I still do a short sale?

We can work with both mortgage lenders (many times the same mortgage lender holds the 1^st and 2^nd mortgage loan) to put together a short sale transaction. Even if the value of the home is below the balance of the 1^st mortgage, the mortgage lenders are willing to work together to come to a common solution.

7. Are there tax implications in the short sale of real estate?

If it is your primary residence - no. Congress passed a law entitled The Mortgage Forgiveness Relief Act of 2007 to eliminate this tax. If the short sale is occurring from a 2^nd home or investment property you may receive a 1099 from the lender. It is required by the lender to submit the formal tax form, but these circumstances are individual to each lender.

8. Do I need to write a hardship letter?

Yes, it is required by every lender. Be specific about your hardship. Tell them about your job loss, job reduction or salary, divorce, illness, death. Give the lender specific dates and details and they will empathetic about your situation. For a sample of what is required, please see sample hardship letter.

9. What is the cost of a short sale transaction?

If you use a reputable organization, there should be no upfront costs to the sellers. Most mortgage lenders pay the consulting firm or attorney based company when the transaction is closed successfully.

10. How soon can I purchase my next home?

If you continue to pay your bills and have a good payment history, I would recommend applying for a mortgage loan within 3 years of the short sale transaction. Keep in mind, your debt to income ratio must be in compliance with the mortgage lending guidelines.

I hope these answers have cleared up some of the misconceptions you may have had regarding the short sale process. A short sale transaction will place a consumer on the road to recovery sooner than a foreclosure with far less consequences on their credit history report.