Author: Vlad Kats – Realtor, Atlas Home Group Founder and Certified Distressed Property Expert (CDPE)
What Is A Short Sale?
A short sale occurs when the proceeds from a sale are BELOW the outstanding loan obligations on a home.
Essentially, in a short sale, you may fulfill your debt obligation by selling your property for less than what you owe to your lender(s).
A short sale must be approved by your lender(s) and potentially other lien holders.
Our short sale experts have been helping Maryland homeowners understand short sales since 2008. We can answer any questions you may have.
Frequently Asked Questions
How Do I Qualify For A Short Sale?
In order to qualify for a short sale, the homeowner must have the following:
- Financial hardship
- Monthly income shortfall
Who Pays Real Estate Commissions In A Short Sale?
Real estate commissions are a part of settlement expenses paid by lenders.
What Is An Acceptable Hardship?
Among others: loss of job; business failure; death in the family; severe illness; divorce; job relocation; medical bills; military service; payment increase or mortgage adjustment; insurance or property tax increase; reduced income; separation; and incarceration.
How Do I Write A Hardship Letter?
A hardship letter is an important part of the short sale package and is required by most lenders before considering your short sale request. The hardship letter must relay your current situation in a factual and concise manner and can be typed or hand-written. You must state what your hardship is and how you’ve dealt with it. All borrowers on the loan must sign and date the letter.
Contact us and we will help you put the letter together.
Why Do Lenders Accept Short Sales?
It is more beneficial for lenders to do a short sale rather than go through foreclosure. In most cases, the loss the bank takes is significantly lower in a short sale. Foreclosure proceedings are expensive for lenders and take much longer than the short sale approval process.
Banks are not in the real estate business. They are in the lending business. Their goal is to recover as much money as possible and as quickly as possible. Contrary to popular belief, the banks do not want your home.
Can I Do A Short Sale On My Own?
Although there is no law preventing homeowner from doing a short sale on their own, it is a common practice to seek the assistance and guidance of a qualified realtor when embarking on such a complex transaction. There is simply too much at stake for an average person to handle it on his own.
Our team of short sale experts will guide you through the complexities of the Maryland short sale process.
Get immediate assistance – Contact Us Today.
What Are Common Short Sale Mistakes?
- Selecting the wrong short sale realtor to handle your transaction
- Overpricing or underpricing the property
- Submitting an incomplete short sale package to lender(s)
- Accepting an offer from an unqualified buyer
- Submitting multiple offers to the lender(s)
- Having unrealistic expectations
What Are The Tax Implications of a Short Sale?
Contrary to popular belief, the deficiencies associated with both short sales and foreclosures are treated as debt forgiveness by the lenders and, more importantly, by the IRS.
Debt forgiveness is essentially a form of income that may result in additional tax liability unless the borrowers are exempt under Mortgage Forgiveness Debt Relief Act of 2007. Click here for more information about debt forgiveness from IRS.
If you’re a homeowner in distress, you should consult a trusted tax advisor in regards to potential debt forgiveness and short sale tax implications. Please do keep in mind that a short sale, in most cases, yields a significantly lower deficiency than a foreclosure.
What Is An “Upside Down Mortgage”?
What Is A “Deficiency”?
A deficiency is the difference between the net proceeds from a sale and the outstanding loan obligations. It is the “short” in short sale. For example, if the seller owes $200,000 to the bank and the approved short sale yields only $125,000 as net proceeds, then the deficiency is $75,000. There may be tax implications stemming from this shortage and potentially subsequent deficiency judgement.
What is a Deficiency Judgment associated with a Short Sale?
After both, foreclosure or a short sale, the shorted lender(s) may proceed through the court system to recover the amount lost during the transaction from the borrowers. When someone goes through a foreclosure, there is no opportunity to discuss with the lenders what will happen to the deficiency amount and it is very likely that the lenders will pursue the deficiencies especially against those individuals who pursue strategic default rather than a short sale.
In Maryland, the lender can attain a judgment and go after a borrower by placing liens on property and garnishing bank accounts and wages. Needless to say that it is not something that anyone wants.
By electing to go through short sale process rather than simply walking away from the home, the borrower has an opportunity to control and negotiate the actual deficiency. Furthermore, the actual shortage is always lower in a short sale due to the fact that the property is sold with the assistance of a short sale realtor and for market value rather than significantly below as in the case of foreclosed home.
When evaluating your options, you need to have guidance from an experienced short sale professional.
Contact us today and we’ll provide you with the necessary information to make the right decision.
What is a BPO?
BPO stands for Broker’s Price Opinion and is synonymous with appraisal of the property in question. Lenders that are being shorted rely on BPOs to determine market value of their collateral asset to make sure that it is being sold for a fair price rather than given away to a buyer.
Usually, the lender will request a BPO from a third party provider who then will assign a local realtor to provide a current market analysis for the home along with pictures and commentary. Increasingly, lenders started requiring full appraisals to be completed by licensed appraisals in order to make sure that they have the most precise valuation of a distressed property.
Appraisal, as compared to a BPO, goes into more detail on the features and condition of the property and requires more time to complete. BPO serves as one of the more important points of a short sale process. Unfortunately, many real estate agents who list short sales do not view it as such. Contrary to popular belief, a BPO is fairly subjective and can make or break a short sale transaction.
My team and I believe that every BPO agent or appraiser must be met in person by a member of a short sale team and a good case, with supporting documentation, must be made for the list price or offer currently in hand. Failure to do so may result in significant delays in getting a short sale through the system or worse – short sale rejection.
What is an “Arms-Length” Transaction” ?
What Qualities Do I Look For In My Short Sale Realtor?
In addition to honesty, integrity, and professionalism, qualities that every real estate agent must possess, your short sale realtor should have the knowledge and proven experience to handle the transaction. Although everyone can read a book or take a class, most of the knowledge in handling short sales comes with real life experience in handling actual short sales.
All homeowners who are considering asking a realtor for short sale help, must ask for performance results and for references from previous short sale clients. There is simply too much on the line to entrust your financial well-being to someone without concrete short sale experience.
We have helping Maryland homeowners with the short sale process for over 5 years. Contact us and we will help you as well.
Do you assist your short sale clients with finding rental homes?
At this time, we do not assist our short sale clients with relocation. As Realtors, we only have access to a limited number of rental units available on the market as most apartment complexes and private landlords do not use a Realtor to list their properties for rent. We strongly suggest searching the web or driving around the various apartment complexes in the preferred areas. We believe that it’s the best way to get exposed to the available rental inventory.
How Do I Get Started?
If you have further questions or would like additional information, feel free to contact our short sale team anytime. We are here to help!