Ask Brian Gubernick - The Short Sale Expert
With over 1,000 successfully negotiated Short Sale transactions over the past five years, Brian Gubernick and the team at Homehelper Consultants has the experience to confidently answer your questions.
Whether you are exploring your options between a short sale, foreclosure or loan modification, let us help arm you with the correct information up-front.
Please explain your scenario in the simple form below, and we'll get back to you right away with a thorough answer:
Frequently Asked Short Sale Questions
What Is A Short Sale?
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay all liens full amounts. The lien holders agree to release their respective liens on the real estate and accept less than the amount owed on the debt if necessary.
Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties.
A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower. A short sale will often result in a negative credit report against the property owner, however it is less damaging than a foreclosure.
What Is The Short Sale Process?
The short sale process is actually a backwards from what most homeowners expect. We do not go to your lender, ask them if we can short sell the home, determine the amount that your lender is willing to accept, and then list the home for sale. Rather, we must first secure a purchase contract.
We then present the contract to your lender along with all sorts of other detail to prove that accepting the short sale makes more financial sense than any other option available (to your lender).
The 10 steps of the short sale process are as follows:
- The Consultation we'll discuss your situation and formulate a strategy
- Completion of the Short Sale Documentation
- List Property for Sale
- Open Short Sale Negotiation/Conversation With Your Lender
- Obtain a Purchase Contract
- Submit the Contract
- Argue (Negotiate) With Your Lender
- Secure Short Sale Approval
- Facilitate the Escrow Process
- Close the Short Sale!
Why Would A Bank Agree/Disagree To A Short Sale?
A bank would agree to a short sale for several reasons including, but not limited to, the following:
- A true financial hardship exists and the home is unaffordable.
- The loan is in default and foreclosure is imminent.
- A short sale mitigates greater loss than any other option available to the lender.
A bank would disagree to a short sale for the following reasons:
- A financial hardship does not exist and the bank believes the home is affordable.
- The loan payments are current and foreclosure will not occur anytime in the near future.
- Foreclosure (or another option such as modification, if agreed to, or deed in lieu of foreclosure) nets the lender a greater return than a short sale would.
- The lender is making a business decision for reasons not disclosed such reasons would include mortgage insurance coverage on the bank's loss, financial/accounting strategies regarding the recognition of losses and the timing involved in doing so, etc.
How Will A Short Sale Impact My Credit Score?
This is always a very challenging question to answer as each person's credit history is so unique. We have worked with sellers whose credit scores dropped 20 points as a result of the short sale. We've also worked with clients with score reductions in excess of 100 points.
Through our research, the average score decreases by 50-125 points. Typically, the person with a more established credit history that continues to make on time payments on all other debt obligations will recover much faster than the person that has little credit history and is behind on other payments.
HHC tends to focus on two other aspects pertaining to the credit impact the ability to repurchase a home and the actual reporting of the short sale versus foreclosure. Fannie Mae and Freddie Mac, who control approximately 50% of the loan market, have stated that there is a 2-3 year hold period from the time a short sale is completed until the point at which they will consider a short seller for financing on a new purchase. This hold period extends to 5 to 7 years if foreclosure occurs. Furthermore, upon completion of a short sale, the sale is reported to the credit bureaus as settled paid in full for less, or some variation thereof. Foreclosure is reported as exactly that, Foreclosure. A foreclosure on your credit could potentially impact your ability to obtain a new job, obtain security clearance, and/or secure new financing for other types of purchases.
Who Qualifies For A Short Sale?
First, you must be upside down (you must owe more on your home than it is currently worth) on your home. Next, a financial hardship must exist, or a financial threat must be created. Lastly, in most cases you will have to be in default on your mortgage payments. The bottom line is this if you are a financial risk to your bank then there is a strong chance that you qualify for a short sale.
What Documents Will My Lender (s) Require For A Short Sale?
Most lenders require the following documents for short sale consideration: An Authorization Form (authorizes HHC to speak with your lender on your behalf), a Hardship Letter, a Financial Form (detailing your income, expenses, and debt), Past 2 Paystubs, Past 2 Months Bank Statements, Past 2 Years Tax Returns.
Am I Required To Be Late On My Mortgage Payments To Do A Short Sale?
There are cases where homeowners have completed short sales without falling behind on their mortgage payments. Such cases are very rare. So rare it is HHCs policy that in order for us to take on a short sale listing the homeowner, unfortunately, must be in default.
HHC does not advise its clients to fall behind on their payments. However, we will share with our clients that based on our experience the likelihood of completing a short sale without being behind on payments is slim to none. Simply put, lenders are not motivated to accept less than they are owed when being paid on time each and every month.
Is A "Hardship" Required To Get Approved For A Short Sale?
You must be a financial threat to your lender. Some of our clients have what banks consider to be a traditional financial hardships: loss of job, loss of income, a medical condition, divorce, forced job relocation, etc. Others do not have such hardships.
Some actually make more money today than they did when purchasing the home but have concluded that it makes financial and legal sense to no longer continue to make payments to their lender. When a homeowner is a financial risk to a bank, regardless of whether or not a hardship exists, the bank is usually motivated to mitigate their loss via a short sale.
How Long Can I Stay In My Property Without Making Payments?
For most of our clients, a Notice of Trustees Sale (signaling the start of foreclosure) is filed when payments are 4 to 5 months in arrears. Foreclosure is a 3 month process. Therefore, the average homeowner has roughly 7 to 8 months before foreclosure occurs after payments are ceased.
Can I Qualify For A Short Sale On An Investment Property?
Yes, investment properties can be short sold just like primary residences. The process is not much different. The same documentation is required, and proof that the homeowner is a financial threat to the bank must be provided.
Oftentimes, the sale of the property is a bit more challenging because investment property tenants must cooperate in showing and maintaining the property. Furthermore, if the tenants do not want to vacate the property their lease must be honored. Therefore, only buyers not wanting to immediately reside in the property may be interested in purchasing.
HHC has successfully negotiated and closed over 1,000 short sale transactions since 2006, and we fight hard to protect our sellers from deficiency judgements or owing money at closing. Contact us today for a strategy session.
