Short Sales

If you are considering a “Short Sale”, we recommend that you ALWAYS Consult your Tax Attorney or Qualified CPA.

Legacy Real Estate does not simply want to sell your house through a “Short Sale” but wants to protect you in the process so you can move on with your life.

If you are a homeowner facing the issue of missing payments and considering your alternatives, please do not hesitate to contact us for a FREE private consultation. You can reach us at 503-390-1375.

What Is a Real Estate Short Sale?

A Real Estate Short Sale is a form of agreement between the seller of a home in the beginning stages of foreclosure and their lender, allowing the home to be sold for less than the existing loan balance outstanding. The mortgagee (AKA Bank/Lender) would accept less than the amount in order to avoid a foreclosure proceeding. Once a short sale is approved for Escrow, the buyer and seller would then proceed with the sale of home much the same as a conventional real estate transaction.

Underwater On Your Mortgage Or Just Can’t Pay? Know Your Options!

1. Understand loan modifications: If you are barely underwater on your home, this route may work, if you are 20% or more upside down, go directly to a short sale. Chances are it will take decades to break even on your home. Banks are NOT willing to do “principal reductions” (principal is the amount you owe). However, they may be willing to reduce your interest rate in order to get a lower payment.
   BE CAREFUL: think smart about your financial future when modifying a loan on a home that is worth considerably less than you owe.
   UPDATE: Only 69,000 homeowners in the entire United States have received a permanent loan modification by the end of January 2010! IN ADDITION: 70% of modifications end up with a HIGHER monthly payment than before. Go to step two.
2. Short Sale: When a loan modification will not work, or you just need to get out of the house all together, do a short sale. The short sale process takes about three to six months. You will need a very good short sale realtor who has the specialized knowledge and processes needed to complete short sales.
3. Deed in Lieu of Foreclosure: If you just can’t sell the house or condo, offer to deed the house back to the bank. This is your last, best bet before a foreclosure. In order to deed the house back to the bank there can be no second mortgages or other liens on the property. The bank may not want it and instead will want you to continue trying to Short Sale. Typically the bank will want you to have listed the property with a short sale real estate agent for at least 90 days on the Willamette Valley Multiple Listing Service (MLS). The bank does not want your property and would rather you participate in a short sale. A deed in lieu of foreclosure will hit your credit harder than a Short Sale.
4. Foreclosure: At some point after not making payments long enough and not getting a purchase agreement on the home, the bank will probably decide to move forward with their right to take the home back through a foreclosure. If you are “served” papers, you still have time to sell the home. You may complete a affidavit that will postpone the foreclosure sale for five months. Get the Affidavit to Postpone Foreclosure and Instructions. If you list your property and find a buyer, most lenders will automatically postpone the foreclosure sale. However, you should not walk away or wait any longer to get the home on the market. The quicker we can get involved and get the home under contract with a new buyer, the faster we can stall a foreclosure by completing a fast MN short sale.

Qualify for a Short Sale

Banks are not willing to take a loss on their investment unless you qualify for a short sale.

1. The market value of the property has dropped: The home is worth less than the unpaid balance of the mortgage. The only way to know this is to look at the recent closed transactions (within the last 6 months) of properties around your home. A true value is determined by what someone else is willing to pay for the home; however, a short sale real estate agent or appraiser can give you a good determination of value.
2. In default or near default: Lenders are all over the board on this one. Some require you to be late on payments, some do not care, and some will tell you something different every day that you call. The bottom line is if you can’t pay, you can’t pay. If you can pay but it’s very tight, it’s your own personal decision to continue or stop paying or the mortgage. Ask an attorney for a legal opinion on this issue.
3. Seller has no significant assets: Rarely will a bank allow a short sale and take a loss on the investment if you have a load of cash sitting in the bank. Clarification: If you have a million in retirement funds, do not to worry, but if you have $50k+ sitting in the bank? They could ask for some of that cash to cover the difference. What if you have $10k in the bank? $10k is living expenses, “just in case” money, emergency money – banks will be much more likely to hear your hardship situation and not ask for any of that money.
4. Seller hardship: The seller must have a current or imminent hardship. The banks want this in a letter and you need to be legitimate and truthful.
   The following is a non-exclusive list of hardships that a Lender or Lien holder may take into account when deciding whether to accept a short sale: 
   • Unemployment or loss of income
   • Reduction of income
   • Increase in household expenses (long term)
   • Divorce or separation
   • Medical emergency / sudden illness
   • Bankruptcy
   • Death of spouse or death of co-borrower
   • Short or long term disability
   • Adjustable rate mortgage reset
   • Failed business
   • Job relocation
   • Military duty
   • Medical bills

    

   A few examples that DO NOT constitute a hardship:

   • Don’t like your home
   • Don’t like your neighbors
   • Buying another home (with the same or greater mortgage payment)
   • Moving “just because”

The bank will ask for these documents with your short sale application:

• Hardship letter (here is a good example)
• 3 months most recent bank statements
• 3 months most recent pay stubs
• Last two years tax returns (or extension requests)
• Listing agreement with a real estate office
• HUD-1 Net sheet (this is used at closing to show how the sale proceeds are distributed)
• 6 month profit and loss statement (if you are self employed)

The bank needs the above items to verify that you qualify for a short sale. The bank will continue to request updated short sale documents throughout the short sale process. As it turns out, it is harder to get out of a mortgage than it was to get into one back in the days of easy mortgages! Do not get frustrated; just remember there is a good amount of paperwork pushing involved.
If you are considering buying a short sale or selling “short sale,” there could be drawbacks. For your protection, we suggest that you:

• Obtain legal advice from a competent real estate lawyer
• Call an accountant to discuss short sale tax ramifications

As real estate agents, we are not licensed as lawyers nor CPA’s and cannot advise on the consequences of choosing a short sale.