What Do You Do When You Owe the Bank More
Than Your Property Is Currently Worth?
With the sluggish economy, declining property values and adjustable rate mortgages resetting, there has been a significant jump in mortgage loan defaults. Many homeowners are having a tougher time and feel they have nowhere to turn for help in today’s challenging real estate market.
What do you do when you need to sell your home but owe more to the bank than what you can sell it for? What if you have no equity and have no money to bring to closing or pay a commission? What if you are in foreclosure already? What if you missed a payment and know you can’t make the next one? Many homeowners have asked themselves these questions.
A real estate short sale may be your best option. In simple terms, a short sale is a special transaction where a lender agrees to accept less for a property than is actually owed on it. Negotiating a short sale with a lender can be a complex process. Since this is a very specialized field, a Short Sale Specialist, trained to guide you through the process, will make sure all required forms and documents to be submitted are complete. Having an experienced Short Sale Specialist can make all the difference between having your deal rejected or approved.
Eldorrado Chicago Real Estate, located in the heart of Chicago, has a reputation of distinction based on integrity and passion. Our award winning real estate firm, is dedicated to providing high quality service and professional expertise. If you would like to find out how a short sale can help you, call Eldorrado Chicago Real Estate and ask to speak with a Certified Short Sale Specialist.
Short Sale FAQs
[section title=”What is a short sale?”]
In simple terms, a short sale is a special transaction where a lender agrees to accept less for a property than is actually owed on it.
[section title=”Do I have to be approved by the lender before putting the property on the market as a short sale?”]
No. Technically speaking there is no such thing as being “Short Sale Approved”. The bank does not approve the short sale until you have an accepted written offer. A Certified Short Sale Specialist can help you navigate the complex process of complying with the lender’s requirements.
[section title=”Why do I need a Short Sale Specialist?”]
Every lender is different. Some are very open to helping you with a short sale and others won’t even talk to you. Negotiating a short sale with a lender can be a complex process. Having an experienced Short Sale Specialist can make all the difference between having your deal rejected or approved. They truly provide a very valuable service.
[section title=”Is there a lot of paperwork or “red tape”?”]
Yes, there could be. If a Short Sale Packet is not complete when it is submitted to the lender, the lender very likely will not approve your buyer’s offer. A Short Sale Specialist is trained to guide you through the process and make sure all required forms and documents to be submitted are complete.
[section title=”I have a friend who is a real estate agent? Can I use him/her?”]
This is a very specialized field. Very few agents have the expertise to handle this specialized type of transaction.
[section title=”How does the Short Sale Specialist get paid?”]
The lender will usually pay the commission as well as the closing costs too.
[section title=”What if I have no equity?”]
You may still qualify for a short sale.
[section title=”What if I have more than one mortgage lien on the property?”]
Most short sales do involve a first and second lien holder. Both of your lenders will need to be satisfied in some way to complete the short sale. A Certified Short Sale Specialist will help you negotiate acceptable terms with both lenders.
[section title=”Why would a lender agree to a short sale?”]
Because it is ultimately in the lender’s best interest to do so. Lenders have had to develop strategies to quickly liquidate non-performing loans in their loan portfolios or face penalties imposed by the Federal Reserve and banking regulators. The short sale also allows the lender to avoid the costly and time-consuming process of foreclosure.
[section title=”I pay mortgage insurance. If I default on my loan, will the mortgage insurance cover the deficiency amount?”]
No. This is a common misconception. Mortgage insurance is not there for your protection. Mortgage insurance protects the lender if the borrower defaults on the loan.
[section title=”Do I have to miss a payment to do a short sale?”]
No. Just recently most major lenders started accepting short sale offers from sellers who have never missed a payment.
[section title=”I just missed a loan payment and I know I will miss the next one. How long does a foreclosure take? Is there still time to do a short sale?”]
The foreclosure process varies from state to state. In Illinois, a foreclosure can take up to a year. Generally speaking, a well priced short sale can sell and close in about 120 days.
[section title=”What if I’m already in foreclosure, can I still do a short sale?”]
Yes, possibly. The foreclosure process can take about a year in Illinois. The short sale allows the lender to avoid the costly and time-consuming process of foreclosure.
[section title=”Will my friends or neighbors know?”]
The short sale is private, unlike a foreclosure which becomes public record.
[section title=”Will I have to pay property taxes if I do a short sale?”]
Property taxes always have to be paid. However, whether the lender pays them or the seller depends on each lender’s policies and the specific agreement reached during the short sale negotiations.
[section title=”What are the tax consequences of a short sale?”]
The Mortgage Forgiveness Debt Relief Act of 2007 did away with much of the tax consequences for a short sale of a primary residence. Under this new law, up to $2 million of qualifying mortgage debt forgiven on the taxpayers’ principal residence in 2007, 2008, or 2009 will not be treated as income for the taxpayer. The limit is $1 million for a married person filing a separate return. The Act applies only to principal residences, not vacation homes or investment property.
[section title=”What about my credit?”]
A short sale may or may not show up on your credit report. A lot depends on your lender. In a short sale, Eldorrado Chicago Real Estate will seek a full release of liens and request that the lender consider the mortgage debt settled. If the lender reports the debt as “Settled Debt”, the long term effect is much less harmful to credit. Since each lender involved in a short sale is different, a credit bureau is the only true source of information for determining how a short sale or a foreclosure is going to affect a homeowner’s credit.