Understanding your options with a short sale in Cape Cod is the first step in determining your decision to sell your property or simply walk away.
Q
Why should I consider a short sale?
If you need to move and cannot sell your property for the amount you own on the mortgage, a Short Sale is an alternative to simply walking away from your mortgage obligation and giving your property back to the lender through foreclosure.
In a Short Sale, the borrower (seller) and mortgage lender(s) negotiate on the terms of selling a property for less than the amount that is owed on the mortgage.
In addition to avoiding potential deficiency judgements, a Short Sale does not have as negative of an impact on credit scores as a foreclosure does.
Q
Should I consider alternative foreclosure prevention options PRIOR to a short sale?
A short sale is considered by banks as a foreclosure prevention option.
However, in most instances, a bank would prefer a loan modification or similar loan workout option that did not involve a sale and major write down on the loan.
Once you start a short sale and try another workout option, the bank will suspend the short sale in favor of the other option, leaving the listing agent, buyers with offers on the property and anyone else involved in a transaction, in a lurch.
It will take at least 30 days to get an answer on a loan mod. By that time, all the data and offers on a short sale will be obsolete.
The bank will request all new paperwork to re-initiate the short sale. Bottom line is you can only do on workout option at a time.
Q
Who else should I speak with before attempting a short sale?
A respected real estate attorney, as well as a Certified Public Accountant, since there are tax ramifications and potential deficiencies that may result from a short sale.
REALTORs cannot give professional advice in these areas.
Q
Do I have to be behind on my mortgage to qualify for a short sale?
No, but unfortunately most banks will require a borrower to be behind on their mortgage payments, or at least show that default is imminent.
While it is beneficial for future borrowing goals to keep up with your mortgage payments, it is obviously easier to prove a hardship if a borrower is behind.
For example, there are mortgage programs that allow for qualifying for a new FHA Mortgage a day out of Short Sale.
Q
Will a bank allow anyone who is behind on their mortgage to qualify for a short sale?
Not necessarily. A bank usually requires a hardship, which include; job loss, pay cuts and underemployment, adjusted mortgage payments, job transfer, an increase of the monthly obligations of the borrower (such as having additional dependants to support).
Q
What is a deficiency?
The deficiency amount is equal to the unpaid mortgage balance less the amount received at foreclosure or the date the short sale closes.
The goal of the short sale negotiations, in addition to the approval, is to obtain a full release from the bank in that they will not pursue a deficiency.
Shelter Realty has been very successfully getting a full release of liability for our sellers.
However, if you have recently refinanced and pulled out equity, you may be vulnerable for a bank to pursue a deficiency judgement.
There is a difference between the debt to purchase or improve a property, and the debt pulled out and simply spent.
The latter form is often treated just like credit card debt and a bank may consider obtaining a judgment for that debt. It is critical you consult an attorney as well as a tax professional familiar with short sales if this situation applies to you.
Q
What if the buyers want me to contribute to their closing costs?
Your REALTOR will write in the contract that any seller concessions are subject to the approval of the lien holding bank.
If they approve the closing costs, you’re set. If the don’t approve and more money is needed, you will either have to get the buyer lower their demand for costs or you might want to contribute out of pocket if you can afford it.
Remember, that you will be walking away from a very large debt and if kicking in some money to make the deal happen, you may want to consider it.
Q
How is the REALTOR paid on a short sale?
REALTORS are paid from the proceeds of the sale by the seller’s bank. All costs such as taxes, commissions, escrow fees etc. are taken off the top.
The selling bank will cap the fees. If the sale price is insufficient to cover the fees and still net the bank what it feels the property is worth, it will not approve the sale. Sometimes banks want a seller to contribute money or some other form of consideration (usually in the form of a promissory note).
If you have equity in another property, they may look to have you access that equity if they determine they need more money to approve the sale. You will have to determine on your own whether or not it makes sense. In any event, you will not know what they will require until you are in negotiations with your bank.
Q
What does my REALTOR need to know to help me with a short sale?
They will need to know all of the liens against a property. Most important will be the number of banks involved. You should inform your REALTOR if you have been paying your home owner association dues.
Other liens might include property taxes, IRS tax liens, mechanic’s liens, child support judgments, SID/LID assessments, sewer, water, trash bills, etc. Avoid unnecessary liens such as inexpensive HOA (home owner association) dues. Keep paying them if possible. In Nevada, HOA’s are in a first lien position which means they get paid even before the banks do!
The more liens that are filed against a property, the more difficult it is to successfully close a short sale. A lien holding bank allows only so much of the proceeds of the sale to pay off closing costs, liens etc. If the costs are too high, the bank will tell the REALTOR to find more money.
That may mean, getting a buyer to pay a higher purchase price. If the buyer in this situation is unwilling, the deal will die, which is bad news for the seller.
Other items your REALTOR will need to know.
The names and number of banks on your mortgage; the amount of your monthly payment; how much you owe on the property.
Q
I have tenants, how does this impact them?
You should be honest with them, and depending on their lease, they may have to move out early to accommodate a buyer who wants to occupy right away or most certainly, if the home is foreclosed.
A lease would have to be honored by the new buyer, but that buyer might simply choose not to move forward with making an offer if there is a tenant. You need a buyer more than you need a tenant, so find an equitable solution!
Many homeowners in Cape Cod have found themselves in a situation over the past few years since the great real estate crash where they owe more on their home loan than their property will appraise or sell for, yet they are still in a position of needing to sell due to a hardship, change in employment or lifestyle. 
