What is a Short Sale?
A short sale is a foreclosure prevention work-out program with your lender that allows you to sell your home for less than the total amount owed.
How is a short sale different from a foreclosure?
Just like a regular sale, the property transfers from seller to buyer. The only difference is that the lender must approve the sale because the net proceeds of the sale will not satisfy their lien against the property.
In a foreclosure, the lender takes possession of your home through a legal process, becomes the seller and sells the property as a bank owned property.
Who qualifies for a short sale?
Homeowners who are facing a legitimate hardship situation which hinders their ability to make payments on their mortgage may be eligible for a short sale. A few common examples of such hardship situations are:
- Unemployment
- Decrease in household income
- Caring for an elderly parent in your home
- Long term illness
- Death of a spouse or child
- Inability to work due to a health crisis
- Divorce or separation
- Relocation connected with employment
- Major medical bills
- Adjustable rate mortgages causing payment increases
- Too much other debt
- Military Service
Why would my lender allow a short sale?
Contrary to popular belief, your lender does not want to take your home away from you. A lender acquires more expense and loses valuable resale time in the foreclosure process. A short sale will save them money and gets bad debt off their books.
What is required in a short sale?
Every lender has their own set of required information and forms specific to them. However, most banks require the following at minimum:
- Your home listed at fair market value with a licensed REALTOR®.
- An authorization form allowing your REALTOR® to discuss your account with your
lender.
- A letter explaining the reason for your financial hardship.
- A financial worksheet listing all your outgoing household expenses and debts.
- Your two most recent financial statements, such as retirement accounts and bank
statements.
- Your two most recent years tax returns.
- Your two most recent pay stubs from all borrowers.
- Additional paperwork throughout the process.
If I file for bankruptcy, can I still do a short sale?
In most cases that answer is "no". A short sale is a collection method used by your lender. Bankruptcy is designed to stop all collection procedures and prohibits further collection action. For the most accurate answer to this question, contact your lender or seek legal council.
Can my lender sue me for the balance owed after a short sale?
Although Arizona does have anti-deficiency protection for homeowners, the type of loan and the type of property will determine what remedies your lender may have.
An attorney will best advise you about your options and any potential legal liability.
What happens to the unpaid mortgage balance after a short sale?
In most cases, relief of mortgage debt to the homeowner will be treated as income for tax purposes. There are certain exemptions under the Mortgage Forgiveness Debt Relief Act of 2007, but the exemptions should only be interpreted by a trusted financial advisor and/or tax attorney to determine any potential tax liability.
What if I can't afford an attorney or financial advisor?
There is free or low-cost assistance available just for the asking.
What is the cost of a short sale?
It is against the law for a real estate agent to charge the homeowner an upfront fee or other costs in a short sale. All commissions and other seller related closing costs are approved by the lender and paid from the sale proceeds.
Is a short sale my only alternative to foreclosure?
No. There are many options available as an alternative to foreclosure. Determining the best option for your situation can be confusing. Consult with an attorney, or request the Arizona Department of Real Estate's free publication that explains other options available such as:
- Reinstatement of the loan
- Forbearance
- Repayment plan
- Loan modification
- Bankruptcy
- Refinance
- Deed-in-lieu of foreclosure
Do I have to call my lender to request a short sale?
Your REALTOR® will provide you with a Third Party Authorization Form which gives them permission to discuss the account with your lender and obtain the necessary information to start the short sale process.
Why shouldn't I just walk away?
The only incentive to walking away is that it is the path of least resistance compared to all other options. Foreclosure can present major problems down the road and should only be your last resort after all other options have been exhausted. Your credit score will take a larger hit versus a short sale, and your ability to obtain employment or any type of financing in the future can be affected for years. You should consult with an attorney before deciding on foreclosure to determine the after effects.
Is all my information protected?
Yes. Your REALTOR® has strict guidelines in place to protect your privacy and information. Additionally, your REALTOR® cannot discuss your situation with any unauthorized parties.
How do I get started?
There is only one step to getting started and that is to list your home with a REALTOR® who is experienced in negotiating and closing short sales. Your REALTOR® will thoroughly explain the process and what to expect.
What else do I need to know?
- Consult with an attorney and financial advisor to determine the best option for you and to learn about the consequences associated with mortgage assistance relief. There is free assistance available.
- Never pay upfront fees to anyone facilitating a short sale for you.
- If you stop paying your mortgage, you could lose your home and damage your credit rating.
- Do not stop communicating with your lender.
IMPORTANT NOTICE : Prudential Arizona Properties is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.