Short Sale - Selling Your Home at a Loss

RE/MAX Real Estate FAQ. Questions and Answers about Selling Your Home, Working With A Real Estate Agent

Selling Your Home - Questions and Answers
'(Short Sale) Selling at a Loss'

Can you sell your home for less than your mortgage?
Does the U. S. Government support short sales?
What is the Mortgage Debt Cancellation Relief Act?
When does foreclosure begin?

Can you sell your home for less than your mortgage?

Yes, in some cases you can sell your home for less than the amount you still owe on the mortgage. This situation is known as a "short sale," more and more lenders are seeing the wisdom of accepting a short sell rather than foreclosing, because the long foreclosure process in Ohio may end up costing them 30-50% more.

A short sale becomes complicated if the loan has been sold to the secondary market because the lender will have to get permission from Freddie Mac or Fannie Mae, the two major secondary-market players. And, if the loan was a low down payment mortgage with private mortgage insurance, the lender must also involve the mortgage insurance company that insured the low-down loan. It may even involve a secondary mortgage lender. However, new guidelines now in place (see below) set rules to help ensure that these hurdles that made short sales so difficult and more often than not, unsuccessful in the past, can be cleared. See (Real Estate Guide: Owning Your Home; Foreclosure - What is the Home Affordable Modification Program?) for a full discussion of the Home Affordable Modification Program.

Your lender could also recommend that you seek a loan modification before accepting a short-sale arrangement. If your loan is held by Fannie Mae or Freddie Mac, a Home Affordable Refinance or Modification will help borrowers refinance into a more affordable loan or modify the existing loan depending on your circumstances.

Making Home Affordable: The Modification Option
The Making Home Affordable program offers at-risk homeowners a chance to modify mortgages to avoid foreclosure on their homes. Read
Making Home Affordable: The Refinance Option
The Making Home Affordable program offers financially stable homeowners the chance to refinance mortgages to lower rates. Read

Another possibility is to ask your lender to take the house back in what is called a "deed-in-lieu" of foreclosure. In a deed-in-lieu, the lender forgives your obligation to repay the remainder of the debt in exchange for the property. Under new guidelines (see below) if the lender accepts a deed-in-lieu they may not require a cash contribution or promissory note from you and must forfeit the ability bring a "deficiency judgment" against you. Lenders, however, will normally only consider a deed-in-lieu if there are no other liens against the property and it is vacant. These new guidelines only apply to Fannie Mae and Freddie Mac held loans, but it is hoped that other underwriters will follow the guidelines as well.

We do not advise that you take on the complexities of a short sale on your own. RE/MAX Valley Real Estate and it's agents are well versed in closing successful short sales. They are never easy and demand the skill and persistence of dedicated REALTORS. We'll put together a professional team of experts to get the deal made. Get the facts about short sales from a source you can trust.

IMPORTANT NOTICE

RE/MAX Valley Real Estate 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.

This disclosure is made pursuant to the FTC MARS Rule (16 C.F.R. §322 et.seq.)

In November of 2009 the Treasury Dept. unveiled new guidelines normalizing and streamlining the Short-Sale Process called the Home Affordable Foreclosure Alternatives Program (HAFA) designed to be used in situations where a Home Affordable Modification Program (HAMP) cannot be applied. The borrower thus has one more resource to turn to in order to avoid the stigma of a foreclosure.

The Home Affordable Foreclosure Program is many faceted:

It provides incentives to lenders and borrowers for completing short sales.
The program is available to borrowers who are eligible for the federal government’s Making Home Affordable loan-modification program but do not qualify for refinancing or modification or do not complete the process for other reasons. The home must be the principal residence. The first mortgage must have originated on or before Jan. 1, 2009. Remaining balance must be less than $729,750 (if one unit). "Total monthly payments" must exceed 31 percent of gross income. And the loan must be in default or approaching it.
The official effective date is April 5, 2010, but participating mortgage servicers can begin operating under terms of the new program prior to that date if they are ready to meet all reporting requirements. The guidelines released in November 2009 do not specifically apply to loans owned or backed by Fannie Mae or Freddie Mac (representing about half of all U.S. mortgage debt). But those organizations are working with the Treasury to finalize applicable servicing guides, which are expected soon.
Sellers can get a Short Sale listing price from lenders before an offer has been made on the property.
Experienced local real estate agents are required for marketing and selling a property in the program.
At least 120 days, and up to a year depending on local market conditions, are available for marketing the Short Sale listing.
The mortgage servicer cannot require a reduction in the agreed-upon real estate sales commission as a condition of approving a Short Sale offer. The commission cannot exceed 6 percent and must be approved by the servicer at the time of listing agreement.
During the Short Sale marketing period, lenders must respond to a fully completed "request for approval of a Short Sale offer" within 10 business days.
There are financial incentives for primary lenders, junior lien-holders and investors holding such loans to accept Short Sales and forgo pursuit of any deficiency judgment.
Paperwork, documentation and deadlines are streamlined and standardized.
Sellers are released from all liability for repayment of the primary mortgage debt.
Sellers need to pay off or negotiate away second-mortgages, home equity lines of credit and other junior liens on the property prior to closing. Up to $3,000 in incentives are available through the Treasury plan to encourage subordinate lien-holders to release liens and forgo deficiency judgment. The Treasury encourages the seller to work with a real estate agent to accomplish this clearing of the title.
The Treasury plan also addresses a "deed in lieu of foreclosure" option, for which many of the Short Sale guidelines apply. Typically, an effort at a Short Sale will precede use of this option, but that’s not a requirement. Under terms of the Treasury program, after the borrower turns over clear title to the mortgage servicer, the borrower is released from the remaining primary mortgage obligation and can still receive the $1,500 for relocation expenses.

75 Percent of Borrowers Fall Under the Plan
The plan, part of the Foreclosure Alternatives Program, applies to mortgages backed by Freddie Mac and Fannie Mae, as well as those held by 14 mortgage servicers, including the five largest. These amount to 75 percent of all loans in the U.S.

Incentives to Borrowers
Under the plan, borrowers who complete a short sale are released from all mortgage debt. Additionally, they receive $1,500 for moving expenses.

Incentives for Lenders
The plan provides for payments of $1,000 to mortgage servicers and investors for completing a short sale - or a deed-in-lieu transaction, in which the deed is simply turned over to the lender.

Standardized Documentation
The program will publish streamlined and standardized documentation for short sales, including a Short Sale Agreement and Offer Acceptance Letter. Creating one standard set of documents will minimize the complexity of short sales, which should significantly increase use of the option.

Payments Capped to Subordinate Lien-Holders
Some holders of second mortgages have blocked short sales by seeking steep payment in exchange for releasing their claim. Under the plan, subordinate lien-holders as a group can receive no more than $3,000 from proceeds of the sale.

Time Limits for Short Sales
Lenders will have only 10 days to approve or reject a short sale once a complete package is presented - a significant step, since the process often takes so long to complete that the transaction falls through. Borrowers will be allowed at least 120 days to market and sell their home, with the possibility of additional time based on local market conditions. Marketing can run at the same time as the foreclosure process, but no foreclosure can take place during the marketing period as long as the borrower is acting in good faith to sell the property.

How To Get Help
RE/MAX has been training its agents to help homeowners avoid foreclosure by offering courses on short sales. More than 8,300 RE/MAX Affiliates hold the Certified Distressed Properties Expert designation - 58 percent of the total U.S. CDPE-holders. Many other RE/MAX Associates have extensive experience with foreclosures and pre-foreclosures.

If you've fallen behind in your mortgage payments or received a pre-foreclosure letter from your lender, a RE/MAX Associate can help.

Find a RE/MAX agent to help with a short sale or pre-foreclosure. Under Designations, select "Certified Distressed Property Expert" or "Short Sales and Foreclosures Resource." Or, under Residential Sub-Specialties, select "Short Sales" or "Foreclosure Property."

Get more details at MakingHomeAffordable.gov.

Real Estate Guide

Selling Your Home

Are You Eligible?

Selling Your Home - Questions and Answers'(Short Sale) Selling at a Loss'

Making Home Affordable: The Modification Option

Making Home Affordable: The Refinance Option

Selling Your Home - Questions and Answers
'(Short Sale) Selling at a Loss'