Is a Real Estate Short Sale right for you?

For Home Sellers

What is a Real Estate Short Sale?

A real estate short sale is when you owe more than your property's currently value but you need to sell. Traditionally, your mortgage lender(s) would have required you to come in with the difference in the amount owed. A real estate short sale is where we negotiate with your lender(s) to accept a pay-off that is less than you currently owe and you do not have to pay the difference.

Note: If you decide to do a short sale, you will be amongst many other homeowners who are using this alternative to foreclosure. Click Here to see a list of Short Sale properties currently for sale in Orange County.

You may qualify for a “Hardship” Short Sale:

Most short sales involve “hardship” and are a combination of high monthly payments and falling income. If you respond “yes” to the below questions, you area good candidate for a hardship short sale:

1) Has your mortgage payment reset upward to an unaffordable level, yet you are unable to qualify for a refinance (or the government "Home Affordable Refinance" program)?

Or, did you lose your job (or suffer a reduction in income)... and now find you cannot make your mortgage payment and you are unable to qualify for a loan modification with your lender (or the government "Home Affordable Loan Modification" program)?

2) Does the mortgage balance exceed the current market value of your home?

3) Do you want to minimize the damage to your credit?

A Short Sale may be the only way to avoid being foreclosed upon for home owners who have negative equity, are unable to qualify for a loan modification, and cannot make the scheduled payments.

You may qualify for a “Strategic” Short Sale:

You may be experiencing a hardship, and yet are able to make the scheduled payments (or your new lower loan modification payments by borrowing from family members, liquidating retirement plans, or dramatically cutting down on your expenditures). However, if your loan balance is substantially higher than the current market value of your home, you may be wondering if it is possible (or in your best financial interest) to do a short sale. When a homeowner wants to do a short sale but is not experiencing a substantial hardship, it is called a “Strategic Short Sale”.

Some attorneys and financial consultants advocate “walking away” from home mortgages (allowing the home to be foreclosed) if the mortgage balance is substantially above the market value, a similar home can be rented for less, and future appreciation is expected to be low. “Walking away” under these circumstances is called “Strategic Default”.

Even if you have stopped making payments, and were planning on letting your home to foreclosure, we do not advocate “walking away” from your mortgage without first attempting to do a “Strategic Short Sale”. A foreclosure will definitely result in the loss of the benefits of doing a short sale (see next section). Be aware that Strategic Short Sales are more difficult to get approved than Hardship Short Sales.

If we are successful in negotiating a “Strategic Short Sale”, and the same “savings” can be achieved as “walking away” without the negative aspects of a foreclosure on your record. Online Calculators are available from YouWalkAway.com or PayorGo.com to estimate the possible financial benefits of doing a “Strategic Short Sale”:

What are the benefits of doing a Short Sale?

More Honorable Solution: In a Short Sale you decide to sell your home to another potential home buyer - just like your neighbors have over the years. It is a relatively pleasant and dignified resolution to a very tough situation. If instead your home goes through foreclosure, a Bank representative will come to the home to lock up the doors and windows and change the locks, and if you are still there, they contact the Marshall for eviction. The agent for the bank usually slaps 'Bank Foreclosure' sign on the property while the house sits empty waiting for a sale.

Relocation to a new home is easier: After your old home is sold, you will be looking for a home to rent after this issue is resolved. It is easier to find a home to rent if you conduct a Short Sale versus a Foreclosure. Most property managers obtain a credit report. A Short Sale shows you cooperated with your bank and did the most responsible thing possible given the circumstances. A Short Sale instead of a Foreclosure will very likely help you to rent a nicer home with a more reasonable rent payment.

Less Damage to your credit: A Foreclosure will stay on your credit report for 7 years, but a bank Short Sale will on your credit for a shorter period and it will indicate that you “worked out” your situation rather than “walked away”. Completing a short sale with an experienced Short Sale Realtor will move the short sale to a completion sooner and result in less damage to your credit. Much of the damage done to your credit is a result of month-after-month of "30-Day Late" notices on your credit. The quicker we complete your short sale, the less damage to your credit (according to credit experts).

Higher FICO Score: A Foreclosure more negatively affects your FICO score which is the rating number mortgage lenders and landlords use to determine if they will loan money to you or rent you a place to live. If you want to borrow money in the next 5 to 7 years a Short Sale will improve your ability to borrow.

Position yourself to buy a home again sooner: Lenders have told us they are starting to get purchase loan approvals for borrowers who did a short sale as little as two years ago.

Doing a Short Sale instead of Walking Away will allow you to become a home owner again sooner.

Tax & Legal Implications of Real Estate Short Sales

We advise you to consult your CPA or tax expert. Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, the I.R.S. will consider debt forgiveness as income and will issue a form 1099s for debt relief for recourse loans. We also recommend that you contact an attorney to discuss the possibility of a deficiency judgment and other legal aspects before you do a real estate short sale.

What Documents are Required for a Real Estate Short Sale?

In order for us to get a real estate short sale accepted for you, we first must list your home “For Sale”. The lender will require that the home be marketed with a Realtor to ensure that the property is effectively marketed. As soon as possible after signing the listing, you will need to provide the following documents to our loss mitigation consultant so that we may package a real estate short sale request to your existing mortgage lender(s):

• Last two years tax returns with W-2's and any tax schedules
• Most recent two months of pay stubs
• Most recent two months of bank statements for all your accounts, including retirement accounts, 401k.
• Current mortgage payment coupons for existing mortgages
• Copy of original mortgage note and deed of trust

With these documents we create a package as to why you require a real estate short sale and submit this to the appropriate department at your lender, once we have an accepted purchase offer for your home.

Note: The Short Sale Lender will not pay delinquent HOA dues, so keep current on your dues to avoid late charges.

Time is of the essence!

If foreclosure proceedings have started on your home, then you need to act quickly before your home is sold at the public Foreclosure Auction. We can often get the foreclosure delayed, but only if you call quickly and give us time to find a buyer for your home.

We understand you are a good person trying to make the best of a bad situation. There is absolutely no cost unless we successfully complete a short sale of your home.

We do not charge any up front fees, and we only get paid if we complete a successful short sale transaction for you.

The Scot Campbell TEAM is here to help. To start your short sale Click Here.

Questions? Call 714-960-0700 or Scot.Campbell@ColdwellBanker.com



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Scot Campbell

Mr. Campbell is the President and Managing Broker of Coldwell Banker - Campbell Realtors in Huntington Beach, CA, and he has brokered over 1,000 homes. Mr. Campbell received his Bachelor of Arts Degree in Real Estate finance, and did his Graduate Studies in Real Estate Economics both at California State University, Fullerton. Mr. Campbell has been licensed in real estate since 1986, obtained his broker’s license in 1990, and was one of the first to pass the State of California Certified Residential Real Estate Appraiser’s exam in 1992. Mr. Campbell has a 100% customer satisfaction philosophy and more than half of his business is from repeat & referrals.
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