In order to understand short sales, also known as short payoffs and pre-foreclosure sales, we must first describe the meaning of "short sale".
A "short sale" is defind as the negotiation of the transfer of ownership of real property with the Mortgagee (lender), also known as the beneficiary, when the property is financially over-encumbered with monetary liens.
Short sales occur more often in markets where there is an overabundance of Real Estate Owned (REO) properties.
SHORT SALE PROCESS
At the time of notice of default, the owner should contact me (real esate agent) to discuss their situation. I will explain the possible negitives associated with a short sale. You must understand that the sale may not produce enough proceeds to pay your loan in full. And, if the sale is short or insufficient to cover the debt in full, the following results may occur:
a) Your lender(s) will not be paid in full.
b) Your lender(s) may attempt to collect the balance owed. You may be responsible for any deficiency for up to ten years.
c) The amount of the loan debt that is not paid may be reported as taxable income to you via a 1099. (It is recommended you contact a tax professional with regard to the possibility of adverse tax implications associated with a short sale. These same tax deficiency threats are also very likely if you go into foreclosure.)
d) There is no guarantee that the lender will accept payment for less than the full amount owed on the loan.
If there is no way for you to cure the default or refinance the loan, then time is of the essence and placing your home on the market would be the best solution to negate foreclosure. A default or short sale will not help your credit but a foreclosure will be very damaging to your credit. The following are the necessary steps in the process:
1) I will do a Competitive Market Analysis (CMA) on your home to establish the value of your home in todays market.
2) I will need to know about all liens on your property including back taxes and Internal Revenue Service (IRS).
3) You will need to sign a form giving me permission to discuss all issues with your lender(s). You may have to contact your lender(s) personally or send them notification in writting giving me the authority to speak to them in your behalf.
4) I will order preliminary titlework to verify all lien holders.
5) I will determine the amount owed against the property in its entirety versus the value.
6) I will calculate all of the loan balances, late fees, penalties, closing costs, and commissions to determine how much we may be asking the lender(s) to discount.
7) You will need to fill out and sign a Seller's Disclosure Statement. I will provide the form.
8) You will need to fill out and sign a Lead Based Paint Disclosure Statement. I will provide the form.
9) You will need to sign an Agency Dislosure Statement. I will provide the form.
10) You will need to sign a Listing Agreement. I will provide the form.
11) You will need to compose a letter to your lender(s) in your own words, describing the events leading up to your financial distress.
12) I will fill out all paperwork necessary to put your home on the Multiple Listeng Service (MLS).
13) The lender will probably order a Broker Price Opinion (BPO) to determine the value and may in some cases order an appraisal as well before they will accept or re-negotiate the terms. It is imparitive that you cooperate with these requests from your lender.
14) We may need to request bids for repairs necessary for the sale of your home and submit to the lender.
15) You will need to fill out a financial statement for your lender. The lender needs this to analyze the accuracy and validity of financial insolvency and request for loan deficiency pay off assistance.
16) I will advise the lender on market trends and the reason for any depression in the market.
THIS WHOLE PROCESS MAY LOOK VERY CONFUSING TO YOU. REST ASSURED I WILL WALK YOU THROUGH IT STEP BY STEP.