Short Sale FAQ

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Short Sale FAQ

What are the specific protections provided by the short sale deficiency law?

The short sale deficiency law specifically protects a borrower in a short sale involving a one-to-four residential unit property from all of the following:

  1. Owing a deficiency;
  2. Having a lender collect a deficiency;
  3. Having a lender request a deficiency judgment;
  4. Having a court render a deficiency judgment;
  5. Being required to pay any additional compensation, aside from the proceeds of the sale, to obtain short sale approval (see
  6. Questions 30 to 39); and
  7. Any purported waiver of the borrower’s rights as above (see Question 29).

For definitions of deficiency and deficiency judgment, see Questions 4 and 5.

Will a short sale with no deficiency balance have less of a negative impact on a borrower’s credit rating as compared to a short sale with a deficiency balance or a foreclosure?

Yes, according to FICO’s Banking Analytics Blog. New FICO research demonstrates that a short sale with no deficiency balance has less of an impact on a consumer’s credit score compared to a short sale with a deficiency balance or foreclosure. For a simulated consumer profile with a 680 initial FICO score, a short sale with no deficiency balance caused the FICO score to drop to 610 to 630, whereas a short sale with a deficiency balance or a foreclosure reduced the FICO score to 575 to 595. For a simulated consumer profile with a 780 initial FICO score, a short sale with no deficiency balance caused the FICO score to decrease to 655 to 675, whereas a short sale with a deficiency balance or a foreclosure reduced the FICO score to 620 to 640. See Joanne Gaskin’s “Research Looks at How Mortgage Delinquencies Affect Scores” dated May 24, 2011 at http://bankinganalyticsblog.fico.com/2011/03/research-looks-at-how-mortgage-delinquencies-affect-scores.html.

How does the anti-deficiency protection for short sales compare with the anti-deficiency protection for foreclosures?

The answer depends on the type of loan and the type of foreclosure. The anti-deficiency protection for short sales generally applies to all deeds of trusts for one-to-four residential unit properties, regardless of whether the property is purchase money or owner occupied.

In contrast, the anti-deficiency protections after foreclosure are generally as follows:

  1. No deficiency judgment after foreclosure of a purchase money, owner occupied loan for a property with one-to-four residential units (CCP § 580b);
  2. No deficiency judgment after a non-judicial foreclosure (or trustee’s sale) (CCP § 580d); and
  3. No deficiency judgment after foreclosure for seller financing (CCP § 580b).

Although most lenders in California foreclose by non-judicial foreclosure, a homeowner has no control over the lender’s election to pursue a non-judicial foreclosure (no personal liability) or a judicial foreclosure (possible personal liability). Also, even if a first trust deed lender forecloses by non-judicial foreclosure (so no personal liability for the first trust deed), a junior lienholder whose security interest is wiped out in that process may be able to pursue a deficiency judgment against the borrower.

Isn’t California a non-recourse state?

No. California is not a non-recourse state. California law protects borrowers from personal liability after a short sale or foreclosure in certain, but not all, circumstances.

How could a borrower be personally liable for a short sale deficiency if the lender approved that short sale?

A lender’s short sale approval is generally a voluntary agreement to release its security interest, or its lien secured by real property, despite a loan payoff of less than the balance owed. The short sale approval enables the homeowner to sell the property free of the short sale lender’s security interest. The short sale approval may or may not address whether the lender will hold the borrower personally liable for the short sale deficiency. Absent any laws protecting homeowners from short sale deficiencies, some of the ways a lender could handle a deficiency include, without limitation, requiring the borrower to partially or fully repay the deficiency, requiring the borrower to sign a promissory note for full or partial repayment of the deficiency, reserving the lender’s right to pursue the borrower for the deficiency, fully releasing the borrower from personal liability for the deficiency, or saying nothing about the deficiency.

Will this law discourage lenders from doing short sales?

Not necessarily. Prohibiting a lender from pursuing a deficiency may, at least in theory, discourage certain lenders from approving a short sale, especially if the loan is a recourse loan or the amount of the deficiency is very large. Yet, even without the new law, a lender may not have approved those types of short sales anyway. Furthermore, a lender considering a short sale request looks at many different factors other than a borrower’s personal liability. Also, the previous law prohibiting short sale deficiencies for first trust deeds that was in effect from January 1, 2011 to July 15, 2011 (see Question 8) did not seem to have a chilling effect on the short sale practice.

On the flip side, the new law brings much needed clarity to short sale transactions for sellers. The new law should encourage sellers, who may have otherwise been on the fence, to do short sales now that they have an assurance that, if the new law applies to their situation, they will not be held personally liable for any short sale deficiency.

Wasn’t there already a law on short sale deficiencies?

Yes. Before SB 458 became law generally protecting sellers from short sale deficiencies on all deeds of trust for one-to-four residential unit properties, preexisting California law generally protected sellers from short sale deficiencies on first trust deeds only for one-to-four residential unit properties. That preexisting law, which was Senate Bill 931 (Ducheny) of the 2009-2010 legislative session, was in effect for a short period of time starting from January 1, 2011 to July 15, 2011. Now, SB 458 protects sellers not just from short sale deficiencies for first trust deeds, but also for junior mortgage loans, such as second trust deeds and third trust deeds.

What is the purpose of the new law?

According to the California legislature, the purpose of the new law as an urgency statute is to mitigate the impact of the ongoing foreclosure crisis and to encourage the approval of short sales as an alternative to foreclosure. (See Section 2 of Senate Bill 458.)

What short sale transactions are lenders less likely to approve given the new law?

If a lender cannot hold a borrower personally liable for a short sale deficiency, the lender is, at least in theory, less likely to approve a short sale for a recourse loan because the lender could obtain a deficiency judgment against the borrower through judicial foreclosure. Also, given the new law, a lender is theoretically less likely to approve a short sale with a large amount of deficiency if the lender must release the borrower from repaying that deficiency. For example, a lender is more likely to release a borrower from personal liability for a $20,000 deficiency, rather than a $200,000 deficiency. Finally, a lender is less likely, at least in theory, to approve a short sale if the borrower has income or assets that could be used to pay a deficiency.

However, as a practice tip, these factors are easy for a listing agent and seller to determine and consider upfront, before deciding to list a property for a short sale. If the odds are stacked up too high against the likelihood that a short sale will close escrow successfully, a listing agent and seller may be better off opting for alternatives. Even a buyer’s agent and buyer can make certain upfront determinations of the likelihood of closing escrow successfully, by searching title records and conducting other investigations before writing an offer to purchase a short sale property.

Is a short sale lender required to provide the borrower with a written release from personal liability?

No. Although not required, a seller is well-advised to get a written release from personal liability signed by the short sale lender if possible.

If the first trust deed lender approves a short sale, does this law require the second trust deed lender to also approve the short sale?

No. This law does not require any lender to approve a short sale. Instead, for applicable transactions, the law prohibits a lender – whether that lender is the holder of a first trust deed, second trust deed, or third trust deed – that has approved a short sale and has been tendered the proceeds of the sale from pursuing a deficiency or deficiency judgment. It also prohibits a lender from requiring a borrower to pay any additional compensation, other than the proceeds of the sale, in exchange for a short sale approval.

Does the new law require a lender to approve a short sale?

No. The new law does not require any lender to approve a short sale or to accept a loan payoff for less than the balance owed. Instead, for applicable transactions (see Question 14), the law prohibits a lender that has approved a short sale and has been tendered the proceeds of the sale from pursuing a deficiency or deficiency judgment, and further prohibits a lender from requiring a borrower to pay any additional compensation, other than the proceeds of the sale, in exchange for a short sale approval.

What must occur after the anti-deficiency law was enacted on July 15, 2011 for the new law to apply to a short sale transaction?

A short sale transaction should be consummated or close escrow after this law came into effect on July 15, 2011 for the seller to be protected under the new law. See CCP § 580e(a)(1) (prohibiting a deficiency or deficiency judgment in any case in which the borrower “sells the dwelling”). Other time frames during the short sale transaction, such as when the seller entered into a purchase agreement or when the lender approved the short sale, do not appear to be relevant for determining whether the new law applies.

For short sales that closed escrow before July 15, 2011, the new version of CCP § 580e is not explicitly retroactive. However, the previous version of CCP § 580e (see Question 8) may apply, and the seller may be able to raise other legal arguments challenging a deficiency judgment after a short sale. See, for example, Miller and Starr, California Real Estate 3d (2003) § 10:255 (stating that “the antideficiency legislation applies to preclude a money judgment against the trustor even when there has not been a foreclosure sale under either a senior lien or the lien securing the purchase-money note”) (citations omitted).

Does the anti-deficiency protection for short sales apply to any type of lien?

No. The anti-deficiency protection for short sales only applies to notes secured by deeds of trust or mortgages for one-to-four residential unit properties. It does not apply to other types of security interests in real property, such as, but not limited to, judgment liens, homeowners’ associations (HOA) liens, tax liens, child support liens, mechanics’ liens, attachment liens, or execution liens.

What is a short sale?

A short sale is the sale of real property where the seller’s mortgage lender agrees to accept a loan payoff for less than what is owed as an outstanding balance. In a short sale, a seller is “upside down,” which means the amount owed to the mortgage lender is more than the market value of the property. If the seller cannot or does not want to pay that difference out-of-pocket, the seller can request that the lender accepts a loan payoff for less than what is owed in exchange for releasing the lender’s security interest on the property. Each lender has its own guidelines and procedures for considering short sale requests.

When did this law come into effect?

This law came into effect on July 15, 2011 when it was filed as an urgency statute with the California Secretary of State.

What, in a nutshell, is the new law on short sale deficiencies?

The new law generally prohibits a mortgage lender from collecting a deficiency or obtaining a deficiency judgment for a short sale involving a loan secured by a one-to-four residential unit property. The new law also generally prohibits a lender from requiring the borrower to pay any additional compensation, aside from the proceeds of the sale, in exchange for a short sale approval. This law applies to first trust deeds, second trust deeds, and other junior trust deeds.

For definitions of the terms short sale, deficiency, and deficiency judgment, see Questions 3 to 5. For applicability of the new law to specific transactions, see Questions 14 to 23. For requirements and guidelines under the anti-deficiency protection for short sales, see Questions 24 to 40.

What is the legal authority for this law?

This law is set forth as section 580e of the California Code of Civil Procedure (CCP). Before it became law, the legislation was referred to as Senate Bill 458 (Corbett) or SB 458 of the 2011-2012 legislative session. The full text of the law is available at http://www.leginfo.ca.gov/.

What is a deficiency judgment?

A deficiency judgment is a judicial court ruling that a borrower is personally liable for the difference between the outstanding loan balance and the proceeds received by the lender through a short sale or foreclosure. To obtain a deficiency judgment in California, a lender must file a lawsuit against the borrower and go through the judicial court process. If the lender obtains a deficiency judgment and the borrower does not pay the amount owed, the lender can enforce the judgment by, among other things, garnishing the borrower’s wages, attaching the borrower’s bank accounts, and placing a judgment lien on the borrower’s real property. A deficiency judgment may also have a negative impact on a borrower’s credit rating.

What is the exception for cross-collateralized loans?

A cross-collateralized loan is a single loan that is secured by more than one property. If a loan that otherwise satisfies the requirements for anti-deficiency protection for short sales (see Question 14) is also cross-collateralized, the rights, remedies, and obligations of the parties will be treated and determined as if the property sold in a short sale had been sold through a non-judicial foreclosure (or trustee’s sale) for a price equal to the sale proceeds received by the lender (CCP § 580e(a)(2)).

What is the exception for waste?

Waste to real property is generally a physical impairment to the value of the property by an act or an omission of an act. If a borrower commits waste with respect to the real property securing a deed of trust, the lender can seek monetary damages and use existing rights and remedies against the borrower or any third party, regardless of the anti-deficiency protection for short sales (CCP § 580e(c)).

What is the exception for fraud?

If a borrower commits fraud with respect to the sale of the real property securing a deed of trust, the lender can seek monetary damages and use existing rights and remedies against the borrower or any third party (CCP § 580e(c)). For example, if a borrower makes a misrepresentation in his or her request for a short sale, the lender may sue the borrower for monetary damages that the lender suffered as a result, regardless of the anti-deficiency protection for short sales.

What are the exceptions to the anti-deficiency protection for short sales?

Exceptions to the anti-deficiency protections for short sales are as follows:

  1. Fraud (see Question 20);
  2. Waste to the real property (see Question 21);
  3. Cross-collateralized loans (see Question 22);
  4. Borrower is a corporation, limited liability company, or limited partnership (CCP § 580e(d)(1));
  5. Borrower is a political subdivision of the state (e.g. a state government entity) (CCP § 580e(d)(1));
  6. Deed of trust, mortgage, or other lien securing the payment of a bond or other evidence of indebtedness authorized by the
  7. Commissioner of Corporations (CCP § 580e(d)(2)); and
  8. Deed of trust, mortgage, or other lien made by a public utility subject to the Public Utilities Act (CCP § 580e(d)(2)).
Does the anti-deficiency protection for short sales only apply to owner occupied properties?

No. The anti-deficiency protection is for short sales involving owner occupied or non-owner occupied properties. Non-owner occupied properties include rental properties, vacant homes, second homes, or vacation homes. Of course, a lender may elect not to approve a short sale for a non-owner occupied property, but if the lender agrees to the short sale and the other requirements are met (see Question 14), the borrower will not be personally liable for any short sale deficiency.

Does the anti-deficiency protection for short sales only apply to purchase money loans?

No. The anti-deficiency protection for short sales applies to purchase money loans, refinance loans, and home equity credit lines secured by one-to-four residential unit properties. For such refinances, the anti-deficiency protection for short sales applies to all types of refinance loans, regardless of whether the borrower refinanced to obtain a lower interest rate only or took cash out to make home improvements, to pay off credit cards, or for any other purpose.

Does the anti-deficiency protection for short sales only apply to properties with one-to-four residential units?

Yes. The anti-deficiency protection under CCP § 580e applies only to properties with one-to-four residential units. It does not specifically apply to properties with five or more residential units, commercial properties, or vacant land. However, even if section 580e does not apply, a borrower may be able to raise other legal arguments challenging a deficiency judgment after a short sale. See Miller and Starr, California Real Estate 3d (2003) § 10:255 (stating that “the antideficiency legislation applies to preclude a money judgment against the trustor even when there has not been a foreclosure sale under either a senior lien or the lien securing the purchase-money note”) (citations omitted).

Under what particular circumstances does California law protect a borrower from personal liability for a short sale deficiency?

To fall within the protection against personal liability for a short sale deficiency, a borrower must satisfy all of the following requirements, and not fall within any of the exceptions in Question 19:

  1. Mortgage loan is solely secured by a deed of trust or mortgage (see Question 22 for cross-collateralized loans);
  2. Mortgage loan is for a dwelling of not more than four units;
  3. Borrower sells the property for less than the outstanding loan balance;
  4. Lender provides written consent for the short sale;
  5. Title voluntarily transfers to a buyer by grant deed or other document of conveyance recorded in the county where the property is located; and
  6. Proceeds of the sale have been tendered to the lender or lender’s agent in accordance with the parties’ agreement.

CCP § 580e(a)(1).

Can a lender require the homeowner to waive his or her rights under the anti-deficiency protection for short sales?

No. Any purported waiver of the anti-deficiency protection for short sales is void and against public policy (CCP § 580e(e)). If a lender attempts to require your client as a seller to waive his or her rights, see Question 39 for guidelines on how to handle that situation.

Instead of the lender requiring the borrower to pay a monetary contribution, can a seller voluntarily offer to pay a monetary contribution?

Yes. The law does not prohibit a seller from volunteering to pay a monetary contribution to help ensure that a lender will approve a short sale. For the difference between the lender requiring a monetary contribution and the seller volunteering a monetary contribution, see Question 36.

Instead of the lender requiring the borrower to pay a monetary contribution, can a lender require the borrower to pay closing costs?

Not likely. The law prohibits a short sale lender from requiring a borrower “to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale” (CCP § 580e(b)).

An argument has been made that interpreting the word “proceeds” to mean “gross proceeds” rather than “net proceeds” would allow a lender to require the seller to pay “gross proceeds” of the sale to the lender, which would mean the seller would be required to pay closing costs to escrow. That argument seems unconvincing on many levels. First, the law explicitly prohibits the lender from requiring the borrower to pay “any additional compensation,” regardless of whether that payment goes to the lender or towards closing costs (see CCP § 580e(b)). Second, among other arguments, nothing in the statutory language warrants a “gross proceeds” interpretation, which the California legislature would have more accurately described as “sales price.” Instead, the phrase “proceeds of the sale” most likely means what a lender typically receives in a short sale transaction and what reconveyance law requires, which is the amount stated in the lender’s short-pay demand statement (Cal. Civil Code § 2943(a)(7)), and not “gross proceeds” or “net proceeds.”

Ultimately, it will be up to a lender to decide whether to risk violating the law by requiring a borrower to pay closing costs. If that happens to your client as a seller, see Question 38 for general guidelines for handling that type of situation.

Instead of the lender requiring the borrower to pay a monetary contribution, can a lender require a monetary contribution from someone other than the borrower?

Yes. The law prohibits a lender from requiring the borrower to pay any additional compensation to obtain a short sale approval, other than the proceeds of the sale (CCP § 580e(b)). The law does not specifically prohibit a lender from requiring compensation from someone other than the seller, such as the buyer, agent, relative, and the like.

Although the short sale lender can require compensation from someone other than the seller, that other person is generally not obligated to agree to the lender’s proposed terms. Under paragraph 1F of C.A.R.’s Short Sale Addendum (SSA) to the California Residential Purchase Agreement (RPA), a buyer is not obligated to agree to a short sale lender’s request for a monetary contribution from the buyer. Under the C.A.R. Residential Listing Agreement (RLA), a listing broker is also not obligated to agree to a short sale lender’s request for a monetary contribution from the broker.

Instead of the lender requiring a borrower to pay a monetary contribution, can a third party, such as the private mortgage insurer, require the borrower to pay a monetary contribution?

Not likely in connection with a short sale. The law prohibits a lender, not a third party, from requesting funds from the borrower. So a private mortgage insurer (PMI company) or other third party could ask a borrower for money (no strings attached). However, a third party requesting the borrower to pay a monetary contribution for the purposes of obtaining a short sale approval may face what is perhaps an insurmountable logistical challenge. If a third party requests a monetary contribution directly from the borrower, the typical borrower would not pay or agree to pay unless he or she obtains a written short sale approval from the lender. After all, it is the lender, not private mortgage insurer, who must agree to the short sale approval and issue the short sale approval letter. Yet, for a lender to condition a short sale approval upon the borrower’s monetary contribution to a third party may violate the law, because it prohibits the lender from requiring the borrower to pay any additional compensation, regardless of whether such payment is to be made to the lender or someone else (see CCP § 580e(b)). Moreover, a court of law is unlikely to allow a lender to circumvent the law by having a related party to the lender, such as a private mortgage insurer, to be the one to require a borrower to pay a monetary contribution in exchange for a short sale approval. See also, Bank of America v. Graves (1996) 51 Cal.App.4th 607, 611 fn. 3 (stating that “The antideficiency statutes are to be construed liberally to effectuate the legislative purposes underlying them”).

Ultimately, it will be up to a lender to decide whether to risk violating the law by requiring a borrower to pay a third party in exchange for short sale approval. If that happens to your client as a seller, see Question 38 for general guidelines for handling that type of situation.

Instead of the lender requiring a borrower to pay a monetary contribution, can a lender condition a short sale approval on a higher sales price than what was submitted?

Probably so. Because a lender can reject a short sale altogether, this law is unlikely to prohibit a lender from approving a short sale for a sales price higher than what was submitted, as long as the lender seeks no additional monetary compensation from the borrower. However, under paragraph 1F of C.A.R.’s Short Sale Addendum (SSA) to the California Residential Purchase Agreement (RPA), the seller and buyer are not obligated to agree to a sales price higher than what they originally agreed to and submitted to the short sale lender.

Can a lender require a borrower to pay something out-of-pocket to obtain a short sale approval?

No. The law prohibits a lender from requiring the borrower to pay any additional compensation to obtain a short sale approval, other than the proceeds from the sale (CCP § 580e(b)). The law, however, does not prohibit a lender from rejecting a short sale request altogether.

I am the listing agent representing a seller in a short sale transaction. The lender requires the borrower to sign a short sale addendum that states the borrower may be held personally liable for the short sale deficiency. I tried to get the lender to remove that provision given the new law, but the lender refuses. What should I do?

For a lender to require a seller to agree that that he or she could be personally liable for a short sale deficiency violates the law (see Questions 24 and 29). However, given this situation, you should, in writing, advise the seller to decide what to do and encourage the seller to seek the advice of his or her own attorney or other professional as the seller deems appropriate. If you are not an attorney, you should not give the seller any legal advice and you should not make any legal determinations on the seller’s behalf. As a member benefit for REALTORS®, you may give a copy of this legal article to your client to help your client decide what to do.

Each seller is different and can make a different decision based upon the seller’s own legal determinations, legal resources, financial situation, housing accommodations, adversity towards taking risks, market forecasts, value system, emotional considerations, and many other factors. A seller’s options include, among other things, attempting to further negotiate with the lender for the removal of that provision, reporting the matter to the lender’s short sale escalation team or similar authority if any, reporting the matter to governmental authorities, seeking assistance from a HUD-certified housing counseling agency, hiring an attorney to represent the seller, suing to enjoin the lender from requiring that provision, canceling the short sale, or signing the lender’s short sale addendum.

For transactions falling under CCP § 580e, a provision in a short sale addendum holding a borrower personally liable for a short sale deficiency should be unenforceable. However, that doesn’t mean a seller can sign a provision agreeing to personal liability with total abandon. If the seller signs such a provision, the lender or a third party collection agency may, after close of escrow, attempt to collect such deficiency in violation of the short sale deficiency law, as well as federal and state fair debt collection practices laws.

The lender or third party may also attempt to file a lawsuit against the seller for the short sale deficiency in violation of the law (see Question 24). If so, the seller and seller’s attorney have the responsibility of, among other things, claiming the provision is unenforceable as an affirmative defense in an answer to the lender’s complaint or by demurrer (and pursuing a malicious prosecution claim if appropriate). If the seller does not properly object to the lender’s claim, the lender may obtain a default judgment against the seller. See Spector v. National Pictures Corp. (1962) 201 Cal.App.2d 217, 225-26 (holding that an anti-deficiency protection under CCP § 726 is waived if a debtor’s fails to raise it as an affirmative defense in an answer or by demurrer).

Where can I find additional information?

AThis legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.’s legal products and services, please visit car.org.

Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.’s Member Legal Hotline at (213) 739-8282, Monday through Friday, 9 a.m. to 6 p.m. and Saturday, 10 a.m. to 2 p.m. C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at (213) 739-8350 to receive expedited service. Members may also submit online requests to speak with an attorney on the Member Legal Hotline by going to http://www.car.org/legal/legal-hotline-access/.

Written correspondence should be addressed to:

CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, CA 90020

What if, instead of requiring the seller to agree that the seller may be personally liable for the short sale deficiency as in Question 39, the lender requires a borrower to sign a promissory note for full or partial repayment of the deficiency?

Same answer as in Question 39. For a short sale lender to require a seller to sign a promissory note and owe the short sale deficiency violates the law (CCP § 580e(a)(1)). The promissory note could be construed as a purported waiver of the borrower’s rights which is void and against public policy (CCP § 580e(e)).

I am the listing agent representing a seller in a short sale transaction. To get the short sale approved, the lender requires that the seller makes a $5,000 monetary contribution. I tried to get the lender to remove that requirement given the new law, but the lender refuses. What should I do?

Requiring the seller to make a $5,000 monetary contribution under these circumstances is a violation of the anti-deficiency law for short sales (see Question 30). Nevertheless, in this situation, you should, in writing, advise the seller what has happened and request that the seller decides what to do under these circumstances. Also encourage the seller in writing to seek the advice of his or her own attorney, accountant, and other professional as the seller deems appropriate. If you are not an attorney, you should not give the seller any legal advice and you should not make any legal determinations on the seller’s behalf. As a member benefit for REALTORS®, you may give a copy of this legal article to your client to help your client decide what to do.

Each seller is different and can make a different decision based upon the seller’s own legal determinations, legal resources, financial situation, housing accommodations, adversity towards taking risks, market forecasts, value system, emotional considerations, and many other factors. A seller’s options include, among other things, attempting to further negotiate the terms of the short sale with the lender, reporting the matter to the lender’s short sale escalation team or similar authority if any, reporting the matter to governmental authorities, seeking assistance from a HUD-certified housing counseling agency, hiring an attorney to represent the seller, suing to enjoin the lender from requiring a monetary contribution, canceling the short sale, paying the $5,000 contribution willingly, or paying the $5,000 contribution but suing the lender after close of escrow for its return.

If a seller elects to pay a monetary contribution and sue the lender for its return after close of escrow, a claim up to $7,500 may be brought in small claims court (to be increased to $10,000 starting January 1, 2012), depending on the parties’ agreement if any for alternative dispute resolution. The seller’s claim against the lender would be for a violation of the anti-deficiency protection under section 580e of the California Code of Civil Procedure. Of course, the seller may win or lose a court action depending on various factors including, without limitation, whether the claim is properly filed and served, whether other court procedures are properly followed, whether the seller appears in court for the court hearing, how well the seller argues his or her case, and whether the seller satisfies the burden of proving his or her case. If a seller obtains a favorable judgment but the lender fails to pay, the seller must pursue certain legal procedures to successfully enforce that judgment to get the money back.

More information about suing in small claims court and enforcing judgments is available from the California Courts’ Small Claims guide at http://www.courtinfo.ca.gov/selfhelp/smallclaims/ and the California Department of Consumer Affairs’ Small Claims Court Guide at http://www.dca.ca.gov/publications/small_claims/index.shtml.

Can a seller be held liable for violating the anti-deficiency law for short sales?

Not likely, as long as the seller does not commit any fraud or waste. This new law is consumer protection legislation generally aimed at regulating the conduct of short sale lenders, not sellers. As long as a seller does not commit fraud or waste (see Questions 20 to 21), it is the lender, not the seller, who should generally be concerned about violating the short sale deficiency law.

What is the difference between a lender requiring a monetary contribution from a borrower, which is prohibited, and a borrower volunteering a monetary contribution, which is permissible?

The difference between a lender requiring a monetary contribution, which is prohibited, and a borrower volunteering to pay a monetary contribution, which is permissible, depends on the facts and circumstances of each particular transaction, including the chain of events and negotiations between the short sale lender and borrower. However, whether a monetary contribution violates the anti-deficiency law for short sales is, generally speaking, a concern for the short sale lender, not seller (see Question 37).

A seller who wants a lender to accept the seller’s voluntary offer of a monetary contribution is strongly encouraged to make a written offer upfront with the initial submission of the short sale request to the lender to help minimize any concern the lender may have that such contribution violates the law. In making that offer, the seller is also encouraged to clearly indicate in writing the seller’s intent to voluntarily offer a monetary contribution and provide the reason the seller is offering the monetary contribution. The seller may also acknowledge in writing that the lender has not directly or indirectly required any monetary contribution as a condition for approving the short sale.

Is doing a modification the right choice for me?

If you are able to make your monthly mortgage payments, but it is hard for you to keep up with it along with your other bills, then a modification may work for you. Most modifications will be re-adjusted for 6 months then reevaluated. It is not a long-term solution if you are deeply financially distressed.

If I don’t want to go into foreclosure or deed-in-lieu, how should I decide between a loan modification and Short Sale?

Loan Modification: If you want to continue to live in your current residence, then you should attempt to work with your lender to see if you qualify to modify the terms of your loan. The loan is usually only modified for a few months.

Short Sale: If you want to get rid of your financial distress and move on, or if your loan modification isn’t approved or doesn’t work out (over half of them don’t), then a short sale is the best way to go.

Of the three above, which hurts your credit the most?

Definitely foreclosure. You ruined the mortgage contract with the bank, and will not be able to purchase another home for at least 5 to 7 years.

My property is upside down. What are my options?

A. Foreclosure – Give up the home and walk away. Property is then sold in an auction, also known as a Trustees’ Sale.
B. Deed-in-Lieu – Give the Title back to the lender.
C. Modification – Negotiate with the lender to change the terms on your loan.
D. Short Sale – Negotiate with the lender to see if he will accept the purchase price of a property for less than its owed.

Is a Short Sale Right for Everyone?

No! A lot of agents will tell you that a short sale is easy, no hassle and that you can easily move on to can buy another home in just two years. They do this just to get the business. They make you promises that they cannot fulfill. I will always be very upfront and honest with you and let you know if you are a good candidate for a short sale.

Why and how do some people get into short sale situations?
  1. You may be unable to keep up with all of your monthly obligations due to job loss or other sudden change in monthly household income like divorce, illness, law suits, tax burden, a slowdown in your business, etc.
  2. You are not YET behind on your monthly mortgage payment but know that you will soon be unable to keep up with all of your monthly obligations and therefore in the near future will not be able to afford to keep your home. Many people see their credit cards get out of control as they place their mounting bills on them just to keep up with their mortgage payments. Eventually this catches up to you.
  3. You are NOT behind on your monthly mortgage payment but need or want to move. Reasons could include a job transfer, the need to move closer to family, a health reason, retirement, etc
What is a Short Sale?

A Short Sale is the sale of a home or condo in which the owner owes the bank more than the home is worth. The bank agrees to allow the home to be sold for less (“short”) than what is owed. You could have more than one loan and lender, in which case you may even only be “short” on one loan. You might also owe the bank the exact amount that the home is worth, but you would be “short” because you would need to pay sales commissions and other fees to sell the home.

Why should I hire Kim to manage and negotiate my short sale?

Kim won’t take your short sale on unless she knows she has a very good chance of success. There is a stigma having to do with San Diego Short Sales because so few agents understand them. Because Kim has been an extremely successful Realtor since 1987 with an outstanding reputation in the industry, other agents know they can trust her. They show her properties more often because they know she has a vastly greater chance of getting the short sales accepted verses the average agent.

Why Use Kim?
  1. Licensed Real Estate Agent since 1987
  2. Local agent who specializes and KNOWS the area
  3. 90%+ Success Rate as compared to the average agent of 50% success or less
  4. Strong binding lender relationships and full knowledge of lenders’ language
  5. TOP 1% OF AGENTS NATIONWIDE
  6. CERTIFIED PRE-FORECLOSURE SPECIALIST
  7. CERTIFIED SHORT SALE SPECIALIST
  8. CERTIFIED HAFA SPECIALIST
  9. This is what we’re GOOD at!
Is doing a short sale the right choice for me?

Generally speaking, if you are no longer able to pay for your monthly payments and the difference between your mortgage amounts and selling price is too great, then a short sale is a clean way to break off from your financial distress.

How do short sales work? There are several stages of the Short Sale process:
  1. The first stage is for you, the homeowner, to get all documentation that your bank will require us to send them – this is “the Short Sale Package”. Tax returns, recent bank statements, and a few other items are required. This stage lies solely in your hands, but we will help guide you on what’s needed. (to get started please complete the Short Sale Request Form)
  2. The second stage is to schedule an appointment for us to see your home, sign a Listing Agreement, and for us to prepare your home for sale. This stage only takes a few days as well, and we do all of the heavy lifting.
  3. The third stage is our area of expertise – aggressive marketing of your home to produce a ready, willing, able, and most importantly – a committed buyer. This stage can take as little as a few days or as long as a few months. Priced right we should receive a good offer within 30 days or so.
  4. The fourth stage is presenting the offer to your bank. This is where our years of negotiating experience and Real Estate knowledge comes in to play. We get the job done with a far above average success rate. The actual negotiation/approval process can take as little as 30-45 days or as much as 90+ days. On average most Short Sales take between 60-90 days from the date the offer is presented to the lender to the date of the Short Sale approval. This is usually a time consuming and exhaustive process involving an enormous amount of phone calls, emails, and faxes back and forth between the lender and our negotiation team.
  5. The final stage of the Short Sale process when the Bank provides a Short Sale approval letter that you then approve. The buyer then proceeds to Close on the home just like they would any other home purchase. Sometimes buyers will close in as little as 10 days after approval, and usually not more than 30 days. If you are still living in your home at time of Short Sale approval, it is imperative that you move out within 2 to 3 weeks from Short Sale approval. We can help with moving recommendations, finding a new rental home, and more. And we’ll have alerted you beforehand that “approval” could be any day, so you should have ample time to prepare.
Can I get any money back from a short sale?

As part of the Making Home Affordable Plan, and specifically the new Home Affordable Foreclosure Alternatives (HAFA) imitative recently announced November 30, 2009, qualified home owners can get up to $3,000 BACK from a short sale to use towards relocation expenses!

Are there any fees associated with doing a Short Sale? Who pays you?

The bank pays all fees and commissions associated with the short sale. For example we include the commission (normally paid by the Seller) in your Listing Agreement but the lender pays for this fee. As you might imagine Short Sales are expensive and time consuming to do, and since we only get paid if your Short Sale is a success we only work with Sellers who are motivated and qualified. To get qualified by us please complete the short sale request form found here.

Having most fees normally associated with a home sale paid by your lender is one of the primary benefits of a short sale.

If I am going through foreclosure, can I do a short sale?

Yes! In fact the bank will likely be more than happy to work with you on a short sale. It is to the bank’s advantage as well as yours to work out a short sale as the bank loses less money on a short sale than a foreclosure.

Why would a bank agree to a short sale?

It is much more cost effective for a bank to do a Short Sale rather than Foreclose on a home. Banks are not interested in owning real estate. Banks make their money from receiving monthly mortgage payments. While banks will take a loss doing a Short Sale, they can often minimize their loss by as much as 10-40% over a Foreclosure.

Can I stay in my house until the short sale is completed?

Yes, in fact the bank likes to make sure that someone is living in the home and taking care of it until it closes escrow.

Will the bank continue their collection activity?

Yes, the bank will continue its collection activities. That may mean they will continue to call you or send you letters looking for payment. However, most banks will not foreclose on your home if you are in escrow on a short sale. Just give all the letters to us and we will handle it for you.

Can the bank sue me or place a judgment against me for the difference between what I owe and what the home sells for?

This is a good question and is best answered by a qualified Real Estate Attorney. Whether your home is foreclosed on, or you sell via a short sale, there are situations where a lender can sue you. So it is crucial that you consult an attorney so they can review your exact situation. Whether or not you ever refinanced, or had a HELOC you used, whether you bought as an owner-occupied or as an investor, and many other factors that vary from owner to owner all effect your situation.

Once the bank approves my Short Sale, do I need to pay for the deficiency (difference) of the mortgage?

Varies. If you qualify for California’s Anti-Deficiency Law, then you may not have to. Please see below for more details. Click on the following for specific details. SHORT SALE DEFICIENCY LAWS FOR THE STATE OF CALIFORNIA

Under what circumstances is the lender prohibited from going after the “deficiency balance”

With passage of SB 931, effective Jan. 1, 2011, after the short sale of a residential property of one-to-four units, the holder of the first deed of trust (or first mortgage) cannot pursue the borrower (seller) for any deficiency under the note. If the lender consents to the short sale in writing, the lender is obligated to accept the sale proceeds as payment in full and the note is considered fully discharged. The borrower (seller) is protected even if the loan is refinanced as long as it’s secured by a first deed of trust. (Cal. Code Civ. Proc. § 580e (a).)

However, this law doesn’t apply to junior deeds of trust. Thus, the borrower (seller) may still be liable for the deficiency balance on those loans.

An exception to SB 931 occurs if the borrower (seller) has committed fraud with respect to the sale of the property or has committed “waste” of the real property (e.g., severely damaged the property) (Cal. Code Civ. Proc. § 580e (b)). Under these circumstances, the borrower (seller) may still be liable for the deficiency balance.
Note: SB 931 doesn’t apply if the borrower (seller) is a corporation or political subdivision of the state (Cal. Code Civ. Proc. § 580e (c)).

The good news for California borrowers is all purchase-money loans on a one- to four-unit residential dwelling are exempt from deficiency judgments.

Hard-money loans in California — loans taken out after the home was purchased through a refinance or second mortgage — can be subject to a deficiency judgment under the following conditions:

  1. The lender forecloses under judicial proceedings (California Code Civil. Proc. § 726).
  2. Most lenders foreclose through a trustee’s sale; however, which does not give the lender the right to pursue a deficiency judgment, with one exception (see second hard-money second mortgages below).
  3. A three-month time limit applies to actions for deficiency judgments under a judicial foreclosure.
  4. If the second mortgage is hard money and the lender has lost security for that loan through a foreclosure or short sale — making the security for the promissory note worth nothing — the beneficiary of that second mortgage can pursue a deficiency judgment (Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35 (1963).

Lender CANNOT Pursue You If:

You have a NON-RECOURSE loan. You have a NON-RECOURSE loan if:

  1. This is your Primary Residence
  2. “Purchase Money” Mortgage: all mortgages (regardless of how many lenders) were used towards the payment of the subject property

Lender MAY Pursue You If:

  1. You have a HELOC (home equity line of credit) loan
  2. This is not your Primary Residence
  3. You bought the property as an Investment
    Flipping the home without ever intending on living there
    Renting out
  4. You are a homeowner who has taken on additional mortgages after purchasing the home
    AND the mortgage is not used towards the purchase of the home

In most instances, these laws prevented a lender from obtaining a judgment against the borrower for any difference between the unpaid balance of the loan and the amount produced at a trustee’s sale (a “deficiency judgment”) if its loan was used to purchase residential real property (“purchase money”) and that property secured repayment of the loan (Code of Civil Procedure section 580b). This is the so-called “purchase money” anti-deficiency protection.
If you think the lender may have the right to pursue you, don’t lose hope! All other properties not protected under CCP §580b may possibly be protected under…

California Code of Civil Procedure §580d, which states:

No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or an estate for years therein hereafter executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.

In other words, if the bank comes forecloses on any of your real properties through a private sale rather than a judicial foreclosure, then you are still protected under the Anti-Deficiency Law, whether or not the loan was purchase money.

This Law varies greatly, so please consult a real estate lawyer for specific details on your property

Will the bank ask me to pay some of the amount owed on the mortgage back to them on the junior lien?

Some banks are now requiring that the sellers take back a small percentage of the amount owed between the sales prices of the home and the mortgage amount in the form of a note. It is usually zero interest over 10 years. This is one of the most important things I do for you and where my years of experience and negotiation come into play.

What could be the tax ramifications of doing a short sale?

There may be tax ramifications to a Short Sale but since we are not certified Tax Professionals or CPA’s we strongly recommend you seek professional advice. What we can tell you is that there is a LOT of false information out there, including this advice, “Don’t do a short sale because you will get a 1099 and have to pay taxes on the difference between what you owed on your home and what you sold it for or the amount the bank wrote off.” This may be true, but it is not the whole story…

While the forgiveness and/or cancellation of a debt may result in a 1099, the thing that most people don’t know or don’t tell you is that with a Foreclosure, you will also get a 1099. In the case of a Short Sale it is called a 1099-C and a Foreclosure it is a 1099-A. So what’s the difference between a 1099-C and a 1099-A? The ‘C’ stands for “Cancellation of Debt” and the ‘A’ stands for “Acquisition or Abandonment of Secured Property”.

It is important to know that while there are many differences, the tax consequences for the ‘C’ and the ‘A’ are the same. You may not even be required to pay taxes on the ‘income’ as shown on the 1099-C, but don’t just assume that you won’t have to pay. While we are very good at successfully closing Short Sales, we are not tax experts and will not, and can not, advise you in this area. Please also don’t listen to any real estate agent who isn’t also a trained tax professional.

Before making a final decision on a Short Sale, first consult a CPA or Tax Preparer/professional. After you submit the Short Sale Request Form we will provide referrals to various professionals.

The Mortgage Debt Relief Act of 2007 provides relief to many, many homeowners. For more information on the Mortgage Debt Relief Act, how it works, who it applies to, and more, please read more directly from the IRS website by clicking here http://www.irs.gov/individuals/article/0,,id=179414,00.html

Also note, that when the Lender does have the right to go after you for a deficiency, in the vast majority of cases the bank will collect more via a Short Sale than a Foreclosure in which case you would be less deficient with a Short Sale.

Who is qualified to do a Short Sale?

Any one with financial trouble or adverse reasons that show you have a hardship.

Is a hardship necessary?

Yes, whether it is financial or medical reason, the banks will not accept without one. Examples of hardships are:

– Separation or Divorce
– Medical Bills
– Inability to work due to health reasons
– Death of Spouse
– Job Relocation
– Reduced Income or Unemployment
– Business Failure
-…Etc.

What are the qualifications for a short sale?

Please consider the following to determine if you qualify for a short sale. If you cannot answer yes to all three, you may not qualify for a short sale.

The Market Value of the Home has Dropped: The last 6 months of sales must substantiate that the home is worth less than the unpaid balance that is due to the lender. The balance may include late penalities.

The Mortgage is in or Near Default Status: Some lenders will consider a short sale without the seller being late on their payments and some will not. But if you are late on your payments, your lender is usually eager to get the house sold and off their books.

The Seller Has Fallen on Hard Times: The seller must submit a “hardship” letter along with their personal financial information detailing why they either cannot make their mortgage payments or it is imminent that they will not be able to.

  1. The Hardship Letter. So you have decided to try a short sale, but don’t know how to write a hardship letter. A hardship letter is meant to show the bank that you have tried to the end of this world to try to pay off the mortgage, but you are unsuccessful. The letter should address why you can’t continue to pay for the home, what a fair deal on the short sale is, and why the lender should agree and settle with you on that amount.
  2. Start with telling the lender that you are hoping to be approved for a short sale. Explain your current situation with the home, the more heart-wrenching the better.
  3. Explain how you bought the property or got the loan, and briefly recount your past history of paying on the loan. Show that you have attempted to pay the last however many payments, but have missed the last few times.
  4. Explain your current situation. Put things in a negative light, not being able to pay off mortgages due to loss of jobs, family emergencies, sudden financial depletion, etc.
  5. This is a persuasive letter. The sadder you sound, the more the lender will be willing to approve. Make sure to explain to the lender that you are ordinarily an upright citizen, but because of your current situation, you cannot afford to make the payments on the home. Explain how your situation is hopeless and long-term, that you will not be recovering for a very, very long time.
  6. Close with explaining how grateful you would be if they did approve the short sale. Be sure to exclaim the urgency of the short sale.
What is the difference on my credit with a Short Sale?

There is a huge difference between a foreclosure and a short sale.

Please contact a tax accountant and a Real Estate Attorney for consultation.

Depending on the bank, the lender may be kind or be hard on his words in the credit report. Depending on the words, it will affect your credit score respectively. Please consult a professional for legal advice in your situation

Do I have to be behind on my payments to do a Short Sale?

No, not always. Just depends on your lender.

If I have already done or attempted a modification from my lender, can I still do a Short Sale?Yes. Doing a modification does not affect your ability to do a short sale and often the bank will request that you do a short sale if the loan modification is denied.

Yes. Doing a modification does not affect your ability to do a short sale and often the bank will request that you do a short sale if the loan modification is denied.

What is the average Short Sale Approval Rate?

Less that 50%.

What is Kim’s Short Sale Approval Rate?

Aside from sellers’ decisions to back out, I have maintained a better than 90% short sale success rate.

Why is there such a big approval rate difference between Kim’s Short Sales versus other Short Sales by other agents?

The biggest reason is because short sales need to be carefully negotiated between agent and lenders. The art of negotiation, time, and ways of doing things does not come easily to all real estate agents, especially those without a lot of experience. I have staff of people who specialize in doing short sales, a well-formulated short sale timeline, and excellent relations with short sale lenders to ensure that my clients’ short sales get approved.

How long does a short sale take to get Short Sale Approval?

In the past 2 years, banks have sped up the approval process to 1-4 months, which is a vast improvement from previous years. They are constantly working on improving the short sale approval time due to the government support.

Can I gain any equity in the Short Sale process?

No. Because there is already a negative difference between the mortgage price and your home’s selling price. The bank will not allow you to keep any money unless it is an approved HAFA sale usually.

If I do a Short Sale, what kinds of items in my home can I keep?

Like a regular/standard sale, anything that is permanently attached to the home stays with the home. Permanently installed items that you wish to take with you or to be sold separately must be stated with the buyer before signing the first purchase contract. All personal property goes with you.

I have decided to do a Short Sale. How long does it take to find a potential buyer?

We handle a short sale very similar to a regular “equity” sale in that we market the home very aggressively using all the latest state-of-the-art tools and web sites available. If the home shows well and is easy to show, then it should sell very quickly.

During the Short Sale approval process, do I have to maintain the upkeep of my home?

Yes. We don’t want to lose our buyers after 1-4 months. We want them to hang in there. The property should be kept in good condition with the lawn mowed and maintained.

Even though I am past due on my mortgage, should I keep my Home Owners Dues current?

Absolutely! This is extremely important as the lenders will not pay delinquent Home Owners Dues.

When should I prepare to move out?

Once we have bank approval on the short sale, they usually give the buyer 2 to 4 weeks to close escrow. We usually have a pretty good idea a couple of weeks before then that we are getting close to approval. We will let you know so you can start looking for a place.

If I don’t want to do a Short Sale in the middle of the approval process, am I allowed to cancel the transaction?
Yes, as long as you cancel the transaction before the bank approves of the short sale property and both seller and buyer have signed to enter escrow.
Will there be any monetary ($) penalty for cancelling my transaction midway?

No. I take my job very seriously and if I am not able to get bank approval, you don’t pay me a cent. Remember, I only get paid by the bank at closing.

If the short sale does not get approved, do I have to pay for any costs?

No. If for any reason the bank decides that they do not want to accept a short sale on a particular property, then you do not have to pay any costs. Some agents and most all attorneys will charge you. I do not.

The Short Sale Buyer is asking us to fix certain parts of the home. Do I have to pay for that?

No, all homes are sold in “as is” condition and the seller has no responsibility to fix anything.

There are a lot of fraudulent Short Sale companies out there that are promising amazing modification results. How do I tell the difference?

Here are some of the things to watch out for.

What are the red flags for detecting a short sale scam? Be wary when dealing with someone who does any of the following:

  1. Makes an offer that sounds too good to be true;
  2. Gives an unqualified promise, such as to obtain short sale approval, stop foreclosure, or other assurances;
  3. Is unconcerned about the sales price, possession of the property, and other significant terms of sale;
  4. Is unconcerned about the short sale seller’s financial situation;
  5. Is involved in a sales transaction where the seller is not the current owner of the property;
  6. Is involved in a sales transaction under the Home Equity Sales Contract law (see C.A.R.’s legal article at http://www.car.org/legal/2008articles/home-equity-sales-contracts/);
  7. Is involved in a sales transaction where the property owner has purportedly given someone an option to purchase;
  8. Represents that the buyer is an entity (such as a trust or LLC), rather than an individual person;
  9. Creates more than one sales contract for the same property;
  10. Asks for the payment of money upfront before providing any service;
  11. Asks for payment only in the form of cash, cashier’s check, or wire transfer;
  12. Asks for something to be done immediately without delay;
  13. Asks for a power of attorney;
  14. Asks for a transfer of title or an interest in the property outside of escrow;
  15. Asks for signatures on a grant deed or deed of trust;
  16. Fails to provide copies of documents signed;
  17. Instructs the seller, listing agent, escrow officer, or someone else not to contact the short sale lender;
  18. Instructs a client not to discuss his or her situation with a housing counselor, banker, accountant, attorney, family, friends, or others;
  19. Has an answer for everything; and
  20. Engages in “shop talk” that sounds glib, but doesn’t in fact make sense.
Why a Short Sale?
  1. Make sure you have a hardship. In the current economy, some sellers want to sell their home simply because it has lost value and do not want to pay off the mortgage any longer. They hide their finances and expect the bank to forgive the debt. Short sales are for the deeply financially stun, who no longer can pay off the mortgage for an extended period of time.
  2. Try to remain in your home. A well-maintained home with luscious green grass and clean carpeting is much more attractive than a home that has been abandoned for months. The nicer the home, the more willing buyers will be to wait for lender approval.
  3. The same etiquette should be used in a short sale as a regular sale. Short Sales are not REOs, there is still a face behind the home, and that is what draws buyers to Short Sales. REO homes are often left in its skeleton state: no heaters, no stove, nothing but the foundation. A well-received short sale home looks just like a regular sale home: clean and inviting
  4. Most importantly, be ready to wait. Especially in the current economy, short sale homes may not move for several months. You have to be prepared to wait.
  5. Seller’s Costs: Once approved, it is now the bank’s responsibility for all closing costs (agent’s commissions, escrow fees, title fees, etc.) Any items written in the contract as “seller must pay…” is transferred to the bank.
  6. All regular fixtures that stay after closing in a normal sale should remain in the short sale home as well. This includes, but is not limited to:
    A. Curtains
    B. Light fixtures
    C. Stovetops, built-in microwaves
    D. Anything permanently affixed to the walls or floors

IMPORTANT:

Please make sure you have all living arrangements situated before closing.
After approval, the lenders allow a maximum 30 day escrow. You do not know when the lenders are going to approve the short sale; it could be weeks or months.

Be ready!

The lender does not give much leeway to sellers on the closing date because, although the lender has a slow approval process, they want to get rid of their bad investment as soon as possible. They definitely will not allow an extension if it is because the seller didn’t move out in time or find living arrangements prior.

Imagine the savings you have already accomplished:

  1. No closing cost fees
  2. No commission fees
  3. Much better outlook on your credit report
  4. No deficiency on first trust deeds

Do not wait! I have had short sale clients foreclosed on because the bank was not happy with the seller’s requests. Prolonging your stay in your home for a couple extra days is not worth a foreclosure after months of working on a short sale.

Don’t let this happen to you!

Other alternatives are available and a Kim can guide you through them. Kim will need to determine if the seller/homeowner is a qualified short sale candidate. Four key criteria must be met. They are: (1) Demonstrates Hardship, (2) Financially Insolvent, (3) Market Pricing, (4) Cooperative.

What if the Seller has no Assets?

The lender will probably want to see a copy of the seller’s tax returns and / or a financial statement. If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back some of the shortfall.

For Example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even IRA accounts, the lender will most likely determine that the seller has assets. However, the lender might discount the amount the seller is required to pay back.

Many entities profit from short sales, but there is no seller short sale profit.

Do I qualify for a short sale?

The Home’s Market Value Has Dropped: Have comparable sales within the last 6 months dropped below what your unpaid mortgage balance is? This unpaid balance may include a prepayment penalty.

The Mortgage is in or Near Default Status: It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are eager to head off future problems at the pass.

The Seller Has Fallen on Hard Times: The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the monthly payments.

  1. The Hardship Letter. So you have decided to try a short sale, but don’t know how to write a hardship letter. A hardship letter is meant to show the bank that you have tried to the end of this world to try to pay off the mortgage, but you are unsuccessful. The letter should address why you can’t continue to pay for the home, what a fair deal on the short sale is, and why the lender should agree and settle with you on that amount.
  2. Start with telling the lender that you are hoping to be approved for a short sale. Explain your current situation with the home, the more heart-wrenching the better.
  3. Explain how you bought the property or got the loan, and briefly recount your past history of paying on the loan. Show that you have attempted to pay the last however many payments, but have missed the last few times.
  4. Explain your current situation. Put things in a negative light, not being able to pay off mortgages due to loss of jobs, family emergencies, sudden financial depletion, etc.
  5. This is a persuasive letter. The sadder you sound, the more the lender will be willing to approve. Make sure to explain to the lender that you are ordinarily an upright citizen, but because of your current situation, you cannot afford to make the payments on the home. Explain how your situation is hopeless and long-term, that you will not be recovering for a very, very long time.
  6. Close with explaining how grateful you would be if they did approve the short sale. Be sure to exclaim the urgency of the short sale.
What are the Credit benefits of doing a Short Sale vs. a Foreclosure?

If the lender agrees to the short sale, the lender may possess the right to issue you a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness; many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007.

You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes, if any. There are two parts and scenarios that need to be considered for this answer. Let’s start with how it will be reported to the credit bureau. While a short sale will negatively impact your credit rating, a short sale will usually show some type of verbiage similar to “debt settled”, “debt settled for less than what was owed” or something similar. A short sale can possibly be less damaging to your credit with as little as 100 to 200 points, compared to a foreclosure which credit and mortgage experts say that, after bankruptcy, having a foreclosure on your credit is the worst result and will possibly reduce your credit score by over 300 to 400 points.

To request more information about short sales and foreclosures:

SHORT SALE REQUEST FORM »