Real Estate Information Archive

A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for.

Step One

Verify the value of your property.  If you are selling the property through a real estate broker, your broker will provide you with an estimate of market value.  If you are selling the property yourself, do your own market analysis of the area and your property.

Step Two

Add up all the costs of selling your property.  If you are using the services of a real estate broker, the broker will provide an estimate of closing costs.  If you are selling the property on your own, call a local title company or real estate attorney and ask, as a seller, what the closing costs will be.

Step Three

Determine the amount owed against the property.  This will be the total of all loans against the property.

Step Four

Do the calculations.  Subtract the total amount owed against the property from the estimated proceeds of the sale.  On a short sale, this will be a negative number.

Step Five

Contact the lender or lenders.  Talk to someone in the customer service department and tell them the situation.  They may direct you to a specific department.  Talk to a supervisor or manager if possible; this person will have more authority.

Step Six

Ask the lender what its procedures are for a short sale.  Some lenders are willing to work with you by reducing the amount owed or making other arrangements.  Others will look to the agents involved (if any) or anyone who’s making money off the transaction to see if they can make concessions to make the transaction happen.  Still other lenders will tell you, the debt is your responsibility, one way or another.

Step Seven

Sell the property.  Select a real estate broker to assist in marketing your Home.

Tips

Closing costs will include title and escrow fees (if the seller is responsible for any portion of them, which will depend on your county), attorney fees, a portion of unpaid property taxes, re-conveyance fees, notary fees, delivery fees, documentary fees and/or transfer fees.  Remember that the amount on your monthly loan statement does not include interest.  Interest is accrued until the date a loan is paid off, so you may have as much as 30 days of interest on top of the balance owing, and you’ll need to include this interest in the total payoff amount.

Warnings

If a property is sold under a short sale, the lender may require the buyer to make up the difference, either through a personal obligation or collection.  The IRS often gets involved with short sales, because they are seen as a relief of debt and may be treated as income.  Check with your accountant.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

What type of property qualifies for a short sale?

• Banks may consider a short sale for various reasons
• A Home in any location, size, style and condition may be considered

Normal steps to start the short sale process.

• The property must be in distress and have a sales offer in writing
• Discuss the potential short sale option with the homeowner
• The homeowner must sign an authorization to release form.
• You must have a signed sales contract for an amount less than what will cover all of the sellers’ costs
• Contact the Loss Mitigation department at the bank

Fax your offer along with the following to the bank.

• Include a cover letter explaining why the offer is less than full price, the sales contract, justifying comps for the area and pictures, if you have them.
• A net sheet or closing statement (a sheet that shows the bank exactly how much they will net after closing costs, taxes, etc are paid)
• A hardship letter from the homeowner that mentions the dreaded word….bankruptcy
• Estimate a cost of repairs using retail repair prices that the normal homeowner would pay for these items

What happens to the homeowner’s credit?

• Keep in mind that the agreed upon price is payment in full.  However, the homeowners may still owe the difference between the mortgage balance and the discounted amount via a deficiency judgment.
• If granted, this judgment will affect the homeowners and their credit report just as any other judgment.  You must get the bank to agree to accept payment in full without pursuit of any deficiency judgment.
• In addition, the difference between the mortgage balance and the short sale may be declared as income on your income tax returns by means of a 1099.
• Homeowners should speak with their accountant for advice.

What other options are available?

• Since Fannie Mae and Freddie Mac have additional programs to assist sub prime borrowers, many lenders are more willing to offer loan modification options.  This option can extend the term of the loan, add on delinquent payments to the loan principal, and/or reduce the interest rate to make the loan more manageable for the homeowner.
• Also, there may be an option to utilize a repayment plan that requires homeowners to increase their monthly payments until the loan is current.  Check with the mortgage lender and a real estate consultant who specializes in short sales.  It may be possible to refinance an adjustable rate loan with a Federal Housing Authority (FHA) or Conventional Fixed Loan.  Noe that lenders will not postpone a foreclosure just because a property is listed, although they may delay the process, if you have a reasonable offer in the works.
• The idea candidate for a short sale is still making loan payments and has a credit rating worth preserving.  Otherwise, it may not be worth going through the complicate process.

What are the seller’s options if a short sale is rejected by the lender?

• There are a variety of reasons a bank will reject a short sale – from too low a price to too many files on the loss mitigator’s desk.  You can look for another buyer or even try resubmitting the same contract.
• A short sale might be rejected if the loan is less than a year old.  In this case, the loan servicer that bought the loan may require the original lender to buy it back.

What financial liability will the sellers incur as a result of the short sale?

• Many lenders ask sellers to sign a promissory note for all or part of the difference between the proceeds of the short sale and the debt obligation as a condition to a short sale.  In such cases, the note gives lenders the right to sue a seller and attach other assets if the note is not paid when due.
• According to many professionals, it’s important to understand this difference if you work in a non-recourse state which may not allow the lender to pursue a deficiency judgment against a seller for any deficiencies after a property is foreclosed.  Seek the advice of an attorney and your lender to determine what financial obligations exist for both parties involved within your state.

Are there tax liabilities as a result of a short sale?

• Seek the advice of a tax expert.  The IRS requires lender to submit a Form 1099 stating the forgiven amount.  Sellers who meet the Internal Revenue Service definition of insolvency (either bankruptcy or with debts exceeding assets) may not have to pay taxes on the forgiven amount.
• The U.S. house of Representatives has introduced the Mortgage Cancellation Tax Relief Act (H.R. 1876), which would eliminate taxes on any debt forgiven on a principal residence through either short sale or foreclosure.
• Ask an accountant or attorney to provide more information on this bill.

Are For Sale By Owners qualified for Short Sales?

• Homes that qualify for short sales are identified primarily by word of mouth.  However, we have agents that specialize in short sale counseling which happens prior to filing bankruptcy.
• For Sale by Owners are another source since many homeowners look for ways to cut their costs when selling their property.  Their concern may not be warranted because many FSBO’s don’t realize that the bank covers the commission.
• With many more adjustable rate mortgages ready to reset to higher loan amounts in the next couple of years, short sales represent a growing sector of the market.

Legitimate businesses generally don’t advertise on utility poles or on temporary signs along the side of the road.  Be wary of anyone who calls or stops by your Home with an offer too good to be true.  Predatory buyers or scam artists may pretend to help you.  What they really want is your property.  A potential predatory buyer/lender:

• seeks you out to “solve” your financial problems
• pressures you to make a quick decision
• demands large up-front fees
• tells you not to contact your current lender or bank
• tells you not to contact a lawyer
• asks you to sign papers without giving you a chance to read them
• asks you to sign papers with blank spaces
• asks you to sign a deed
• offers to file bankruptcy for you

Legal Services of South Central Michigan

Click here for More Info on Predatory Lendors

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Stop by Tom Stachler's web site or call us should you need further assistance. Or you can Click Here to get an email report providing you with a valuation of your property.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

There are different options available to you when you no longer have enough income in the household to support the mortgage and all other bills.  These options assist with preventing the foreclosure, but do not mean keeping the Home.

Short Sale

The mortgage company allows the homeowner to sell the home for less than what is owed on it.  This option can be utilized before the Sheriff’s Sale.  Prior arrangements need to be made with the mortgage company before the official sale of the home.

Deed-in-Lieu

The mortgage company allows you to give back the deed to the home in exchange for “forgiveness” of the debt.  This must be done before the Sheriff’s Sale.  The mortgage company may require you to have the home listed on the market for a period of time before considering this option.

Sale of Home

List the home for sale.  This can be done before or after the Sheriff’s Sale.  However, to prevent the foreclosure from going on your record, the sale must be completed before the Sheriff’s Sale date.

During this time, the best thing for you to do is to stay in contact with the mortgage company.  This is important to prevent the foreclosure of your home, if at all possible.  Unfortunately, it may not mean keeping your home, but will allow you to “spare” your credit, so that you may purchase a home in the future when your situation improves.

You have up until the date of a Sheriff’s Sale to “work out” arrangements with your mortgage company.  So, if you can re-establish sufficient income before that date, then options that involve keeping your home become available to you.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

While a short sale may be a last resort for many homeowners facing foreclosure, it also represents a great opportunity for potential Home buyers and real estate investors. This article is designed to help answer a few basic questions about the substantial risk and reward involved in this extremely complex and often drawn out process.

What is a Short Sale?

A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. And, while short sales are not by any means common or easy, because of increasing inventory levels and foreclosures in some parts of the country, lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages. For potential home buyers and real estate investors, a short sale also offers a great opportunity to purchase property at a significant discount.

However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department.

Of course, lenders are not looking to bail out "flippers" or other borrowers who simply overextended themselves. In most cases, a borrower must have suffered a serious financial hardship that directly caused him or her to default on the mortgage: the loss of a job, a serious illness, or the death of a loved one.

A written declaration and supporting documentation demonstrating financial hardship will definitely be required by the lender. This may include pay stubs, tax returns, and liquid asset statements, among other documentation.

Key Considerations to Keep in Mind

The lender will likely issue a 1099 to the seller for the difference between what is owed and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges. This means that the difference or deficiency can be considered as taxable income to the borrower. Some lenders may even attempt to get the existing homeowner to sign a note for the remaining amount due.

If there are multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale. This is why an experienced real estate agent and mortgage professional become so valuable to this process.

Loss Mitigation

Loss mitigation is the terms used by mortgage companies to describe their programs and department that can assist borrowers in bringing their mortgages current.

The number one requirement of Loss Mitigation is affordability of the mortgage.  To be able to assist you, the mortgage company must see a budget that demonstrates to them that the income coming into your Home is sufficient to support all of the household bills.

When speaking to your mortgage company, ask to speak to their Loss Mitigation Department, which is sometimes called the Loan Counseling Department.  These are the people that have the authority and knowledge to assist you with becoming current on your mortgage.  Request from them a Loss Mitigation Package for your loan.

Find out what type of loan you have (i.e. Freddie Mac, Fannie Mae, VA, or FHA).  When you contact your mortgage company, ask them who the investor is on your loan, or if you have mortgage insurance.

Options You May Have

         Repayment Plan

This is when the mortgage company can take the amount that you are delinquent and add it on to your regular payment, and spread it out over 3-12 months (some mortgage companies will allow longer).

         Loan Modification

This is when the mortgage company adds the amount that you are delinquent to the principal balance of your loan.  If they think that it is necessary, then they may consider extending your loan term to 30 years and/or adjust your interest rate.

         Partial Claim

This strategy is used on FHA loans or those with PMI insurance only.  This is when the insurer of your mortgage gives you a loan for the amount that you are delinquent.  This is a non-interest loan that does not require payment until the sale of the home or until you pay off the first mortgage.

For more real estate information, please call Tom Stachler directly at (734) 996-0000 or go to his web site.

First Month Missed Payment:  The first month your payment is missed your mortgage company is likely to contact you by mail and/or telephone to inform you of your delinquent status.  A late charge is assessed on the missed payment.

Second Month Missed Payment:  The second month your payment is missed your mortgage company is likely to begin calling the contact numbers they have for you, in order to discuss why you have not made a payment.  It is important that you not avoid their telephone calls.  Try to stay calm on the telephone and explain to them your situation and what you are trying to do to resolve it.  You still may be able to make one payment at this time to prevent yourself from falling three months delinquent.

Third Month Missed Payment:  At this point, you are likely to receive a letter from the mortgage company stating the amount you are delinquent, and that you have 30 days to bring it current.  This is called your “Demand Letter” or “Notice to Accelerate.”  If you do not pay the specified amount or make some form of arrangement by the date given, they are allowed at that time to refer you to foreclosure or accelerate your mortgage.  They are unlikely to accept less than the total due without prior arrangements if you have received this letter.  Foreclosure/acceleration means that they forward your account to their attorneys.  You still have time to work something out with the mortgage company.

Fourth Month Missed Payment:  Now you are usually nearing the end of the time allowed in your Demand Letter or Notice to Accelerate.  If this expires and you have not paid the full amount or worked out arrangements, then you will be referred to their attorneys.  At this time, you incur all attorney fees as part of your delinquency.  The attorney then schedules a Sheriff’s Sale, which is the actual date of foreclosure.  The Sheriff’s Sale will be scheduled for approximately six weeks after the attorney receives your file.  You will be notified of this date by mail, along with a notice taped to your door.  This is NOT a move out date.  The attorney publishes notice of foreclosure over four successive weeks in the local legal newspaper.  After the insertion on your property is published in the legal news, you have 4 weeks until the Sheriff’s Sale! Contact your lender NOW!

Sheriff’s Sale:  You have up until the date of the Sheriff’s Sale to work out arrangements with the mortgage company or to pay the total amount owed (reinstatement amount).  At the Sheriff’s Sale your house will be sold.  An outside party may bid on your Home.  If no bids are received, the home goes back to the lender.

Redemption Period:  If nothing is done to resolve the situation and the Sheriff’s Sale is completed then you enter the Redemption Period.  The redemption period starts from the date of the Sheriff’s Sale.  State Law requires that this period is not less than 30 days and no more than one year.  Most mortgages allow the homeowner six months to redeem property with the lender/bidder, paying the amount owed plus interest and fees.  If property is over 3 acres, you may have a 12 month redemption period.  You will be notified of your time frame on the same notice that states your Sheriff’s Sale date.  This is still your time to reside in the home.

End of Redemption Period:  If the homeowner has not redeemed the property, ownership is transferred to lender or bidder.  If the homeowner has not left, the new owner starts eviction proceedings.  An eviction hearing is held within two weeks, followed by a 10 day grace period for the former homeowner to vacate the premises.  When the grace period ends, eviction is certified.  Court bailiffs are notified and empty the premises.

What is the difference between the Assessed Value and the Taxable Value of my Home?

Each year the Assessing Office must calculate the SEV (Assessed Value) and Taxable Value of each property for the 31st of December.  You will ususally get your new tax assessment in early March.  In determining the SEV, the assessor identifies area neighborhoods and used to use a 2 year sales study to analyze market values within each neighborhood, comparing the sale price of a property to its assessed value.  That was just changed and the new 1 year sales study period for the 2008 assessments was 04/01/06 to 03/31/07.  A review of all arms length sales within each neighborhood for the required study period is used to determine individual Assessed Values on a global scale.

The Taxable Value is the value to which the millage rate is applied, thereby determining your taxes.  The Taxable Value on the property is said to be "capped" if the property owner has not had any additions or losses on the property or did not purchase it in the preceding year.  The Taxable Value is calculated by adding the CPI or 5% (whichever is less) to the prior years Taxable Value.  Proposal A intended to put a cap on the Taxable Value of property so that taxpayers wouldn't be as affected by a strong economy and significant increases in valuation, the intention was to make changes to the Taxable Valuation more gradual by tying it to the rate of inflation.

Sales prices in my neighborhood have been decreasing.  Will my property valuation decrease as well?

If you've owned your property for a significant amount of time, it is likely that your SEV exceeds your Taxable Value.  If this is the case, a decrease in market value as determined by city sales studies, would result in a decreased assessed valuation and SEV.  The Taxable Value however, is required by the Michigan Constitution to increase each year by the rate of inflation or 5%, whichever is lower.  In the case of a long time property owner, the SEV should decrease, while the Taxable Value would increase.  The Taxable Value cannot be higher than the SEV.

How does that impact my tax bill?

Because the taxes are based on the Taxable Value rather than the SEV, even with a decrease in the SEV, the taxes could still go up.

I just bought my house.  Will the assessed value automatically be half of what I paid?

By state law, a home's Assessed Value is not half its purchase price, but half of its market value.  The study period and process identified in paragraph 1 is used to determine market values.

I feel the taxable value on my tax bill is too high.  How can I get my taxable value and amount that I pay changed?  Is there a deadline to do this?

In closing, please note:  I have a pdf download providing even more information on property taxes that you can read by clicking here.  Don't forget that you can challenge your taxable value with the assessor by writing them a short letter  or call requesting to be be heard before the tax board of review.  .  Do this right away after you get your new assessment because you do not have much time to protest.  Should the determination they mail you fail to provide the intended results, then you can ask your assessor for an appeal letter bebore the State tax tribunal.  Call me if you have more quetions.  If you need comps showing the sale price of similar properties, just drop me a note requesting them.  I would be happy to safe you money on your property taxes or otherwise.  I also have new home listings or a free market or cma reports on your existing property.