Sell your home for less than your mortgage (Short Sale):
- What is a Short Sale?
- Why would I want to sell my home on a Short Sale?
- Why would I want to buy a home on a Short Sale?
- Why would a lender agree to a Short Sale?
- How do I sell my home in a Short Sale?
- How do I buy a home in a Short Sale?
What is a Short Sale?A "Short Sale" is a home is sold for less than the amount owed on the mortgage. The sales price falls "short" of the mortgage amount. With the historic drop in real estate values over the last few years, many homes are now worth much less than the amount of mortgage. This makes selling a home almost impossible absent a short sale. Continuing to own a home that was bought when the market was high can even be a bad investment.
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Why would I want to sell my home on a Short Sale?If you are having trouble making your mortgage payments and paying for other expenses, a Short Sale may be a better alternative for you then bankruptcy or foreclosure. A successful short sale may free you from being trapped in a financial nightmare where foreclosure seems like the only option. A successful Short Sale can help you to wipe out your mortgage debt and move on with your life. It is certainly one of the things you would want to consider before filing for bankruptcy or allowing your home to be sold at foreclosure.
BEWARE! If the Bank accepts less then the full amount of your mortgage, the IRS may consider the difference to be "income" to you for which you may have to pay income tax. The rules about whether it will be considered income are changing rapidly so make sure to speak with your attorney and tax consultant about this before completing a short sale.
The following are some of the benefits to selling your home in a short sale:
- Credit rating effects: A Short Sale may have less of an effect on your credit rating than either filing bankruptcy, allowing your home to be sold at foreclosure or even offering to deed your home to the bank rather than forcing a foreclosure. The exact effect on your credit would be difficult to determine ahead of time and the overall effects of a Short Sale on credit are constantly changing. As a general rule, however, your credit score will not drop as much and you will be eligible for credit, including mortgages sooner with a Short Sale than with a foreclosure, especially if your mortgage payments were never late before requesting the short sale.
- Buying another home under Fannie Mae: If you qualify under Fannie Mae, you may be eligible to buy another home in 2 years with a short sale instead of 5-7 years for a foreclosure. If you do not have a history of late payments, you may even be eligible to buy another home immediately with a Short Sale. This can provide you will the ability to get out of a home that you bought at the height of the market and buy a new home at the current market making your monthly payments much less.
- Avoid Eviction: If your home has to be sold as part of a Chapter 7 bankruptcy or a foreclosure sale, you may not have much say in how and when you will have to move. Protecting your family from being evicted can cause you a lot of emotional distress and cost you a great deal of time and money for legal fees. With a Short Sale, you can plan your move well ahead of time just as you would if you were selling your home for full price.
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Why would I want to buy a home on a Short Sale?The only reason to buy a home through a Short Sale is to get it at a lower price. A large percentage of homes bought in the Bronx within the last five years have mortgages that are higher than the current value of the home. Without a short sale, these homes cannot be sold. With a short sale, you may be able to buy the home at or below today's market price.
The downside of a short sale for the buyer is that it can take a long time, often several months, and there is no guarantee that the lender will agree to the Short Sale. If you have the time and and are willing to take the risk of the deal falling through, you may be able to get your dream home for a fraction of the price.
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Why would a lender agree to a Short Sale?Not all lenders are willing to approve Short Sales and every lender will have its own requirements for approving one. Lenders are not in the business to own homes. In this economy, they may not be able to sell homes at foreclosure for the amount they are owed which would mean that they either have to buy the home at foreclosure for what they are owed or sell it for less than they are owed. Buying the home means that the lender has to maintain and manage the home while they look to sell. This can often be like throwing good money after bad especially if house prices continue to drop. Money that a lender has tied up in a house they cannot sell is money that they do not have to lend.
This does not mean that a lender is willing to give away houses that it owns or that it may have to own after a foreclosure. But it does mean that lenders are more willing to consider Short Sales in this economy then at any time in the past.
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How do I sell my home on a Short Sale?Most Short Sales don't start out that way. Typically you will realize that you need to sell your home and list it for sale "by owner" or through a real estate broker. The real estate broker may tell you that your asking price is too high or you may not get any offers for several months after listing it for sale. Or the only offers you get may be well below what you owe on the home plus closing closts.
Completing a Short Sale can be a very frustrating and complicated task. You will need at least an attorney to complete the sale, so your best option is to get an attoney who has experience with Short Sales. The same is true of a real estate broker. Because the bank may ask the real estate broker to cut their commission, always seek out a broker who specializes in short sales or at least has completed a some in the past.
While you can try to get your lender to agree to a Short Sale yourself, it is not easy. In addition, often the bank and not you will pay for the attorney and real estate broker. Use the following links for more information on how to do a Short Sale:
- Dealing with the lender yourself.
- Using an Attorney and/or Real Estate Broker.
- Get free counseling.
- Using a Short Sale Agent.
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Using an Attorney and/or Real Estate Broker:
Short sales have become so common in this economy that many attorneys and real estate brokers have the experience necessary to help you get your lender to agree to the sale. If you intend to use an attorney or broker to sell your home and even suspect that you may end up needing to do a Short Sale, you should look for an attorney and broker with short sale experience. It is not unusual that a lender will require the broker to take a smaller fee than you agreed to when you listed the house. Brokers who deal with Short Sales will know this and be more willing to agree to the reduced fee to get your listing and a sale. After all they do not make anything unless they close on your home.
In a normal sale, the seller pays their attorney and the broker's fee. In a Short Sale the lender may pay the attorney and the broker's fees or it may be calculated in the formula for agreeing to the Short Sale. While you will normally walk away with nothing from a Short Sale, you certainly don't want to walk away with owing a fee to a Broker.
The following are some questions to ask when considering an attorney or broker:
- How many Short Sales have your completed?
- Have you completed Short Sales with my lender before? If so, how long did they take?
- Will you agree to reduce your fee if the lender requires it to complete a Short Sale?
- If I need to do a short sale [where you are not listing it for a Short Sale in the beginning] will you agree to cancel my listing agreement if you will not reduce your fee to complete a Short Sale? That should be written into the listing agreement.
- Will I personally have to pay anything to you if there is a Short Sale? If no, this should be in writing.
- Will you help me file for an exemption from income taxes with the IRS? For more information on this go to the IRS Debt Cancellation page.
- Will you help me get a moving allowance ($1,500.00-$3,000.00) if I am entitled to one (usually FHA or Fannie Mae or Freddie Mac loans. page?
- What will happen to my "second mortgage" or Home Equity Credit Line from the Short Sale?
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Get free counseling:
The U.S. Department of Housing and Urban Development has initiated programs to make counseling available for free to anyone who is having trouble keeping their home.
The following is a list of counselors available in the Bronx and Manhattan. For a listing of all free counselors in New York go to the HUD counseling webpage.
click on any address for HopStop direction.
|GREENPATH, INC.||3250 Westchester Ave., Suite 111, Bronx, NY 10461||888-860-4167||www.greenpath.com|
|NEIGHBORHOOD HOUSING SERVICES OF NORTH BRONX||1178 E. Gun Hill Rd., Bronx, NY 10469||718-881-1180||www.nhsnyc.org|
|NEIGHBORHOOD HOUSING SERVICES OF NORTH BRONX||200 E. 161st St., Bronx, NY 10452||718-992-5979||www.nhsnyc.org|
|NEW YORK CITY COMMISSION ON HUMAN RIGHTS||1932 Arthur Ave., Suite 203A, Bronx, NY 10457||718-579-6900||www.nyc.gov/cchr|
|ABYSSINIAN DEVELOPMENT CORPORATION||4 W. 125 St., New York, NY 10027||646-442-6545||www.adcorp.org|
|ASIAN AMERICANS FOR EQUALITY||111 Division St., New York, NY 10002||212-964-2288||www.aafecdf.org|
|ASIAN AMERICANS FOR EQUALITY||108-110 Norfolk St., New York, NY 10002||212-979-8381||www.aafecdf.org|
|GREENPATH, INC.||120 Broadway, Suite 935, New York, NY 10271||888-860-4167||www.greenpath.com|
|GREENPATH, INC.||250 West 34th St., Suite 2108, New York, NY 10119||888-860-4167||www.greenpath.com|
|HARLEM COMMUNITY DEVELOPMENT CORPORATION||163 W. 125th St., 17th flr, New York, NY 10027||212-961-4100||www.harlemcdc.com|
|HARLEM CONGREGATIONS FOR COMMUNITY IMPROVEMENT||2854 Frederick Douglass Blvd., New York, NY 10039||212-281-4887||www.hcci.org|
|NEIGHBORHOOD HOUSING SERVICES OF NYC||307 W. 36th St., 12 flr, New York, NY 10018||212-519-2500||www.nhsnyc.org|
|NEIGHBORHOOD HOUSING SERVICES OF NYC||306 W. 37th St., 12th Flr, New York, NY 10018||718-230-0032||www.nhsnyc.org|
|NEW YORK CITY COMMISSION ON HUMAN RIGHTS||40 Rector St., 10th Flr, New York, NY 10006||718-657-3138||www.nyc.gov/cchr|
|NEW YORK MORTGAGE COALITION||50 Broad St., Suite 1125, New York, NY 10004||212-742-0762||www.anhd.org/programs/programs.html|
|OPERATION HOPE, INC||2511 Frederick Douglass Blvd., New York, NY 10030||917-477-2800||www.operationhope.org|
|WEST HARLEM GROUP ASSISTANCE, INC||500 W. 134th St., New York, NY 10031||212-862-1399||www.whgainc.org|
|WEST HARLEM GROUP ASSISTANCE, INC||1652 Amsterdam Ave., New York, NY 10031||212-862-1399||www.whgainc.org|
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Using a Short Sale Agent.
Do an Internet search of "short sale agent" and you will be flooded with ads and claims by all sorts of businesses. Anytime people find themselves in desparate situtations, there will be a lot of people and businesses looking to take advantage of them. While you want an attorney and real estate broker with experience in Short Sales, people who call themselves "short sales agents" are not necessarily going to get you a better result. The following are some tips on getting the right professionals to help you:
- Stick with attorneys licensed in New York. You can check if an attorney is licensed in New York online. Licensed attorneys are subject to ethics and sanctions if they do not properly represent you. That is a great protection for you.
- Stick with real estate brokers and salespersons who are licensed in New York. You can check if a broker or salesperson is licensed in New York online. Licensed Real Estate Broker and salesperson are subject to ethics and sanctions if they do not properly represent you.
- It is not a good idea to use any person or company that is not a New York licensed
attorney or real estate broker or salesperson. Before you even consider using someone other that a licensed professional, at a minimum check out the business at the Better Business Bureau. If there is no information on the company that's not necessarily a sign that you can trust the company. It is more likely to mean that the company has not been in business long enough for people to make complaints through BBB. It's better to stick with companies that have positive reviews.
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How do I buy a home on a Short Sale?
Buying a home through a Short Sale can save you a lot of money. Banks recognize that to sell on a Short Sale, they will often have to let the property be sold for less than then current market value and subsequently less than the mortgage amount. That means that you start off with a house that is worth more than you paid for it right at the closing. So what's the catch?
The catch is that the process can take a long time, usually at least 3 months and can fall through at any time.