Short sales have become a last resort for many people facing foreclosure. When you’re already selling your house for way less than its worth, you want to understand as much as possible from start to finish to get the best possible outcome of your short sale. Here are six tips to help you navigate the process– from short sale price negotiations to potential consequences post sale, this article gives you insight on how to get through the short sale.
Understand who you need to pay
When you receive a short sale offer, it’s important to know that the sale must be approved by any organization that has a mortgage or lien against the property. This includes any and all mortgage lien holders on your property, not just your original lending entity. It also includes any homeowner association fees, contractor liens, etc. Take an inventory of anyone and everyone you owe, make a list and gather any documentation needed by asking the lienholders what they will need.
Find an agent with short sale experience
Short sale success can be a hard, complicated road. It’s important to have an expert on your side during this process. Your short sale closing could literally depend on the real estate agent you choose, so make some effort and choose wisely. Make sure you interview your potential agents, get referrals from people you trust, talk to their previous clients about the agent’s past work, etc. Do the due diligence, and it will pay off in the end. Some great questions to ask when deciding on the right real estate agent are listed below:
- How many years experience do you have in closing short sales?
- Do you see any red flags in this short sale?
- How many short sales have you sold?
- What experience do you have closing short sales with my specific lender/bank?
- How long will my short sale take to close?
- Do you know how to make an offer on a short sale? How to accept an offer?
Your short sale agent will be a big part of helping you navigate the process, but you should include an attorney. Attorneys can help you with short sale negotiations, understanding the legal aspects of the process and handling any conflicts that may arise amid the proceedings. Be wary of any real estate agent negotiation. Some agents can have certification from a short class, calling themselves certified short sale agents without the actual experience. It’s advisable to leave the negotiation and any legal questions to your attorney. Once you’ve assembled your team, you’re ready to sell your home in a short sale.
Understand potential consequences of short sale
The short sale process can be an overwhelming, emotionally trying time. Many sellers are anxious to get out from under debt and avoid foreclosure, so they don’t think ahead about what comes after the short sale. There are several items to consider post sale:
- Deficiency judgements
- Junior lienholder debt
- Tax consequences
Short sale success might not turn out to be such a success if you aren’t thoroughly aware of potential financial implications that may result after the sale. While a lienholder may agree to release the mortgage lien in exchange for the short sale, it may not release you from the personal liability of the debt. It’s important to understand if the lender has agreed to waive the deficiency, which is the balance remaining on the loan after the short sale is complete. That doesn’t just automatically go away, yet it can be negotiated (see below for more information on that). Depending on what state you live in, the lender could potentially collect against you, even after the sale, via a deficiency judgement. To avoid this, the short sale agreement must expressly state that the lender waives its right to the deficiency. Your attorney can help negotiate this waiver and ensure the language is within the written agreement for your protection.
Additionally, it’s vital to ensure all lienholders have received their payments. Junior lienholders may include second mortgages, HELOCs, etc. If you’re in a state that allows for personal liability, just like primary lienholders, junior lienholders can hold you responsible for anything not expressly waived. Work with your attorney to understand how to ensure no junior lien surprises pop up after a short sale.
Lastly, get a thorough understanding of the tax implications on your short sale. If the bank has waived some or all of the deficiency and has issued a IRS Form 1099-C to you, the amount waived will be considered income for tax purposes. Your attorney can help you understand if you have to pay the IRS, or if you can forego reporting your cancelled debt.
Negotiate your way out of deficiency
To avoid a judgement deficiency, a waiver must be agreed upon and expressly written in the short sale agreement. Your lawyer can help negotiate this and ensure the right parties and language are included in the agreement. By agreeing to this, your lender(s) have agreed to forego their right to seek a deficiency judgment.
Depending on what state you live in (and your specific situation), this may or may not be an issue to worry about. However, it’s certainly important that you understand if your state allows lenders to seek deficiency judgement in the first place. Consult your attorney for more information on this.
Talk to an attorney
As stated above, hiring an attorney is a must for short sales. With a complicated process, multiple involved parties and short sale negotiations at play, having an attorney to help you through it is the best case scenario. Here are a few specific reasons to talk to a lawyer:
- Short sale offer reviews and negotiations
- Document organization
- Lender negotiations and agreements
- Dealing with multiple lenders
- Release of personal liability
- Avoiding surprise collection attempts later
- Understanding any tax implications
- Protection of other assets
A short sale attorney (like Moshes Law for example) not only offers protection but also peace of mind. While this article can help you form your strategy and come up with various questions about your process, we recommend speaking with your attorney about the specifics of your case. Every situation is different, and it’s important to understand all the details, so you don’t come up short on your short sale.
Keep up with HOA payments
Another word of advice as you are contemplating a short sale: don’t neglect your HOA payments. These fees can ultimately build up and ruin any sales you may have otherwise had on the property, even if the buyer had previously agreed to pay any delinquent dues associated with the home.
Neglecting HOA dues has a negative impact on the sellability of the property, too. If the property isn’t maintained, it becomes more difficult to attract interested buyers.
Get short sale success
If you’re trying to understand how to win a short sale situation, a good initial step is talking to an experienced attorney and real estate agent. Having a team to help you navigate this overwhelming, complicated and trying time will drastically pay off in the long run. From squashing post-sale surprises to getting your lender to approve the winning offer, an expert short sale team can make it a lot easier, ensuring you get back to living your life as soon as possible.