Short Sale on Home

We're in the process of selling ours in a short sale now but since ours is an 80/20 loan it's a little more complicated. Just know that it takes foorrreevveerr! We listed it in October of last year but we listed it at breaking even point, no luck, so the realtors that we had finally realized that we would have to do a short sale (even though before we signed with them I brought it up to them numerous times). So then they "supposedly" had an investor but they wanted us to pay $999. out of pocket for the "extra work" involved in a short sale. We backed out and found another realtor who was not charging extra (they do get paid commission from the bank). She's even throwing in some of her commission to help the deal go through. Also you do need to have some kind of hardship so you'll need to submit a hardship letter, and a whole bunch of other stuff, kind of like you're applying for a loan. In order to qualify your house must be under market value. Oh, and then the bank may want to try to come after us for the difference in which case we'd have to file for bankruptcy. They also send a 1099 at the end of the year but I'm not sure if/how much that will affect your taxes.

So basically be prepared to wait a long time (we're lucky the buyers haven't backed out yet), make sure you get a realtor experienced in short sales and who won't charge extra, and be prepared for a lot of paperwork. Good luck!

You have to prove financial hardship- like being behind on your loan. You have to apply for the short sale, and it be accepted. For us, it was a breeze. We listed it (and started the whole process) in beginning November 2009, got an offer in mid-December 2009 and closed end of January 2010. We had a realtor who was very experienced in short sales. It will show up on your credit report for 2 years- because as soon as you start the short sale process, you stop paying your mortgage. So it shows up as late payments on your report. Worst case scenario- you foreclose, which is on your credit report for 7 years.

We had several rental properties. I've bought houses through this process and sold one this way when the market first went South a few years ago.

It could be a great way to get out of your situation. A house can be a boat anchor and really sink you financially if you let it. If this is a good way out for you, go for it.

Hopefully you have an agent that is familiar with the process. If you don't, make sure of a few things: when they turn in the HUD-1 to the bank (prior to closing) they must disclose ALL closing costs. If they forget any, you will have to come up with any extra closing costs out of pocket. Press your agent. When they turn in the form to the bank tell them you will hold them to those costs and get them to agree that if there is a mistake they will cover any extra costs. Don't let this scare you. A good agency will know what the closing costs should be.

Get to know the person at your bank who is working the process and follow up with them on a regular basis - every week or two. I got the e-mail address for my contact. Don't waste this person's time. But each time you follow up, get clear on the next step and consistently ask if there's anything more you need to do to help them move the process along. Get your stuff together promptly. Initially there will be a lot of stuff. Again, your agent should help you with most of it. But don't be afraid to ask the bank rep working your case. Try not to feel guilty or overwhelmed. Actually the more pitiful and sorrowful you make your case, the more likely it will get approved without any hassles. I know it's difficult, but try to handle this as a business decision. You are doing what's in the best interest financially for your family.

By following up, I was able to move the process along more quickly. The process can take 3 to 4 months. Your buyer will need to be willing to wait it out.

If you feel more comfortable, hire an attorney, but stay involved in the process. So many time people hand their problem to an attorney then walk away expecting them to handle it for you. You will pay more in the long run and your attorney will most likely to the bare minimum to get your fees. Most don't really care if the deal closes or falls through. They will charge you either way.

Get involved and constantly know the next step - by communicating directly with your attorney, your agent and your bank rep on a regular basis and following up with them to make sure they follow through on the steps they've laid out, you will stay on top of them and prevent any one of them from dropping the ball any step of the way.

If you take these steps, you will be a lot more successful in the long run.

Good luck.

I'm not sure of your situation but I just went through a short sale with my ex- husband. We were in the process of a divorce and neither one of us wanted the house or could afford it. We had been having financial problems and the short sale was the best option. Normally you have to be a few months behind in your mortgage and you contact the realtor and put the house up for sale. When you get a solid offer, it get presented to the mortgage company and they have to approve or agree to the short sale. If it is your primary residence you are not responsible for any difference between the house's value and the short sale amount. Ours was worth 300K, our mortgage was at 240K and it sold for 175K. Also, if it is your primary residence you do not have to pay any taxes on the difference either unless the tax laws change. We did not use or need a lawyer. Everything is pretty much the same except when the buyers do inspections, it is only for information purposes and you are not responsible to make any changes to the offer or make any repairs. It is the more responsible thing to do because instead of walking away you are finding a solution and doing your best. It is also better for the mortgage company because they get more money out of it than they would if it were to get sold at auction in a foreclosure. Our home was put on the market in August 2008 and after a few offers fell through, we got one that stuck. The offer was accepted by the mortgage company in December 2009 and we were told we had to be out by January 5 2010. There were some delays and the closing did not occur until January 28 2010. I got a letter confirming the short sale and releasing me from any further obligations. I hope this helps. Feel free to email me if you have any questions. Thanks, D.

My friend went to several lawyers specializing in this area of law because they too were considering a short sale. In their situation, it wasn't best to have a short sale but better for them to 'walk away'. Even though, it will cost probably hundreds of dollars for the lawyers, depending on your situation and what you have to lose, it might be prudent to see legal help before committing to your decision.

Good luck. I am sure you these decisions you are making are tough.

I have never sold a house but we looked into buying a short sale home. It proved to be harder to get the loan for and had other things that made us walk from it all. You can call and talk to a reality office in your area and they can tell you about homes they have dealt with that sold in short sale.