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Things You Should Know - Straight Talk

You, the Borrower, still own the property until it is legally foreclosed.  Lenders find they have less of a loss if they cooperate in a short sale.  Borrowers, in most cases, find their losses are less if they cooperate with the lender to negotiate a price that will net the lender an agreeable amount to release the lien.  In the end, a cooperative short sale for a seller with a legitimate hardship typically results in a win win for everyone involved.

Required General Disclosure:
There is no charge for my short sale negotiation services of listed property.
You can stop using my services at any time.
I am not associated with the government or your lender (s).
Your lender (s) may not agree to change the terms of your mortgage.


Today our market is about motivation more than value:  The more motivated the seller, the lower the price.  The lower prices of sold properties directly effect the value of all other comparable properties.  For more information on pricing in this market click here:  Pricing to Sell in a Distressed Market vs Pricing to hold .

My Compensation:  As a licensed Florida Real Estate Broker in Florida, Default services are recognized under my real estate license.  There is never a charge for this service as required by my licensing authority.  I am only compensated if your property sells under a listing agreement.  My compensation for loan modification or home retention assistance is the fact that someone is able to keep their property and avoid foreclosure.  

My Qualifications are gained from my designations, education and experience.  I am not an attorney or accountant and do not give legal or financial advice.  I highly recommend clients get legal and financial advice from qualified professionals in these areas.  I will however share my knowledge and experience of the default process and assist sellers and buyers throughout the transaction to understand their options and make informed decisions as it relates to real estate. 

My Education:  my education in the distressed property market is represented in my resume under my qualifications.  In Florida a real estate agent is not required to gain education to assist folks that need to sell their property to avoid foreclosure.  A property that may begin under a listing as a non-distressed property many become distressed and result in the need to negotiate a short sale.  Having a qualified agent prepared to meet those special needs should be considered prior to committing to a listing agreement.


Typical Eligibility Requirements for a short sale:
  • The borrower's expenses must exceed the assets/income
  • Many banks require that Borrowers are at least three months delinquent on their mortgage payments
  • No accrued equity in the property.
  • Many lenders will not allow the offer to be a non-arm's length transaction (this means that the seller cannot benefit in any way from the sale.  For example, selling to a relative)
  • Borrower must have no financial assets or ability to borrow funds to cure arrears on the mortgage.
Primary Residence:  if your property is your primary residence consider that there are advantages to selling prior to 2012.  In 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation was passed which generally allows taxpayers to exclude income from the discharged of debt on their principal residence.  For more information click this link to the IRS website.  This page answers a lot of other questions you might want to know too.  This may not apply to subordinate liens.

Secondary Residence or Vacation Home:  at this time I am not aware of any special programs for these types of properties except negotiating a short sale in lieu of foreclosure with the lender.

Luxury Homes:  special listing programs are available for homes valued over $750,000.  Short sales of luxury homes in many cases require more extensive financial information and review by lenders.  In many cases, I will work with not only the borrower but their financial and legal advisors to find the best outcome based on the borrowers financial position.

Residential Rental Properties:  

If the property is vacant the lender will typically take it over to protect their asset.  The hire a servicer to change the locks, cover the pool, etc.  If the property is listed for sale they usually turn over the keys to the agent to continue marketing the property.  It is not necessary to evict or remove tenants if they are paying.  If they stop paying, I suggest eviction since you still own the property and they are obligated by the lease.  Remember you still own the property.  

If the property is occupied the lender will leave it alone as long as it is being maintained unless there is a clause in the mortgage that allows them to receive the rents in the event of default.  Typically, when it comes time to give up your financials lender review they will ask for a copy of the lease.  I suggest you keep copies of all income and expenses detailed as the lenders typically ask where the rents went along the way.  

Commercial Rental Properties:  may be treated differently depending on the terms and conditions of your mortgage.  In many cases, non-owner occupied commercial mortgages contain clauses that require the tenants to pay the lender in the event of default.  

Cancellation of Debt:  when the property sells under a short sale there may be tax consequences for the cancelled debt that should be discussed with your accountant.  There are many considerations like insolvency that effect how the cancelled debt will be handled on your taxes.  In any case if debt is cancelled it's reported to the IRS on a 1099C and may have tax consequences now or in the future.

Deficiency Judgement:  when the lender agrees to a short sale they typically reserve the right to a deficiency judgement.  Many borrowers have stated to me that they will not sell if faced with a deficiency.  If the property forecloses the result is typically a larger deficiency judgement due to all the legal fees, late charges, taxes, insurance, maintenance, etc along the way.  Not to mention the additional legal fees it cost you to buy time.  Some folks hire attorneys to buy time and show up in court or delay the inevitable.  In the end, the more time that goes by the greater the amount owed, the longer it takes your credit to recover and just pushes off the inevitable.

Financial Information:  just as you qualified to buy the property in essence you qualify to do a short sale.  The lender wants to know if you have a real hardship and have to sell.  Lenders will review your financial information you send and decide if you need to contribute or not based on your assets, liabilities and ability to repay the debt.  If you have a true hardship the lenders tend to be more negotiable. 

Hardship:  this is the key ingredient to the determination of the lender's approval of the short sale.  Valid reasons for requesting a short sale are: loss of income, death, insolvency, illness, etc.  Basically, the lender determines that based on your hardship it is better for them to cooperate with you to sell the property than proceed to foreclosure where the lender may lose a greater amount of money.  Following are examples of valid hardships:
  • Unemployment
  • Chronic health problems
  • Divorce
  • Death of a spouse
  • Other extenuating circumstances
  • Some lenders allow: job relocation - distant employment transfer, increase in payment due to adjustment (example ARM), failure of business, military service

Strategic Foreclosure:  lenders are aware that some folks are jumping on the short sale wagon to avoid the short fall between the value of their property and market prices of a sale.  If the payments are current the lender has not incentive to work through a short sale.  If the property is behind on payments the lender will consider a short sale.  Deciding to do a short sale if you can make the payments, have assets or appear to be selling strategically may result in a cash contribution or note to the lender in order to get an approval.  Basically, you may be asked to offset the losses from the sale by repaying the balance of the debt to the lender.

Property Condition:  maintaining your property helps maintain the value.  If your property is vacant, overgrown grass, and looking ragged buyers will see the distress and make lower offers.  Lower offers result in larger deficiencies.  Staying in your property and maintaining it or renting it out to keep it up is the best bet.

Negotiations with the Lender (s):  negotiations with the lender(s) are not cut and dry.  Many variables exist that apply to one borrower and not to another.  What is common are the initial requirements the lender asks for to begin the process.  These documents can be found in the link to the left "Documents Needed for Short Sale".  Once an offer is made on the property a package is put together with all the required documents and sent to the lender.  The lender will then review the documents and make an offer to settle the mortgage and release the lien.  The borrower must approve of the short sale offer for the sale to proceed. 

Other factors the effect a short sale:  State regulations, federal regulations, investor requirements - FHA, VA, FHLMC.  These regulations can change at any time so visit hud.gov for up to date information.  The same goes for taxes on the sale.  Visit irs.gov for more information on tax related issues.


Visit HUD.gov and IRS.gov for more information.
It's highly recommended you seek the advice of an attorney and accountant regarding related matters.