What is a short sale?
A short sale is when the homeowner owes more to his/her lender than the market value of the property. For an example: You have a loan on your house for $500,000 but in today's market a buyer will only pay $350,000 based on the last properties that sold in this neighborhood. Well, no buyer will pay $500,000 for this house so the seller will have to ask his lender if they will take less for the note that he owes to them. If the lender says yes, then that is a short sale.
Just as there are many different lenders there are just as many different policies governing the short sale procedures. The lenders all have their own criteria of what short sales they will accept. Just because your house falls in this category does not mean that every house will be approved for a short sale.

The next thing to understand for both sellers and buyers is that a short sale does take time. Short sales can take anywhere from 4 to 6 months. Some have taking over 3 months to just get to a loss mitigator who can make that decision. It is not as simple as just sending some documents in and that's it. There are formulas and procedures that the lenders use and as I said above not all lenders use the same ones. Some lenders outsource their short sales to a company that is proficient in the business of negotiating short sales. In these situations the lender gives the company a bottom line that they will accept, that is basically how much they are willing to lose to do the short sale.

If you have mortgage insurance on your loan then the mortgage insurance company will also need to approve the short sale. What happens in this situation is that the mortgage insurance company will pay the lender the difference in the loss. Please be aware that many times the mortgage insurance company will want the seller to take back a note for some of the loss and pay some of that loss back to the mortgage insurance company. The lender who you are sending your house payment to every month may own the note or they may just be a servicer for the lender. If they are the servicer for the loan there is an additional amount of time in the short sale process because there is yet one more entity with whom the short sale will also have to be approved by. This happens a lot in situations where your note has been sold several times in a short period of time or when the lender holding the note is an investor. In this situation, the investor must approve the short sale as well.

If you have a first mortgage and a second mortgage with different lenders that will certainly complicate matters more and also puts a kink into getting the short sale approved since the second note holder will want something to accept the short sale and usually the first note holder offers a mere token to the second note holder however you will need the approval of both lenders in order to close and pass a clean title to a buyer. Sometimes the second note holder will accept the sale if the seller agrees to owe a note to them and pay for some of the loss.

Why would a lender want to do a short sale in the first place? Well, sometimes the loss they will accept on a short sale is less of a loss than if they foreclosed on the property. Foreclosing is not a cheap process at all and in it is very time consuming. Most homeowners can keep the lender at bay for months and sometimes even over a year. At times the lender feels it is better for their bottom line to accept a short sale. Not every homeowner is qualified to do a short sale. We recommend that you speak to your attorney and your tax accountant regarding specifics and to find out if this is the best option for you in your situation.

Just because you own a house and you have found out that you owe your lender more money than what a buyer is willing to pay for your property does not mean you are going to be able to just sell your house for less than what you owe your lender.

You must pass the Hardship Test. There must be a good and provable reason why you are not able to keep your home any longer.
The Hardship Test: Look at your situation and ask yourself these questions to see if it will pass the hardship test.

• Since you bought the house, have you lost your job?
• Did you have a bad accident or illness in which you got injured and could not work?
• Do have large new medical bills that you incurred after you purchased the home?
• Have you been relocated to another city or state?
• Has your interest rate gone up so much that it is now a hardship for you to pay your mortgage?

Now each short sale request is looked at individually because each situation is different. But you must be able to prove that there is a hardship.

What is NOT a hardship?
If you have used your house as your ATM machine and took all your equity out of your house and are now in debt, well, that is a hardship that is going to have a tough time being accepted. I would suggest that you do what you have to do to be able to keep your house. If you bought your house on the tip of the market and now it is worth less than what you paid for it that is not a hardship and not a reason at all to sell your house as a short sale.

The Asset Test: Do you have assets that you can liquidate to bring to closing when you sell your house short of what you owe your lender?

• Do you have money in CD's and Savings Accounts?
• Do you have stocks and bonds?
• Do you have equity in other properties?

If you have these types of assets your lender is not going to take all the loss and not have you bring some money to the closing table. They will only accept the short sale if you are contributing as well to the loss. However, you may be able to negotiate the loss with your lender.

The Fraud Test: Did you commit fraud when you applied for your loan for this property? This means when you filled out your loan application, did you lie about anything on it like:

• Where you worked?
• How much money you were making?
• What your assets were?

Any of these lies or untruths, whatever you want to call them, will be checked out by the lender. They will match up what you are saying now to what your application said when you applied for the loan. If there is a difference in the information you provided on your loan application, than you better have a very good explanation of why it changed. A good reason for a drastic change in income would be, losing your job.

We will not list your property as a Short Sale if you committed fraud because you will be required to turn in a Financial Statement Form with the short sale package which we help you put together and send to the lender along with an offer. If you have committed fraud at this point you are exposing the fraud, which will cause serious legal implications for you.