Short Sale FAQ

Q: What is a Short Sale?

A short sale is a transaction that allows for the sale of a property for an amount that is less than the amount that is owed to the bank. The bank in return accepts the proceeds as full settlement of the mortgage debt. With the housing market decline, short sales are becoming a very common option for those home owners that need help getting their home sold.

Q: How long does it take to close a Short Sale?

It depends on the property location, the lender’s and other factors, but in general a short sale can take anywhere between 3-6 months, therefore, it is important to get started asap!

Q: Why should a lender agree to take a loss on real property?

The lender will likely take a loss on the property in any case. Besides short sale, loan modifications and other loss mitigation solutions usually do not solve the root cause for the borrower’s being in default. The alternative to a short sale is the lender has is to start a lengthy and costly foreclosure process, which will most likely result in an even bigger to the bank.

Q: Will the borrower have to pay capital gains taxes if I sell a property as a Short Sale?

No.

Q: Will the borrower have to pay taxes for a Short Sale?

The borrower may pay extra income tax if the bank sends a 1099 for the deficiency. However, if the subject property is the borrowers Primary Residence then the taxes on the 1099 will be forgiven, due to the Mortgage Forgiveness Debt Relief Act of 2007 HR3648. (Please consult your CPA or financial advisor)

Q: Will Mortgage Insurance pay to cover the deficiency on distressed property?

It depends on the amount of the deficiency. Usually the mortgage insurance only covers a certain amount. Mortgage insurance is for the lender's protection and the lender will try to collect from the borrower before filing a claim with the mortgage insurance company.

Q: What if the property has multiple loans?

Both of the lenders will need to be satisfied in some way to complete the short sale. If the first loan is partially covered by the short sale value, the negotiation takes place with the first lender. If the first lender is paid off by the sale then the negotiation takes place with the second lender (and so on if there are more than two lenders).

Q: Is it possible to start a short sales process when the borrower is current?

Yes.

Q: Is it possible to start a short sales process when foreclosure has taken place?

If the homeowner was evicted or the property was sold at auction, a short sale is not possible.

Q: Does a good credit score help the seller trying to do the short sale?

It may help in a limited way as long as the borrower is current or not in default.

Q: What will be the impact of Short Sale on the borrower’s credit score?

There is no clear answer but it does depend whether or not the borrower is current or is in default. Some lenders may mark the transaction as a settlement, which will hurt the score. However, typically the damage to the score is less significant than the damage as a result of foreclosure or bankruptcy.

Q: What is the effect of Short Sale on the seller?

The seller’s debt is cleared. Some lenders may mark the transaction as a settlement, which will hurt the score.

Q: What are the requirements from the property owner?

1. Sign a listing agreement with the realtor
2. List the property for sale, if the property meets NOAH’s requirements, NOAH will put a Contract on the home immediately
3. Cooperate with access, showings, offers and with the realtor and NOAH
4. Agree not to finance or otherwise encumber the property
5. Be responsible to maintain the home in "show" condition
Be a responsible homeowner until close of title and vacancy of home.
6. Vacate the home following close of title.

Q: What qualifies a borrower for a short sale?
Borrower must owe more on the property than it is currently worth. 
Borrower must demonstrate a true financial hardship

Q: Do I have to pay an upfront fee for a short sale?

No, you do not pay any fees for a short sale