Utah Short Sales
Definition of a Short Sale
A short sale takes place when the sales price of a house is less than the outstanding mortgage balance on the property and the lender agrees to absorb (forgive) the difference.
Who Qualifies
For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances:
- Financial Hardship - There is a situation causing you to have trouble affording your mortgage. The following may qualify as a financial hardship: illness, loss of job, failed business, job relocation, death in family, incarceration, divorce, marital separation, military duty, reduced income, medical bills.
- Monthly Income Shortfall - Meaning you have more expenditures than income. You will need to prove to the lender that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency - The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
The Process
A short sale includes all of what you would expect in a traditional sale, but much more. It is a complicated and potentially lengthy process for which it is essential to utilize a qualified and experience SFR designated Realtor. One of the complexities of a Short Sale, is the required lender package, that consists of dozens of documents that I orchestrate and submit prior to the lender agreeing to accept a Short Sale. This package will be complete and accurate, or the lender will not accept the package. There is quite a bit of negotiation and strategic positioning with the bank, and the marketing must be calculated.
No Realtor commissions, taxes and other expenses typically associated with a home sale
In a Short Sale, the homeowner does not pay any of the expenses associated with the sale of their home, such as commissions, title insurance, and other closing costs; those expenses are paid for by the lender. In some cases, the bank still comes after the borrower for those expenses in the form of a deficiency judgment, but this can usually be negotiated away by requesting a 1099. A 1099 would ordinarily taxable, but in December 2007, President Bush signed into law, the Mortgage Forgiveness Debt Relief Act, which eliminates the capital gain income tax that used to be levied on the forgiven portion of the primary residence's sale. The tax is however still in effect for second homes, and investment properties.
Why lenders approve a short sale
Foreclosure proceedings are very expensive for banks. Some of the expenses a bank absorbs in a foreclosure are attorney fees, insurance, taxes, cleaning, repairs, maintenance, management, seizure and eviction. This is why it is often less expensive for them to accept a short sale if the homeowner is no longer able to afford their payments.
Why choose Short Sale over Foreclosure
Simply put, your credit will recover dramatically sooner with a short sale over a foreclosure. A foreclosure will remain as a public record on a person's credit history for 10 years or more, but a short sale is not reported on a credit history. There is no specific reporting item for "short sale." There are often notations of late payments, but the loan is typically reported as "Paid in full, settled." After a short sale, the seller will be eligible under Fannie Mae guidelines to buy another home in 2 years instead of 5 years after a foreclosure.
Required Lender Package
- Borrow Information Sheet
- Financial Statement
- Copies of last 2 months Pay Stubs or letter of explanation
- Copies of last 2 months Bank Statement or letter of explanation
- Copies of last 2 Year Tax Returns or letter of explanation
- Foreclosure Disclaimer
- Authorization & Release Form
- Hardship Letter
- Brokerage Agreement & Agency Disclosure
- REPC
- Short Sale Disclosure
- Sellers' Disclosures
- Seller's Affidavit of Non-foreign Status
