How will I know if I will qualify for a short sale?
Contact us and we can tell you very quickly whether you will
likely qualify. The overwhelming majority of our clients are
approved for a short sale because 1) we know how to submit
the short sale package in such a way that the lenders will
approve them and 2) we have a tremendous amount of
experience with short sales and negotiating with the lenders
3) we know exactly what the lender is looking for.
will a short sale affect my credit?
This is a great question as there is a lot of misinformation
on the internet about this topic. A short sale is recorded
on your credit report as “debt settled for less than the
amount owed”. This typically will result in a relatively
minor hit on your credit compared to a foreclosure or late
payments on your mortgage. I say ‘”typically” because it
affects everyone’s credit differently. The more established
your credit, the less of an impact it will have on your
The reason you often hear and read that a short sale will
drop your credit 100 points or more, is that, many people,
when they do a short sale, stop making their mortgage
payments. If you stop making your mortgage payments for 4
months, regardless of whether you do a short sale or not, 4
months of missed mortgage payments will have a significant
negative impact on your credit. In other words, it is the
missed mortgage payments that have the big impact on your
credit, not the short sale itself.
With this said, if you are already behind on your payments,
you have already incurred the majority of the hit that a
short sale will have on your credit. Doing a successful
short sale at this point will insure that your debt is
settled with your lender.
If you are current on your payments and can stay current
throughout the short sale process, you will save your credit
to a large extent.
Finally, if you do stop making your mortgage payments, there
are various credit repair agencies that can repair your
credit by removing late payments from your credit report
after a short sale.
have to pay federal taxes on the money my lender loses in
the short sale?
Please consult your tax advisor for current information as
there are many programs in effect.
lender go after me for the money it loses in the short sale?
The point of a short sale is to get out from under the debt
of the mortgage. This is why your lender will send you a
1099-C after the short sale. The “C” in “1099-C” stands for
“Cancellation of Debt.” Your lender cannot write off their
loss on their corporate taxes, send you a 1099-C so you have
to pay taxes on the loss, report the short sale as a
“settled debt” on your credit and then turn around and go
after you for the money.
If you hire and inexperienced short sale agent or negotiator
who does not negotiate a full release from your lender,
then, yes, you could be liable for the money the lender
loses in a short sale or end up being forced to sign a
promissory note to close the deal.
We do not ever recommend that our clients sign a promissory
note or close escrow without a full written release from
if I have a first and a second loan on my property with 2
different lenders (or the same lender)?
Most people that we do short sales for have a first and a
second loan, often with 2 different lenders. For the short
sale to reach a successful close of escrow, both lenders
have to approve the short sale and agree to settle the debt.
It is important to note that both lenders have a vested
interest in doing this. The lender with the first loan does
not want to foreclose, and therefore is willing to give a
little money to the second in order to get them to agree to
the short sale.
The second lender will get nothing if the first forecloses,
so with the attitude that something is better than nothing,
they will agree to take a fraction of what they are owed in
order to avoid getting absolutely nothing.
is the difference between a recourse and a non recourse
In general, a purchase money loan is considered to be a “non
recourse” loan, while a “cash out” loan is considered to be
a “recourse” loan.
The difference between these two loans is that in a
“recourse loan” the lender technically has recourse to go
after the borrower for the money they lose in a foreclosure.
I say “technically” because, for this to happen, the lender
has to file a judicial foreclosure, which is rarely done in
The overwhelming majority of foreclosures in California are
“non-judicial” foreclosures, where the property is sold at a
will I know that I am being released from the debt?
It will be stated clearly on the bank’s short sale approval.
Your lender will state in plain English (though in different
verbiage depending on the lender) that they are “releasing
the lien”, “accepting a short payoff to satisfy the lien”,
“reporting the sale as a settled debt to the reporting
agencies”, “issuing a full satisfaction of the mortgage”,
“not pursuing a deficiency judgment”, or some other
variation that states they are settling the debt for less
than what they were owed.
Further, your bank will issue a 1099-C to you, the borrower,
after the short sale, confirming that the debt has been
written off and is settled. Your lender cannot write off the
debt, issue you a 1099-C & then go after you for the
are the advantages of a short sale vs. letting my home go to
The primary advantage to doing a short sale vs. walking away
and letting your home go to foreclosure is that in a short
sale the debt is settled and you no longer owe the bank any
money. If your home goes to foreclosure, you may still be
liable for the deficiency in the event that the bank files a
A secondary (but still very important) advantage is that in
a short sale, your credit takes much less of a hit compared
to a foreclosure. The impact on your credit will vary
depending on how established your credit is at the time of
the short sale or foreclosure.
Finally, Fannie Mae & Freddie Mac revised their guidelines
in August of 2008 with regard to how they view borrowers who
have filed bankruptcy, gone through foreclosure or done a
short sale. Through these new guidelines, they are in effect
severely penalizing those who go the route of foreclosure or
bankruptcy, and rewarding or encouraging those who do short
sales, which they view as the borrower doing the responsible
thing in light of the circumstances.
Per recent Fannie Mae / Freddie Mac guidelines, borrowers
who file bankruptcy or go through foreclosure have to wait
up to 7 years to buy another home.
By contrast, the new guidelines stipulate only a 24 month
waiting period after a short sale, so borrowers who do a
short sale can buy again in just 2 years.
there any advantages to letting my home go to foreclosure
vs. doing a short sale?
I have yet to hear a coherent argument for letting your home
go to foreclosure vs. doing a successful short sale.
Depending on whether you have a recourse or non-recourse
loan, when you let your home go to foreclosure you either
run the risk of being liable for the deficiency amount or
liable for the income taxes on that loss.
Secondly, your credit will drop up to 400 points and you
will not be able to buy a home or get any decent credit for
up to 7 years.
Compare this with a short sale, in which the lender agrees
to SETTLE the debt for less than the amount owed. If you
have recourse loan, you may be liable for income taxes on
the lender’s loss (just as in a foreclosure) but you will
not be liable for the deficiency (and if you qualify for the
“Insolvency” exclusion, you will avoid the income taxes as
Further, the loss that the lender takes in a short sale will
be MUCH LESS than the loss the lender takes at the end of
the foreclosure process. The foreclosure process takes
months & months, at the end of which the lender has to
process the property through its overwhelmed system (another
3 -5 months) and then put the property back on the market,
all while the market continues to drop.
Finally, the impact on your credit from a short sale will be
significantly less than with a foreclosure and you will be
able to buy again within 2 years, compared to up to a 7 year
waiting period to buy a home after a foreclosure.
much will a short sale cost me?
A short sale costs the seller nothing – the lender pays all
closing costs, escrow fees, commissions etc. The lender may
also pay any outstanding property taxes.
long will a short sale take?
The short sale process typically takes about 4 months, start
to finish. It can take longer depending on how backlogged
the lender is. You can live in the property for the entire
duration of the short sale or you can move out whenever you
need to be behind on my payments to do a short sale?
No. This is a common misconception. You do not need to be
behind on your payments or have been late on a payment to do
a short sale although the lenders are more motivated to do
the short sale if you are not making payments.
need to hire an attorney to do a short sale?
It is our belief that you will be best represented in a
short sale by a competent, experienced real estate agent who
works every day in the real estate business, will market
your property aggressively in order to attract buyers, and
who is experienced at doing short sales and negotiating with
If you have questions about the tax implications of a short
sale, we recommend you seek the advice of a qualified CPA or
If you want to explore filing bankruptcy, we recommend you
seek the advice of a competent bankruptcy attorney.
With this said, a word of caution. Many attorneys seem to be
preying on the fear and desperation of people facing
foreclosure. Their websites use scare tactics to make people
think that they would be crazy to do a short sale without
first hiring an attorney, that attorneys are the only ones
qualified to interpret a short sale approval, and that
hiring an attorney is a normal and accepted part of doing a
short sale, like hiring an attorney for divorce proceedings.
The bottom line is that this is just not the case. The
overwhelming majority of short sales are conducted by real
estate brokers who are experienced at negotiating with the
lenders and charge NO UPFRONT FEES for their services.
Finally, many of these attorneys do not even negotiate the
short sales themselves, and instead subcontract out all of
the short sale negotiations. In our opinion, these short
sale negotiation companies (known in the industry as “short
sale mills”) are absolutely the wrong entities to entrust
with the negotiation of your short sale.
will be negotiating my short sale with the bank? Do you do
this in your office or do you sub it out to an outside
Our short sale team consists of licensed California
professions. We have negotiated countless successful short
sales and handle every aspect of the short sale process
in-house. We do not farm any part of the negotiations out to
an outside company and recommend you be extremely skeptical
of any agent or attorney who uses an outside company to
handle their short sale negotiations.
Real estate agents & bankruptcy attorneys are solicited on a
daily basis by the many “short sale negotiation” companies
that have sprung up on the web over the past couple of
years. For the agents or attorneys that use these companies,
it’s a very attractive set up: they just take the listing
and refer the file out to the negotiation company, and wait
to see what happens.
The agent has invested almost no time or effort into the
deal, so if it closes, great, they pay a referral fee to the
negotiator and keep the rest of the commission. If the
negotiator tells them they couldn’t get an approval, or that
the bank wants an unreasonable amount of money for the
property, or the bank wants the seller to sign a promissory
note, well, the agent has invested almost no time or money
into the deal, so…who’s next?
I file bankruptcy? Will it allow me to keep my home? I’ve
heard the lender cannot foreclose if I file bankruptcy.
There are 2 types of bankruptcy commonly used by individuals
– Chapter 7 (“Fresh Start”) and Chapter 13 (“Wage Earner”).
Chapter 7 can enable individual filers to wipe away debts
such as credit card and medical bills so they can continue
to make their mortgage payments.
Chapter 13 involves setting up a 3-5 year repayment plan to
repay your debts. Chapter 13 requires that you are earning a
steady income, as you will be repaying all of your debt.
Both have a very negative impact on your credit and remain
on your credit report for 10 years.
Because of the new 2005 bankruptcy law, which raised the bar
for people to qualify for Chapter 7 "fresh start" bankruptcy
proceedings, fewer and fewer people pass the “means” test to
qualify for Chapter 7 and for this reason can only qualify
for Chapter 13 bankruptcy (a 3-5 year repayment plan).
While both Chapter 7 and Chapter 13 can temporarily delay
foreclosure proceedings, neither will allow you to keep your
home unless you can bring your mortgage current.
If you would like more information on whether a bankruptcy
is right for you, we recommend you consult a competent
bankruptcy attorney, as we are not attorneys and do not
dispense legal advice.
Can any agent do a short sale?
Absolutely not. Many agents have no interest in doing short
sales because they require a tremendous amount of time and
expertise, and if you do not know what you are doing, they
often go to foreclosure and then the agent does not get
paid. If an agent is not extremely experienced at doing
short sales – in other words they have done at least 50 of
them successfully in the past 2 years – then I would not use
Lest you think I am simply trying to toot my own horn, this
site gets visitors from all over the country. In every
market, there are agents who specialize in short sales and
have a team of staff members assembled to work on them, and
then there are agents who are inexperienced at short sales
and just recently started trying to do them, learning as
they go, because they’ve realized they have no choice due to
the state of current market.
You get one shot at doing a short sale – if your agent does
not know what they are doing and has not learned the many
tricks to the trade, you will likely find yourself being
asked to sign a promissory note or worse, be denied by your
lender or lenders and go to foreclosure.
In other words, let the inexperienced agents and/or
attorneys learn the short sale process on someone else’s
property – as the saying goes, don’t allow yourself to be
one of the surgeon’s first patients.
Your inquiry will be submitted to Midas Realty Group.
The Broker of Midas
Realty Group, Dawn Anderson has been in the mortgage / finance /
real estate industry since 1997. She has worked as a Mortgage
Broker and as a Real Estate Broker so she has vast knowledge and
experience in all aspects of the financing and marketing or
residential real estate.
Dawn was first
licensed by the California Department of Real Estate as a
salesperson in 1999 and then obtained her Broker's license in 2000.
She is an active member of the National Association of Realtors,
California Association of Realtors and is a member of various local
associations including the Orange County Association of Realtors,
Northern San Diego County Association of Realtors and The Inland
Gateway Association of Realtors.
She is a member of the ASREOS (American Society of REO Specialists)
and REBAC (Real Estate Buyer's Agent Council). Through ongoing
education Dawn has earned the following designations:
ABR® Accredited Buyers
Certified Distressed Property Expert
CHS® Certified HAFA Specialist
SFR Short Sales and
Foreclosure Resource certification by National Association of
REO Default Certified Professional
National Association of
REALTORS® Technology Certification Program
SRES- Senior Real Estate
Many loan officers
and Realtors say they know a lot about short sales, but don’t know
how to the short sale process works or even why a short sale is a
better alternative to a foreclosure. A short sale is an
extremely important transaction that should be handled by a trained
and experienced professional. By achieving the designation of
CDPE (Certified Distressed Property Expert) and as a Realtor® that
has successfully closed short sales, our broker has the training and
the experience you need in order to guide you through this process.
Your first step is a phone call to discuss your situation and to
evaluate your available options. Please call today
800-546-2289 to discuss your unique situation.
Dawn Anderson ABR®, CDPE®, CHS®, RDCPro™,
Broker- Midas Realty Group
CA DRE License #01258205
Midas Realty Group- 800-546-2289