How Will a Short Sale Affect My Credit?

Q&A

1. Is a short sale a good option for me?

Only you, your attorney and/or your tax advisor can determine this answer. Short Sale Nation is here for you if: a. You have considered all of your options and have made a commitment to sell your home. b. You have determined that you are not in a financial position to cure the debt at the sale of your property. c. You must sell your home and it is worth less than you owe.

2. How will a short Sale affect my credit?

Among other reasons, your credit can be affected by late payments, foreclosure, bankruptcy and a short sale, etc. You need to weigh out those affects and come to an informed decision. When a short sale is reported by your lender, it typically is recorded as a “satisfied” debt instead of a “paid in full” debt on your credit report. When you go to purchase another property in the future, it is up to the lender how they evaluate your credit and any items that appear like a foreclosure or a “satisfied” debt.

3. Do I need good credit to do a short sale?

Unlike a refinance, you do not need good credit to negotiate a successful short sale.

4. How long does it typically take to do a short sale?

Depending on your lender’s process time and the amount of the offer, it can take up to several months to complete a short sale.

5. What if my home is in foreclosure and the auction date is coming up? Can I still do a short sale?

Here are some things to keep in mind regarding postponing a foreclosure auction on your property:

  1. Typically banks will postpone a foreclosure sale if you are in the short sale process. This requires having a buyer so that you can submit a purchase and sale agreement to the bank.
  2. Typically banks will postpone if you do a forbearance or other loan workout. The short sale can be in process simultaneous to other programs in most banks.
  3. Bankruptcy will postpone a foreclosure sale.
  4. If all else fails, begging sometimes works.

6. What if I don’t have a buyer for my property…can I still do a short sale?

You can not submit a short sale offer to your bank without a buyer. You and your agent need to work hard and set the price right to get a buyer. It should be noted that some banks will allow an assignment of the purchase and sale over to another buyer.

7. If I’m not behind on my payments, can I still do a short sale?

Yes it is possible to do a short sale without missing any payments. Be prepared however for the process to possibly take longer and be more difficult. The bank knows that if they stall a few months, that’s just more payments you’re making on the loan and they wouldn’t have gotten that money otherwise if they had accepted the short sale when it was first presented. The bank may also look to you to help repay at least some of the deficiency.

8. If my lender rejects the offer, what do I do?

There are some things you can try if your buyer’s offer is rejected:

  1. Ask to speak with the supervisor. Explain the situation, especially if the offer you have is a good offer and backup offers are unlikely.
  2. Ask the bank to have an onsite BPO or appraisal done. This allows a trained eye to examine the property onsite and get a better idea of its value, rather than the bank’s opinion of the value based on comparables only.

9. Every time I call my lender, I can never reach the processor assigned to my account. How should I proceed?

Try and try again. It is rare that you call and get the same representative on the line twice. So perhaps the next one will be able to get you through to your processor. You should keep in mind however, that the representatives make notes each time they open the file. So you don’t want to overdo your persistence.

10. I just filed for bankruptcy; can I still do a short sale on my property?

Yes and you should consult with your bankruptcy attorney to determine your best course of action.

11. The 2nd lien holder said they require more than the 1st lien holder is willing to pay. What do I do?

You should ask the 2nd if they are willing to accept the balance over the amount on the HUD that the 1st is willing to pay, in a note. This will require you to pay them on a payment plan or lump sum before, at closing or after closing on a payment schedule.

12. How much money do I need to come up with to do a short sale?

Depending on your lender’s requirements and your financial position, you may not need to come up with any money. However if your lender requires something from you to close, you will need to come up with that amount.

13. What is the difference between a BPO and an appraisal?

BPO stands for Broker’s Priced Opinion. This can be requested by the bank or by you. It is an evaluation of your property’s value based on comparables and perhaps a cursory onsite evaluation. A BPO ordered by the bank will not cost you anything. A BPO by your realtor usually doesn’t cost you anything either. An outside request from a realtor for a BPO can cost around $50 - $150. An appraisal is done by a licensed appraiser who is held to strict standards they have to abide by for evaluating property value. Their opinion is of the standard that banks utilize appraisers for property values when they are placing loans…and sometimes when they are evaluating short sales.

14. I’ve insisted on speaking with a supervisor and haven’t been able to get anywhere on this short sale. We’ve been working on this for months and I’m about to lose the buyer. What should I do?

Sometimes there comes a point when you feel like you’ve done everything you can do. There are attorneys who can step in to try to complete the short sale from a position of “legal representation”. Short Sale Nation can refer you to attorneys who come in during the final push to complete a short sale. They charge the bank between .5% - 1% and you would not be paying them anything. Click here to see the attorneys in your area who could assist you.

15. There is an IRS lien on my property. What should I do?

The IRS has recently announced a new plan to help distressed homeowners restructure through refinancing or selling. The IRS will consider subordinating it's lien against the property, or removing the lien entirely if the homeowner is in a short sale position and selling the home for less than the amount of the mortgage lien.