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Frequently Asked Questions about Short Sales


Q. Why do I have to submit a Short Sale package?

A. In short, because lenders require it. Lenders need to have a compelling reason to work with the seller. By providing tax returns, bank statements, pay stubs and other forms of household income and expenses along with a detailed hardship letter, the lender has a true and accurate picture of the sellers' circumstance. IFR works with sellers to complete a thorough and effective Short Sale package.

Q. Will a Short Sale hurt my credit?

A. The term "Short Sale" is not reflected on the sellers credit report. Many times a Short Sale is reported as "Paid-Settled" which will most likely lower the seller's credit rating. The alternative, however, would be foreclosure which can significantly damage a seller's credit rating for years to come.

Q. Will a lender forgive the outstanding balance owed upon accepting a Short Sale?

A. During the short sale process, IFR negotiators request that the lender forgive the balance owed and not pursue the seller for deficiency. If the lender agrees, then the release is confirmed in writing prior to the payoff. If the lender does not agree, it will be the seller's decision whether to proceed with the Short Sale or not. IFR recommends that a seller consult with a knowledgeable attorney and a tax specialist prior to accepting a Short Sale approval.

Q. Will the bank pursue me for the differences I owe?

A. It depends. The main factor that determines if a bank will pursue the difference depends on the type of loan on the property, recourse or non-recourse. IFR recommends that a seller consult with a knowledgeable attorney to make this assessment. IFR negotiates with our clients' best interest in mind and seeks to obtain a release of future liability in writing from the lender.

Q. Does a "hardship" have to be present for a Short Sale to occur?

A. Generally yes. For most lenders a Short Sale is for people suffering financial and/or personal hardship(s) and not simply an escape from a bad investment or an ill-suited loan. However, some lenders have taken more of a financial approach and are more likely to approve a Short Sale when it makes financial sense to do so. In either scenario, IFR helps our clients submit a compelling hardship letter to demonstrate the difficult hardships that exist for our clients.

Q. Can I sell my property for any price?

A. No, lenders research comps in the area and will generally not accept an offer that is below the market value. In general, if your lender believes it is better off financially to foreclose, it will do so. A lender can also proceed to foreclose if the seller does nothing, submits an incomplete Short Sale packet, or submits unreasonably low offers. IFR works with the Listing Agent and the Buyer's Agent to ensure all parties have the information they need to close the property as quickly as possible.

Q. Will I get any money from the Short Sale?

A. Not usually. Most lenders will not allow a seller to receive any money from the transaction because the lender is taking a loss. If the lender thinks the seller is getting paid from the sale, then most will terminate the Short Sale. However, there are circumstances when a seller could be paid relocation costs under the HAFA program. While IFR cannot negotiate for proceeds from the sale to go to the seller, IFR does negotiate with the lender for the best possible credit reporting for our clients.

Q. Are there tax consequences to a Short Sale?

A. To determine the tax consequences each seller must consult with the IRS and/or a tax specialist. The tax consequences could vary taking into consideration the recent passage of the Mortgage Forgiveness Debt Act and California's most recent legislation (SB 401).

Q. Can you gaurantee that my lender will accept a Short Sale?

A. While IFR makes every effort to negotiate effectively with lenders no guarantee can be made that lenders will accept a Short Sale offer. IFR makes it a point to shoe the lender why it is in their best interest to accept the Short Sale and close the sale.

Q. How long is the Short Sale process?

A. A Short Sale transaction generally takes between 3-6 months to complete, but it ultimately depends upon your lender. Some lenders respond very quickly while others require consistent follow-up. IFR ensures your file does not get forgotten.

This information provided is for informational purposes only. IFR recommends each individual consult with a knowledgeable accountant or attorney as to how a Short Sale may impact them.

HAFA Program: Will It Help?

Q. What Is HAFA?

A. HAFA stands for Home Affordable Foreclosure Alternative Program. HAFA is a program under the Home Affordable Modification Program which is an effort by the U.S. Treasury to avoid foreclosures and encourage Short Sales and Deed-in-lieu transactions.

Q. Who Qualifies?

A. To be considered for HAFA the borrower must also qualify under HAMP. The HAMP requirements include:

  • The property must be the principal residence
  • The mortgage must be a first-lien mortgage which originated on or before January 1, 2009
  • The loan must be delinquent or default is reasonably forseeable
  • The unpaid balance on the loan must be under $729,750
  • The borrower's total monthly mortgage payment must exceed 31% of the borrower's gross income

Q. How does HAFA help?

A. HAFA institues the following requirements:

  • Requires the borrower to sign a Short Sale Agreement which is valid for 120 days. Theoretically this is the timeframe in which a Short Sale is to be completed.
  • When a buyer is found and the appropriate documents are submitted the lender has 10 business days to approve or deny the Short Sale.
  • Information provided by a borrower who has already applied for HAMP is to be shared with HAFA to eliminate duplicate information requests.
  • If a successful Short Sale is completed the borrower can receive $1500 in relocation costs.
  • Any pending foreclosure must not proceed during the term of the Short Sale Agreement.

Q. Will HAFA help me?

A. It depends on a number of factors:

  • If You Qualify Under HAFA. You must meet each of the requirements noted above to qualify.
  • Your Lender. HAFA does not apply to loans owned or guaranteed by Fannie Mae or Freddie Mac. However, a servicer can "opt-in" to participate in the program.
  • Number of Loans on Your Property. The biggest hurdle in completing a successful Short Sale is obtaining agreement between multiple lienholders as to payoff amounts and potential deficiency issues. HAFA provides for minimal payments to be made to junior lienholders while requiring a full release of all claims and liability relating to the lien. Unfortunately HAFA does not address the biggest issue that impedes a successful Short Sale.

Q. How can IFR help?

A. IFR provides the attention to detail, follow-up and negotiation power to work directly with all lenders to seek resolution in the best possible terms for Short Sale sellers, whether your Short Sale is part of HAFA or not.

For more detailed information regarding HAFA please refer to Supplemental Directive 09-09 provided by the U.S. Treasury




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