What is a short sale?
It is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. [1]
Which banks does Clear Short Sales negotiate with?
The majority of the deals we do are Bank of America short sales. JP Morgan Chase and Wells Fargo short sales have been on the rise as well with CitiBank and Ally/GMAC lagging behind.
We employ people that did short sales for all these banks.
We do see a lot of Bank of America short sales because they are the least cooperative of the banks. But due to our knowledge and expertise we have been known to cut weeks even months from getting approvals. In some circumstances we have been able to get approvals within 2 weeks from contracting with agents.
Why would a lender agree to accept a short sale?
The lender can bring about foreclosure. But in 20+ states the foreclosure can be rough about by tax lien holders, HOA’s, management companies, and mechanics liens and judgments. If at the Sheriff’s Sale no one buys the property at sufficient enough amount, the property is taken back by the bank to become an REO (real estate owned) and becomes the responsibility of the lender. The lender ends up taking on the responsibility and liability of the property and its sale. Further more those properties decrease the borrowing power of the lender.
What options does a bank have when the borrower does not pay on their loan?
Restructuring loan should be the initial attempt. This requires the values of the properties be within range and borrower’s income and borrowing power to be sufficient to gain the restructuring.
Short Sales are an attempt to resolve unpaid debt by selling the property at current market value. The sale covers a portion of the outstanding loan, the borrower does not gain from the sale.
Foreclosure proceedings are a way for lender to proceed with selling the property at a Sheriff’s Sale to either take position of the property through REO or sell the property to an interested party.
Deed in lieu of foreclosure is when the borrower signs over the property to the lender in an attempt to satisfy the loan which in sin default. This impacts the borrower less then a foreclosure but more then a short sale. The bank gets the property on its REO books carrying a higher liability and decreasing borrowing power.
Can a real estate lender obtain a deficiency judgment against a defaulting borrower following foreclosure or short sale?
A borrower is more likely to get deficiency judgment for foreclosure then short sale. Why? They did not try to make amends with the bank and work on resolving a contract, in good faith.
Never just walk away. Always try to restructure and short sell. Deed in lieu of foreclosure, should be the 2nd or 3rd attempt is settling the debt.
There are also, 12 non-recourse states where statues prohibit lenders from seeking judgments, 6 states that limit the number of attempts the lender can make in collecting the debt, 7 states that make deficiency judgment very easy, and most state have statues of limitations for collecting on judgments and cap the amounts that can be sought.
A little ignored secret: once your largest asset, a home, is sold more often then not you become insolvent, in that case cancelation of debt, 1099, is not considered income and is not taxable. Of course we cannot speak to every single case, as there are many caveats to that secret, a good tax accountant should always be contacted for advice in your state and your special case. Be vigilant of new legislation and IRS breaks the come up periodically, there was a 2-year moratorium on deficiencies that recently expired and there is talk of more such legislation.
