Short Sale FAQs

Frequently Asked Questions about Short Sales

What is a short sale?
A short sale is a facilitated settlement where the lender agrees to accept less than the amount owed as a payoff on a loan.

What is loss mitigation?
Loss mitigation is a process that may allow a homeowner to avoid foreclosure. Loss mitigation can be conducted through a third party assisting a homeowner, a division of the lender who attempts to mitigate the bank’s loss, or a negotiator who works with the homeowner and the lender. Loss mitigation seeks to arrange the terms of the mortgage to prevent loss by renegotiating loan terms; negotiating a short sale; or arranging a deed in lieu of foreclosure, a partial claim loan, a repayment plan, forbearance or other loan workout. All of the options can stabilize the homeowner’s financial situation as well as lower the lender’s risk of loss.

When should a homeowner consider a short sale?
A short sale should be considered if the Florida homeowner is delinquent or imminently close to being delinquent with their mortgage payment. In addition, consider if the homeowner has a qualified hardship such as: unemployment or a reduced income, divorce, an out-of-town job transfer, bankruptcy, death, medical bills, or is a member of the military who has been service-transferred. While there are no guarantees, circumstances such as these may help in qualifying a homeowner for a short sale.

How difficult is it to process a short sale?
It isn’t easy. In most cases, a short sale will involve more details and paperwork than a traditional transaction. The sale itself will require at least the same amount of time, energy and expense normally used to sell a home. In addition, instead of the current Florida borrower/seller providing proof of credit-worthiness, he or she will usually need to prove the lack of financial stability to deserve special consideration. After all, if the lender thinks there are other means to pay off the loan, the lender will not willingly accept less. For all these reasons, it’s smart to turn to NASSA to take care of your short sales customers.

When should I start a short sale?
It is best to begin a short sale when you realize the Florida homeowner can no longer afford their mortgage. The property can then be marketed properly and you can receive the best offer. Contact NASSA to see if you have enough time.

How long does it take to complete a short sale once NASSA has all the paperwork?
Typically, transactions are completed within three to four months. However, they can take longer. If you have a foreclosure sale date approaching, let us know so we can take appropriate actions to process a successful short sale.

Why would a lienholder accept less than the outstanding debt?
After the lender does an appraisal on the property and discovers the value is less than the payoff amount, the lender then decides if it is worth further legal action and cost. A business decision is made to either continue the foreclosure action or accept the short sale offer.

Why would the lender want to allow a short sale?
The reason is simple: A short sale may have a better return on investment to the lender than a foreclosure. In addition, lenders are usually paid on the loan earlier than in the foreclosure process. This allows lenders to collect and cash out earlier than they may in a foreclosure. Furthermore, lenders spend a great deal of money with attorneys to complete the foreclosure process. Lenders created the short sale process as a foreclosure alternative for these reasons.

What liability does my customer have when doing a short sale?
In a short sale, the bank could issue a Form 1099 to your Florida customer for the difference in what the property sold for and what the customer owed on the loan. This means the IRS could consider the difference as income, and the customer could be taxed on that income. The bank also might ask the customer to pay a portion of the difference back in the form of an unsecured note. When working with NASSA, we facilitate and attempt to have the bank consider the debt settled with a satisfaction of the mortgage.

In a foreclosure, the house is sold at an auction. This process typically causes the difference of the total amount the customer owes and the foreclosure sale price to be much greater. This means your customer may have a higher potential tax liability. Additionally, the bank may pursue a deficiency judgment against the customer.

Although there are no guarantees, a successful short sale could eliminate a deficiency judgment, minimize tax liability, and keep a foreclosure off the customer’s credit report. For more information on deficiency judgments and potential tax liabilities, the customer should consult with an attorney or tax professional.