What Is a Short Sale?
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A short sale is the process by which the bank allows a homeowner to sell their home for less than what is owed.  The bank then agrees to take the loss on the property and the Seller usually will not be required to bring any funds to closing.

River City Real Estate offers short sale services to our clients.  We work with lenders on a regular basis to try to procure short sales with the best possible terms.  Whether it's with our company or another firm, we HIGHLY recommend you seek the services of a qualified Short Sale service to help negotiate terms.  Often times lenders will be unwilling to work with a borrower directly, but happy to work with us.  If you have questions you can call the head of our Short Sale Department, Eric Stegemann direct at (636) 757-9600.  The fee for our services is usually paid by the lender.

A Typical Example:

In some cases, a lender will ask a borrower to cover a portion of the outstanding balance at closing, but it's rare.  More common, the lender will ask the homeowner to sign a note for a portion of the difference, usually around $5000 paid over 15 years.  However, having a good short sale coordinator like River City Real Estate can help to lower or reduce these requirements entirely.

Do I Have to Pay Taxes On the Difference:

If the home is a primary residence, the 2007 Mortgage Forgiveness Debt Relief Act of 2007 , states that no taxes (up to $2million) must be paid on the difference between what a lender is owed and what the lender receives as payment.

If the home is a rental property in most cases taxes must be paid on the difference.

The Short Sale Process
Unfortunately, obtaining approval for a short sale is a waiting game.  With larger lenders there are numerous parties involved that must sign off.  Due to the fact that most loans are owned by investors, the investors must be contacted through their representative to agree to accept less.  This means it can take as long as 30-45 days to get a short sale approved, and that's with constant contact of a short sale coordinator.

1. Speak With A Short Sale Coordinator - Although you can try to negotiate a short sale on your own with your lender, we don't advise it.  The process is long and difficult, many road blocks are thrown at you.  The key is to know how to get around them.  By utilizing our services at River City Real Estate, we can help negotiate the process for you.  If you want information, you can call our short sale coordinator at (636) 757-9600

2. Gather Necessary Documents - To even be considered for a short sale we'll need to provide the bank the following documents:

• Last Two Paycheck Stubs for each borrower
• Last Filed Tax Return for each borrower
• Last Two Bank Statements
• Hardship Letter - an informal letter explaining why you are unable to make your payments and why you must sell your home
  (Examples: Divorce, Lost Job, Job Transferred, Family Grew)
• Statements from any non-retirement savings / investment accounts
• Personal Financial Statement (ask us for this form)
• Short Sale Authorization - form that allows us to try to procure a short sale approval on your behalf (ask us for this form)

3. Send Documentation to Lender - It's very important that all the above documents get to the right department.  Each mortgage lender has a loss mitigation department that works with short sales.  It's important that the documents get faxed to that number and that you follow up 2-3 business days later to make sure they were received

4. List Your Home With a Realtor - Most lenders will require you to list your home with a Realtor to get full exposure for sale.  The lender will not directly approve a short sale until an offer is submitted.  This offer usually must be made on a standardized Realtor sale contract.  Most lenders require that a Realtor make not more than 5% total commission on the sale of a property plus a small fee for negotiating the short sale.

5. Submit All Offers UNSIGNED to Your Lender - A common mistake of non-experienced Realtors is to get you to sign any offer that comes in before sending them to the bank for approval.  Most MLSs including MARIS, the St. Louis based MLS, require that if a seller signed a purchase contract, that the status of the property must be changed to pending sale or contingent.  This minimizes the potential for future offers.  At River City, we ask all potential Buyers to submit offers on short sale properties with a contingency for bank approval as well as offer an extended response period of usually around 21 days.  This allows the bank enough time to get a response.  A short sale coordinator will work to provide the lender what is called a preliminary HUD statement.  This document shows the lender what they will net after all fees are paid.

6. The Lender will perform a BPO or Broker Price Opinioin - A broker price opinion is similar to an appraisal.  The only difference is that a real estate agent will perform the valuation instead of a licensed appraiser.  This saves the bank money.  A typical BPO costs the bank around $50 whereas an appraisal might cost $350.  Sometimes the BPO will be done "exterior only" meaning the broker will drive by the house and just use numbers from the computer to suggest a value.  Sometimes the BPO will be "interior and exterior" requiring that the broker enter your home to conduct a full BPO.  If you are working with a short sale coordinator they should also provide a valuation without being requested to the bank stating why they should accept the current offer.

7. The Lender Makes a Decision - After the BPO is complete, the lender can take 1-3 weeks to speak with necessary parties to make a final decision.  It is often at this time, they will negotiate with the Buyer for a higher price, request that the homeowner take back a note, or ask the Realtors to take a commission reduction.  A good short sale coordinator will work with the lender to procure the best possible arrangement for the Seller.

8. Sign the Documents and Go to Closing - After the lender approves in writing the short sale with an offer, the Seller should only then sign the documents.  This process protects the seller from the lender changing their mind (they have ever right to withdraw prior to issuing an approval in writing).  The homeowner is still responsible to go to closing and sign the documents.  In most cases there will be a $0 balance at the bottom of the HUD statement, and the Seller will have sold the property without a foreclosure on their credit.

Credit Consideration:

Although a short sale is NOT a foreclosure and should not be listed as such on your credit statement, you are still not paying the lender as agreed.  In most short sale situations, the bank will mark "Not Paid As Agreed" on your credit statement.  This means it will be difficult to obtain credit through regular channels for around 2 years.  However, this is much better than a foreclosure which might prevent you from purchasing a new home for up to 7 years.  During this time we suggest you participate in Omega Lending's Alternative Financing program where credit is offered to anyone regardless of participating in a short sale or foreclosure.