FAQ - Short Sales in San Francisco

FAQ - Short Sales in San Francisco

What is a Short Sale?                          For side by side comparison of Short Sale vs. Foreclosure click here
Do I qualify for a Short Sale?
Why and how do some people get into Short Sale situations?
How do I select the right Realtor® to successfully manage and negotiate my Short Sale?
Why should I hire your team to manage and negotiate my Short Sale?
Do you work with all banks?
How long does it take to complete a Short Sale?
How do Short Sales work?
Are there any fees or costs associated with doing a Short Sale?
Are there any tax ramifications to a Short Sale?
Are there any credit consequences to a Short Sale?
Why exactly would a bank agree to a Short Sale?
Can the bank sue me or place a judgment against me for the difference between what I owe and what the home sells for?
Another Realtor told me Short Sales rarely close and banks don’t approve very many of them. Is this true?
I’m behind on my payments, how long until the bank forecloses on my home?
When should we begin working on the Short Sale together?

What is a Short Sale?

A Short Sale is the sale of a home or condo in which the owner owes the bank more than the home is worth. The bank agrees to allow the home to be sold for less ("short") than what is owed.  You could have more than one loan and lender, in which case you may even only be "short" on one loan.  You might also owe the bank the exact amount that the home is worth, but you would be "short" because you would need to pay sales commissions and other fees to sell the home.  To read the pros and cons of short sales click here.

Do I qualify for a Short Sale?

A good Short Sale candidate has no equity in their home. They are not able to sell their home and pay off all of the outstanding loans/debts that are secured against their property.  An example: you bought an $800,000 Condo with 10% down.  Your neighbors' condos are selling for less than $700,000 now.  With $720,000 in loans, you either need to come up with cash to be able to sell, or you need the bank to take the loss.

If you owe more against your home than it is currently worth and want or need to sell it but can’t or won’t bring cash to Closing to make up the difference between what you owe and what your home is worth, then you are a prime candidate.

Why and how do some people get into Short Sale situations?

 1. You may be unable to keep up with all of your monthly obligations due to job loss or other sudden change in monthly household income like divorce, illness, law suits, tax burden, a slow down in your business, etc.

 2. You are not YET behind on your monthly mortgage payment but know that you will soon be unable to keep up with all of your monthly obligations and therefore in the near future will not be able to afford to keep your home.  Many people see their credit cards get out of control as they place their mounting bills on them just to keep up with their mortgage payments.  Eventually this catches up to you.

 3. You are NOT behind on your monthly mortgage payment but need or want to move. Reasons could include a job transfer, the need to move closer to family, a health reason, retirement, etc.

 4. You may or may not be behind on your monthly mortgage payment yet, but you have come to the conclusion that staying in your home is not a good “business decision” or “financial decision.”  We are all hearing stories of people just walking away and letting the bank foreclose.  But a Short Sale may prove to be a better option for you.

How do I select the right Realtor® to successfully manage and negotiate my Short Sale?

Before hiring just anyone to Short Sell your home, make sure they understand all the work that is required to see it through to the end. A properly trained Short Sale Agent knows how to qualify you for a Short Sale transaction and therefore has a very high success rate. In fact, just by the qualifying questions they ask you (or don't ask) you'll weed out many unqualified agents.  Most Real Estate Agents do not understand how to qualify you or your lender for a Short Sale success. Some Sellers simply don't qualify.  (find out if you qualify here) This is one of the reasons San Francisco only had a 50% success rate with Short Sales in 2009, with many agents having far less success. 

Be smart and make sure that you ask many questions before trusting your future, your credit and your financial situation with a so-called expert.

Why should I hire your team to manage and negotiate my Short Sale?

For one, we won't take your Short Sale on unless we know we will have a good chance of success.  Secondly, we'll decide together if it's best if we personally handle your short sale, or contract it out to a firm that specializes in Short Sales.  Every case is different and we'll make sure we choose the one that best fits your needs.  Thirdly, there is a stigma in San Francisco with Short Sales because so few agents understand them.  We have a system for overcoming that stigma and getting your home considered by more buyers and agents so that you get more and better offers which helps with the 90+% success rate.

Do you work with all banks?

Yes.

How long does it take to complete a Short Sale?

It usually takes approximately 5-7 months to complete a Short Sale from initial contact with you as the customer to Closing.  Some do take longer, and occassionally it can be a bit shorter. The key is that we will keep you constantly informed and you will have plenty of time to plan your next more.

How do Short Sales work?

There are several stages of the Short Sale process:

1. The first stage is for you, the homeowner, to get all documentation that your bank will require us to send them – this is "the Short Sale Package". Tax returns, recent bank statements, and a few other items are required.  This stage lies solely in your hands, but we will help guide you on what's needed. (to get started please complete the Short Sale Request Form here)

2. The second stage is to schedule an appointment for us to see your home, sign a Listing Agreement, and for us to prepare your home for sale. This stage only takes a few days as well, and we do all of the heavy lifting.

3. The third stage is our area of expertise - aggressive marketing of your home to produce a ready, willing, able, and most importantly - a committed buyer. This stage can take as little as a few days or as long as a few months. Priced right we should receive a good offer within 30 days or so.

4. The fourth stage is presenting the offer to your bank. For this we rely on the expert 3rd party company we hire and who the bank pays.  Their expertise and experience in negotiating Short Sales gets the job done faster than any one agent could do with a far above average success rate. The actual negotiation/approval process can take as little as 30-45 days or as much as 90+ days. On average most Short Sales take between 60-90 days from the date the offer is presented to the lender to the date of the Short Sale approval.  This is usually a time consuming and exhaustive process involving an enormous amout of phone calls, emails, and faxes back and forth between the lender and our negotiation firm. Because they are on the phone with nearly every bank almost every day, they get the job done faster and more efficiently then you or I could do.

5. The final stage of the Short Sale process when the Bank provides a Short Sale approval letter that you then approve.  The buyer then proceeds to Close on the home like they would any other home purchase.  Some times buyers will close in as little as 10 days after approval, and usually not more than 30 days.  If you are still living in your home at time of Short Sale approval, it is imperative that you move out within 2 weeks from Short Sale approval.  We can help with moving recommendations, finding a new rental home, and more.  And we'll have alerted you before hand than "approval" could be any day, so you should have ample time to prepare.

 

Are there any fees associated with doing a Short Sale?

None that are Short Sale specific that are paid directly by you.  We and your lender pay all Short Sale specific fees and many of the regular sale fees.  For example we include a 6% commission (normally paid by the Seller) in your Listing Agreement but the lender pays for this fee.  There are also Short Sale processing fees but we pay those.  As you might imagine Short Sales are expensive and time consuming to do, and since we only get paid if your Short Sale is a success we only work with Sellers who are motivated and qualified.  To get qualified by us please complete the Short Sale Request Form

Having most fees normally assoicated with a home sale paid by others is one of the primary benefits of a short sale.  See "benefits to a Short sale" here.

 

Are there any tax ramifications to a Short Sale?

There may be tax ramifications to a Short Sale but since we are not certified Tax Professionals or CPA's we strongly recommend you seek professional advice.  What we can tell you is that there is a LOT of false information out there, including this advice, "Don't do a short sale because you will get a 1099 and have to pay taxes on the difference between what you owed on your home and what you sold it for or the amount the bank wrote off." This may be true, but it is not the whole story…

While the forgiveness and/or cancellation of a debt may result in a 1099, the thing that most people don't know or don't tell you is that with a Foreclosure, you will also get a 1099. In the case of a Short Sale it is called a 1099-C and a Foreclosure it is a 1099-A. So what's the difference between a 1099-C and a 1099-A? The 'C' stands for "Cancellation of Debt" and the 'A' stands for "Acquisition or Abandonment of Secured Property".

It is important to know that while there are many differences, the tax consequences for the 'C' and the 'A' are the same. You may not even be required to pay taxes on the 'income' as shown on the 1099-C, but don't just assume that you won't have to pay. While we are very good at successfully closing Short Sales, we are not tax experts and will not, and can not, advise you in this area.  Please also don't listen to any real estate agent who isn't also a trained tax professional.

Before making a final decision on a Short Sale, first consult a CPA or Tax Preparer/professional.  After you submit the Short Sale request form we will provide referrals to various professionals.

The Mortgage Debt Relief Act of 2007 provides relief to many, many homeowners. For more information on the Mortgage Debt Relief Act, how it works, who it applies to, and more, please read more directly from the IRS website by clicking here.

 

Also note, that when the Lender does have the right to go after you for a deficiency, in the vast majority of cases the bank will collect more via a Short Sale than a Foreclosure in which case you would be less defiicient with a Short Sale.  

 

Are there any credit consequences to a Short Sale?

Yes, your credit score will be hurt.  However, many believe a Foreclosure hurts it more.  Either way, when you go 30+ days behind on your mortgage payment, your bank has the right to report to all of the credit bureau’s that you are 30 days behind on your payments. When a late payment is reported to the three major credit bureaus it does effect your credit scores. After going through a Short Sale or a Foreclosure, most people have multiple 30, 60, and 90+ day late payments reporting on their credit report.  The shorter the period of missed or late payments the better, and with foreclosures taking an average of more than a year around the country you should have far fewer missed payments, and therefore dings on your credit report, with a Short Sale.

When the actual Short Sale is completed, most banks will report to your credit report that your account was “paid in full for less than the full amount.” Your credit report may also be marked as “settled.” It is important to keep in mind that each lender has a different way of reporting that a Short Sale was done, but this is the most common language that is seen. If your home were to go to Foreclosure you would most often see the bank report “Foreclosure” on your credit report.

It is difficult to gauge how much of a credit scoring affect a Short Sale has vs. a Foreclosure. Credit experts will agree that neither a Short Sale nor a Foreclosure is favorable to your credit or credit score, however, the impact of a Foreclosure is usually worse. We strongly advise you to work with a Credit and Credit Scoring Expert for more specifics on this topic, and ways in which to improve your credit after the Short Sale is complete.

When you are able to Short Sale your home without ever missing a payment, and therefore do not have any late payments reporting on your credit your credit score won't be hurt until the Short Sale is reported. You will still likely have your account marked as “paid in full for less than the full amount” and/or “settled” but some people who have gone through Short Sales are reporting fairly minimal impact to their scores.

Why exactly would a bank agree to a Short Sale?

It is much more cost effective for a bank to do a Short Sale rather than Foreclose on a home. Banks are not interested in owning real estate. Banks make their money from receiving monthly mortgage payments. While banks will take a loss doing a Short Sale, they can often minimize their loss by as much as 10-40% over a Foreclosure.

Can the bank sue me or place a judgment against me for the difference between what I owe and what the home sells for?

This is a good question that is best answered by a qualified Real Estate Attorney.  Whether your home is foreclosed on, or you sell via Short Sale, there are situations where a lender can sue you.  So it is critical that you consult an attorney so tey can review your exact situation.  Whether or not you ever refinanced, or had a HELOC you used, whether you bought as an owner-occupier or as an investor, and many other factors that vary from owner to owner all effect your situation.

Another Realtor told me Short Sales rarely close and banks don’t approve very many of them. Is this true?

It is true that many agents don't know how to close short sales - and don't know which ones that don't have any chance of closing.  So the San Francisco short sale success rate in 2009 was roughly 50% with some agents trying to do multiple short sales and not being able to close one.  When we take on your Short Sale we are confident it will have a better than 90% chance of Closing.

I’m behind on my payments, how long until the bank forecloses on my home?

In California banks can file a Notice of Default after 4 months of non-payment.  After that, it's all over the map how long it takes before the bank will complete the foreclosure by selling your home on the Court house steps (to someone else, or to itself).  We've heard the average time to foreclose in California is 13 months.   

It is important to know that if you are working on a Short Sale, it does not mean that the lender will put a “stop” on the foreclosure process. Most lenders will continue with foreclosure proceedings even if a Short Sale is being reviewed or worked on. However, it is also possible to get a foreclosure sale date postponed/delayed by proactively negotiating with the bank and all involved departments. 

When should we begin working on the Short Sale together?

Ideally we would like to begin working on your Short Sale as soon as possible! If you recognize that you are unable to keep up with your payments and will be falling 30+ days behind please contact us immediately. The important thing for you to know and keep in mind is that the sooner we begin working with you on the short sale process, the more you increase your chance of a successful closing. Don’t wait any longer. Act today by submitting the Short Sale Request Form by clicking here!

 

Contact Information

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SFisHOME Real Estate Group
Pacific Union Real Estate
One Letterman Drive
San Francisco CA 94129
415-366-8218
Fax: 415-901-2617

San Francisco Real Estate:  SF Homes For Sale, Help Selling your SF Home, all residential Real Estate assistance by the SFisHOME Real Estate Group in the City of San Francisco.

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