Short Sale Myths

Short Sale Myths

In the Short Sale business, there are a lot of myths and pre-conceived notions floating around about how they work, or how/why someone will or will not qualify.  A lot of industry professionals will say one thing, while other industry professionals will say the opposite! Generally speaking however, there are no easy answers, and there are NEVER any guarantees. Just like snow flakes, each Short Sale is different & unique! 

Throughout the course of our business, we continually encounter similar questions and/or myths from Homeowners and Agents alike; So we figure we might as well publish a few of the more common myths, to help assist with anyone in a similar situation! After all, these keep coming up, so they must be somewhat common assumptions...

Myth #1: Banks would rather Foreclose on the property than pursue a Short Sale.  

NOT TRUE:   Foreclosure auctions are very costly to the Banks, due to Lawyer fees & Court Costs. In addition to this, there is a good chance the Banks will end up buying the property back at auction (since they are working with bogus values), and so they incur additional “winterization” fees, property security fees (boarding windows, etc), & REO agent Fees. So just looking at costs involved for the Bank, a Short Sale is much more desirable, financially speaking, than a Foreclosure auction.

Myth #2: Once an official "Notice of Election and Demand" (NED) is served, the Short Sale is no longer an option.  

NOT TRUE:  So long as there is a valid Short Sale in place, Banks will most likely postpone any looming Foreclosure auction date, in order to allow sufficient time to complete the Short Sale review.  Combine this with Bank’s preference for the Short Sale over Foreclosure auction, most Short Sales actually end up being worked while there is an active Foreclosure in process.  **Foreclosure Auction postponement is NEVER a guarantee.

Myth #3: A Homeowner must be behind in payments for the Bank to even consider the Short Sale.  ONLY true for FHA Loans:  In order to allow a Short Sale, The Federal Housing Administration requires their loan to be at least 30 days delinquent, prior to date of closing.  No other Loan types have this kind of stipulation; so by and large, this myth is FALSE. In fact, one of the main qualifiers for a Short Sale is the borrower's hardship.  So long as there is sufficient evidence to support the future inability to make mortgage payments, the Bank will entertain the Short Sale.

Myth #4: Financial obligations to the property end at Foreclosure Auction.

May or may not be True: Banks are not in the Real Estate business, and so their main concern is the Loan, and their $$. The Bank does not want the property, and they certainly don't want to deal with the additional costs of Auction.  Because of this, it is fairly common to see the Bank sell the property for less than what they’re owed, and pursue the Homeowner for the difference/remainder.  This is also known as a deficiency judgment. Therefore, It’s absolutely pertinent to contact an Attorney, who specializes in the field, to determine any remaining financial liability, after the Foreclosure Auction takes place.

Myth #5: A Short Sale will automatically be denied if the Homeowner was previously denied for a Loan Modification. 

NOT TRUE:  If for no other reason, this myth isn't true because the Short Sale department is completely separate from the Loan Modification department.  They do not have access to each other's systems, and they do not share notes with each other. Furthermore, a Short Sale is fundamentally different than a Loan Modification:  A Short Sale deals with selling the property, while a Loan Modification deals with keeping the property.  These 2 separate departments have separate notes, and each have their own specific review & qualification process. So if a Homeowner was denied for a Loan Modification, they can still apply for a Short Sale.

Of course this list is no where near exhaustive, and as I mentioned earlier, each Short Sale is different & unique. For any specific questions or concerns, please contact us:  noequitynoprob@gmail.com, or 303.359.4731.