Myths and Truths about Short Sales

Myth:  A person has to be behind on their payments to sell their house as a short sale.
Truth:  Many mortgage lenders are considering short sales even when the borrower is current on their payments.

Myth:  If a person sells their house as a short sale, they will owe money to their lender.
Truth:  In many short sales, the lender forgives the remaining debt.

Myth:  Short sales are only allowed for owner-occupied homes.
Truth:  Short sales are permitted on commercial buildings, investment properties, land, and any other type of real estate.

Myth:  An owner can sell their property as a short sale without listing with an agent.
Truth:  Mortgage lenders want to know that a real estate agent listed the property and marketed it to the general public, so a reasonable and ethical offer is generated.

Myth:  You need a buyer before the lender will negotiate a short sale.
Truth:  More and more lenders and short sale programs are considering pre-approvals before a bona fide buyer offer is presented.

Myth:  In a short sale, the lender owns the house.
Truth:  The homeowner is the owner of record until the property is transferred, so in a short sale the lender does not take ownership unless a foreclosure occurs.

Myth:  The lender is responsible for property maintenance.
Truth:  The owner of record is responsible and liable for the property, so they must shovel the snow, cut the grass, keep the pipes from freezing, and maintain insurance coverage.

Myth:  There are laws that require lenders to respond to short sale offers from buyers in a certain period of time.
Truth:  There are no laws that require lenders to respond to offers, but there are some short sale programs where participating lenders agree to respond under certain conditions.

Myth:  All short sales follow the same timeline.
Truth:  Each short sale varies, depending upon the lender, the short sale program, whether there is a buyer, and how responsive the seller is to lender requests for paperwork.

Myth:  The lender always forgives the remaining debt.
Truth:  While many lenders forgive the remaining debt, some lenders may expect a contribution from the seller or perhaps a promissory note to be paid later.

Myth:  The lender can be convinced not to send an IRS Form 1099-C to the borrower.
Truth:  In all short sales involving forgiven debt, the lender sends a 1099  to the former borrower as a means of writing off their loss.

Myth:  One person at the lender can make the decision to approve a short sale.
Truth:  In most short sales, there are a series of decision-makers, including people at the servicer, the investor, the mortgage insurer, and a government entity.

Myth:  Calling the lender every day makes a short sale happen faster.
Truth:  Successful short sales often involve periods of intense activity followed by periods of inactivity, where one must wait for another party to run through their process.

Myth:  The lender will delay a foreclosure action if an offer was sent to them.
Truth:  Some lenders will delay a foreclosure action in some cases, but they often will continue with the foreclosure even while considering a short sale.

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