What is the Short Sale of a Florida Home?
Short selling is what happens when a homeowner sells his/her home for less than the principal balance owed on an existing mortgage loan. Both the homeowner and the mortgage lender must give permission for the short sale.
In a short sale, lenders typically accept a lower sum than that which is still owed to them and release their lien interest that encumbers the property. They do not necessarily release the borrower from the need to pay off the deficiency, which is the remaining balance on the loan.
In the case of a purchase money mortgage (one where first lien interests are involved), lenders typically release the lien and waive the deficiency. If second lien interests like home equity lines of credit are involved in the short sale, lenders may release the lien interest and may or may not seek a deficiency judgment against the borrower. In practice, the majority of second lien holders will take a sum of money substantially less than that originally owed or a promissory note to erase the deficiency.
Why do Lenders Consent to the Short Sale of a Florida Home?
The short sale of a Florida home may look like a bad deal for the lender, but it gives the lender the chance to get at least some money and to avoid a long and expensive foreclosure process. Depending on the specific circumstances, this can make it an attractive option for the lender. These are the things to consider when looking at Florida home title transfers for short sale transactions, and we here at True Title can help make everything go smoothly.
Are you in the process of refinancing your current home? Do you need help with home title services? If you have any questions or needs, contact our Attorneys to find out how we can help you easily navigate the real estate purchasing/mortgage process and how we can provide you with the peace of mind you deserve. True Title is a company setting a standard of excellence industry-wide. We at True Title have been committed to excellence in customer service since 1998.
How Sellers Benefit from the Short Sale of a Florida Home
For the seller, the primary benefit to short selling is that he/she ends up paying less than what was originally owed to the lender, but there are other benefits as well.
For one thing, the seller’s credit sustains less damage in a short sale as opposed to a foreclosure. This is true in both the short term and the long term. Two years after the short sale of the home, the seller once again becomes eligible for Freddie Mae and Fannie Mac financing. In the case of foreclosure, it takes five years to become eligible.
The short sale of a North Florida home is almost always an As-Is sale, meaning the seller is not responsible for making repairs. This saves the seller money, as does the fact that the lender pays for all services, fees, and commissions on either side of the sale. The lender may even offer the seller a substantial sum of money to help with the transition out of ownership.
Short selling provides a new start free and clear of the previous mortgage burden. In contrast, loan modifications often fail to benefit homeowners over the long term. 50% of all homeowners who obtain such modifications end up in default again anyway, and even when they do not, the negative equity can mean they will not arrive at the break-even sales point for years to come.
The short sale of a South Florida home allows the homeowner to stay in the home during the transaction and vacate the home at the close of escrow, just as is the case with a traditional sale. Unlike foreclosure, the seller does not suffer the inconvenience and potential embarrassment of inspectors paying periodic visits, a sales notice being posted on the property itself, or, at the final stage, the county Sheriff arriving to evict the homeowner by force if need be.
Short selling also provides for negotiation of the sale date. For this to occur, the seller needs to come to the hearing for Summary Final Judgment with proof of the short sale transaction. Assuming the seller’s attorney or realtor presents a contract for the short sale and the Multiple Listings Service (MLS) and lender contact information, the sale can be pushed back as much as 120 days. This gives the homeowner more time in the home and to conclude negotiation of the short sale and continue working on the Florida home title transfers.
The short sale of a Central Florida home also reduces the homeowner’s exposure to loss. The U.S. Treasury’s Making Homes Affordable Program encourages lenders to accept short sales without any deficiency against the borrower. The Home Affordable Foreclosure Alternatives (HAFA) Program rules determine whether the homeowner qualifies for this assistance. HAFA short selling rules also cap money paid toward second liens on real estate with a deficiency waiver at $8,500.00.
Finally, coming out of a short sale, sellers generally have less trouble renting. Landlords tend to be more willing to rent to them and/or to ask for lower security deposits because short selling does not raise the same kind of concerns that foreclosure does. The short seller is a person who did not simply walk away from his/her financial obligations. The time required for the short sale is also extra time available for the seller to find a suitable place to move to.
How the Short Sale of a Florida Home Works
For the short sale to occur, the homeowner must prove to the lender that true financial hardship has arisen. To that end, the homeowner will need to produce pay stubs, bank statements, and tax documents to support the assertion. Assuming the homeowner is able to do so, the short sale process unfolds through a number of stages.
First, the homeowner generally, although not always, stops making mortgage payments. Not only has this become a financial necessity, it is common for lenders to refuse to consider a short sale unless the borrower is in fact delinquent.
At this point, it is a good idea for the homeowner to print out a copy of his or her credit report before the delinquency shows up on it. The report can help with future financial transactions. It is also a good idea for homeowners to take care of necessary major purchases (for example, buying a car) before delinquency affects their credit.
Next, homeowners find a realtor who lists the home for sale. The selling price should be low in comparison to that of similar properties in the area. As these are short sales, the sellers will not make any money in any case, and, assuming the short sale homoes are homestead properties, they will not have to cover the tax on the lender’s losses. Thus a price that makes the home sell quickly is desirable.
Homeowners should be aware that while they will sign a listing agreement with the realtor, the terms are ultimately contingent on the lender approving the short sale of the home. The lender has th right to refuse to approve the Florida home title transfer loan for short sales if they wish.
The homeowner will need to provide a letter of authorization to the lender. Otherwise, the lender will not provide information to the realtor and the Florida title insurance company, and that will prevent them from determining what is necessary for approval of the short sale.
With regard to the title, title insurance is important. It guards against liens and other claims attached to the particular piece of real estate.
In the case of a short sale of a Florida home, it is particularly likely that such claims exist. The short sale, after all, is happening precisely because the homeowner could not meet his/her financial obligations. It is quite possible that tax bills, contractors, homeowner’s association fees, and other debts have gone unpaid.
If they have not, the existence of a Florida title insurance policy assures the potential buyer that this is indeed the case. For this reason, it is useful even if the short sale is a cash transaction and the insurance is not a legal necessity.
With luck, the homeowner will then receive a sales offer or perhaps multiple sales offers. In the short sale of a Florida home, the seller should consider more than simply who has made the highest offer. It is wise to go with a cash buyer or, if there is none, the best pre-approval buyer
Cash buyers are desirable because the typical short sale approval runs for 30 to 45 days. Accordingly, anything that accelerates the sale process is helpful, although lenders will sometimes extend the time period if the seller can convince them that the transaction will close. This is referred to as buyer’s loan commitment.
When the homeowner has a sales contract in hand, he/she then submits it to the lender for consideration along with a preliminary settlement statement and various other documents for the Florida home title transfer and title loans. These documents include the following;
- The hardship letter explains how the homeowner came to be in his/her current financial straits and why he/she cannot continue making the mortgage payments.
- The financial form details the financial situation. The lender’s loss mitigation department provides these.
- The homeowner also provides proof of income and assets in the form of the last two months of bank statements, the last two years of tax returns, pay stubs, stock and bond documents, and documentation of any other
When all of this material has been provided, the broker assigns a negotiator to handle the case. Having determined that the homeowner is an appropriate candidate for a short sale, the negotiator obtains a Broker’s Price Opinion (BPO) appraisal to assess the value of the short sale home. This requires photographing the interior, so it is a good idea to clean the home prior to the photographer’s arrival.
Following the BPO, the lender either accepts the homeowner’s short sale offer or makes a counter-offer. Once the parties arrive at an agreement, the lender issues a Demand Letter detailing the terms.
Ideally (from the homeowner’s perspective), the lender releases the mortgage lien and does not pursue a deficiency judgment. As indicated above, this is more likely to occur with first mortgage liens than with second mortgages and equity lines of credit, particularly those not approved by the HAFA program.
Some lenders require the homeowner to make a cash payment or sign a promissory note at the time of closing if they are to provide a release from deficiency liability. Homeowners should carefully assess whether the deal still makes sense for them should this prove to be the case.
Contact the title professionals at True Title today for assistance with your short sale. Call now at (877) 785-8792.