Maryland Short Sale Guide & Information
Q: What is a short sale?
A: A homeowner is considered 'Short' when the amount owed on the mortgage is greater than the current market value of the home. A 'Short Sale' occurs when a negotiation is entered into with the homeowner's mortgage company (or companies) to accept less than the full balance of the loan as payment in full of the mortgage. The property is 'sold short' of the total balance owed on the mortgage.
In Maryland & Washington DC, it has become increasingly common for homeowners to find themselves in a hardship situation where they are no longer able to afford their monthly mortgage obligations and they currently owe more than their home is worth (otherwise referred to as "Underwater") There could be many reasons for this hardship, such as:
- Variable interest rate or Balloon Rate
- Loss of Job / Decrease in Income
- Illness or Injury
One of the most common question we are asked is: Why should I choose a short sale over forclosure? Take a look at the following video to help understand the difference:
Thankfully, Foreclosure is no longer the only option. Short Sales are becoming more and more prevalent in our area. There is also a considerable difference of the effect on your credit when comparing short sales to foreclosures.
At MDC Realty, we are certified CDPE® agents (Certified Distressed Property Expert®) with success in negotiating short sales with every major bank in the country (including Bank of America, Wells Fargo, Chase, etc...). We specialize in working with you and your lender to get you the best terms possible and allow you to move on with your life without a foreclosure or mortgage lien hanging over your head. We work on your behalf with the mortgage holder to list and sell your home for its current fair market value, and hopefully release any deficiency judgement against you (so you don't have to pay back the forgiven debt). It's absolutely critical that when you make the decision to short sale your home, you work with a local Maryland or DC real estate agent that has extensive knowledge & experience and a successful track record in negotiating short sales.
Time is of the essence when short selling your home
It is paramount that when you decide to move forward with a short sale on your home, that you put your trust with a real estate agent that is experienced and has a successful past track record in marketing and selling short sales. Always look for an agent that has the designation of CDPE - or Certified Distressed Property Expert, as that symbolizes that they have at least gone through a training program to familiarize themselves with the procedures and processes that a short sale in Maryland entails.
Take note that if the process isn't handled 100% correctly from the start you could run out of time and your home may go into foreclosure. This is not a typical real estate transaction where if the home doesn't sell you can just re-list with another real estate agent. If you have stopped making payments, you are now on the clock in a race to foreclosure. Foreclosure is BAD, and we will work to assist our clients (at no cost to them) in avoiding foreclosure. We have partners we work with every step of the way to ensure a timely short sale resolution.If you have are facing Foreclosure or in a hardship situation and need to know your options... Please Call Us Now! - (410) 630-7040
Your lender pays for our services and fees. Our cost to you is ZERO!
Our fees and services are paid out of the final proceeds that go back to the bank when a short sale is finalized. We NEVER charge a commission or any added fee to our clients in a short sale situation. We are here to help, not add to your financial worries.
Standard Required Documents to Complete a Short Sale
While many banks require their own set of documents to be completed, the following documents listed are standard and almost always required to begin processing the short sale with your lender.
- Authorization to release information form
- Hardship letter detailing why you cannot contiue to pay the current mortgage
- Financial worksheet
- Listing Agreement
- Copies of tax returns (last 2 years for everyone on the loan)
- Copies of all bank statements (previous 2 months for everyone on the loan)
- Copies of pay stubs from last 2 pay periods
- Signed purchase offer
- HUD 1 - Settlement statement (we will have title company draw up)
- Application for Pre-Foreclosure sale program (Only if FHA , HUD form 90036)
- Homeownership counseling form (Only if FHA , HUD form 90038)
Many of the above mentioned items we will help you get, and make sure everything is in order for when we get the entire package of to your lender for review.
How long does a Short Sale take to complete?
This one has no direct or clear answer. Many banks now have protocols and departments in place to handle short sales, wheras in the past they did not, that has made the timeframe much shorter than it used to be. The total time though still has a lot of variables. It depends on the bank itself, it depends on you as the seller cooperating in getting your documents in a timely manner, it depends on the bank hired appraiser, it depends on us as your agent doing what we need to do... We see the average timeframe for short sales these days take roughly 30-90 days, but they can almost certainly take longer if there is more than one lender involved, or if there are other special circumstances with the home that need to be ironed out. In the end, the sooner you list the home on the market with a qualify agent, the sooner you will find yourself out from underneath all of the stress and pressure that this situation can cause.
WHAT IF I HAVE 2 LOANS?
What if you have a first and a second loan on my property with 2 different lenders, (or in some cases, the same lender)?
A high pecentage of people looking to do a short sale have a first and a second loan on the property, often with 2 different lenders. In order for the short sale to be able to reach settlement, both lenders have to approve the short sale and agree to settle the debt.
Contrary to popular belief - both lenders have incentive to approve your request for a short sale. The lender with the first loan does not want to foreclose due to the high costs of doing so, and therefore is often willing to contribute some of their proceeds to the second loan.
Due to the amount of equity lost...many second loans realize they will receive NOTHING if the property winds up in foreclosure, so many adopt the attitude of something is better than nothing. The loans in the second lien position often wind up with only a fraction of the actual amount owed. (Often times $3,000-$6,000, or less). While it is a large loss, it is still in their best interest to agree to this rather than the alternative.
How will I know that I am being released from the debt and the banks won't come after me for the difference?
It will be clearly stated in the terms of the bank's short sale approval. Each lender writes it slightly different, but included will be verbage of "Releasing the Lien, Accepting a Short Payoff to Satisfy the Lien, Full Satisfaction of the Mortgage, Not Pursuing a Deficiency Judgment" or some other variation that states they will accept what they get at settlement and not come after you for the balance of the total unpaid mortgage.
Further, your bank will issue a 1099-C to you, the borrower, after the short sale, confirming that the debt has been written off and is settled. Your lender cannot write off the debt, issue you a 1099-C & then go after the deficiency.