Nevada Short Sales

Nevada Short Sales questions answered by Las Vegas Short Sale Agent, Tania Michaels.

  1. WHAT IS A SHORT SALE?
    A short sale occurs when a property is sold for less than the mortgage balance. A short sale allows a property owner to sell his or her property for the current market value, provided the mortgage holder has approved a discounted payoff of the loan. The lender will require that the borrower qualify for the short by providing evidence of a verifiable hardship, such as an income short fall or insolvency. The Seller makes no profit on a short sale.
    EXAMPLE
    Sales Price:   $175,000
    Mortgage Balance:   $350,000
    Difference:   $150,000 <---Mortgage company forgives this balance.
  2. WHY SHOULD YOU CONSIDER A SHORT SALE?
    • The primary reason is you can’t afford the debt. If that is the case, don’t walk away from your home broke. The lender is offering you an olive branch to leave your home in a dignified manner:
      —>INVESTIGATE: Cash for Keys Programs in Nevada, up to $30,000
    • Protect your future and avoid the long-term consequences of a foreclosure:
      —>COMPARE: Foreclosure vs a Short Sale in Nevada
    • Faster recovery time to purchase another property using credit. A foreclosure has a 5-10 year recovery period before you will be able to purchase another property using credit from a financial institution. A deed-in-lieu carries nearly the same damaging affects to your credit as a foreclosure. A short sale is the least damaging of the three options. We frequently speak with clients who short sold their property three years ago and are now out buying another home.
      —>HOPE: SHORT SALE TODAY. BUY TOMORROW
  3. YOU WILL NEED A LAS VEGAS SHORT SALE AGENT TO SELL YOUR PROPERTY

    Your lender will require you to hire a Las Vegas real estate agent to complete a short sale in Nevada. And what a benefit this is for you! You get an advocate, who represents your interests only (not the bank’s) plus the service and commission is of no cost to you. An expert Las Vegas short sale agent is critical to your success because short sales are more complex than traditional real estate. As Las Vegas short sale experts, we will provide you with:

    • Staging, preparation and marketing for your property.
    • Locating a buyer and negotiating any offers that come through.
    • Working directly with your lender to get your short sale approved.
  4. WHAT ARE SOME ACCEPTABLE SHORT SALE HARDSHIP REASONS?
    You will need a verifiable hardship reason that demonstrates why the default is occurring or is imminent.  The lender will require you to write a short sale hardship letter and if you have backup documentation such as medical bills or copies of unemployment checks, you will want to submit that with your letter.  Below, are a few acceptable short sale hardship reasons:
    • Divorce
    • Unemployment, Loss of Significant Income
    • Illness
    • Property Problem
    • SEE MORE…
  5. WILL THE LENDER ACCEPT MY SHORT SALE IF I’M NOT LATE ON MY PAYMENTS?
    Yes, it’s possible however, you must submit detailed evidence that a default on your loan is imminent and when it will occur. Lenders do not consider an underwater mortgage alone to be a hardship. You must demonstrate you cannot make the payment because of an income shortfall (or insolvency) due to a hardship.
  6. WHAT IF I HAVE ASSETS, LIKE A LARGE SAVINGS ACCOUNT OR OTHER REAL ESTATE? CAN I STILL BE APPROVED FOR A SHORT SALE?
    If you have assets, like a significant amount of money in your savings account, you own other real estate that is free and clear, have stocks, bonds or even an IRA account, the lender will almost certainly require from you a cash contribution or an unsecured note at closing for all or a portion of the loan that is not being paid by the sale. They may also reject that you have a hardship and decline the short sale.
  7. WHY DO MORTGAGE COMPANIES AGREE TO APPROVE SHORT SALES?

    It’s nearly all about the money.. Banks agree to approve short sales because it costs them less money to short sale a property than to foreclose on it. Also, because of:

    Lender Liability:  Banks have come under intense scrutiny by the courts as well as federal and state regulators for acting in bad faith with borrowers who have a real hardship and are attempting to settle their debt in an equitable manner.  There is more political and legal pressure than ever on the banks to work with distressed homeowners.

    Ratings and Profit:  For the most part, banks package up loans and sell them off in bundles. The bank then becomes a “servicer” of that loan and collects fees for doing so.  When a loan goes into default, the buyers/investors that purchased that loan are not getting paid.  If a servicer has too many delinquent or non-performing loans, it affects their rating and ability to acquire future buyer and investors for their products.  A short sale pays the investor off quickly and resolves the delinquency.

    Holding Costs:  Foreclosing on a property means the bank is now the owner of that property. They will incur legal foreclosure fees as well as all the costs the previous owner was spending to keep the property maintained.  Internal administrative expenses, property management personnel, landscaping, utilities, and repairs are all fees the banks incur when they own a property and are all fees they would prefer to avoid.  By completing a short sale, the bank cuts back the time and avoids the costs associated with holding the property.

    Federal Reserve Requirements:  The Federal Reserve System of the United States requires that banks set aside a certain amount of money to deal with possible losses.  These reserve funds cannot be used to loan out more money and make a profit until the bad loans are resolved.  A short sale resolves the bad debt problem for the bank and gets their money back in circulation to make a profit.

  8. THREE DIFFERENT KINDS OF SHORT SALES
    #1. Government Sponsored Short Sale Programs for conventional loans – Government short sale programs like HAFA (for example) set the value of the property upfront in an attempt to make the process smoother. The conditions of the short sale, like the list price, are established up front. You and your Las Vegas short sale agent agree to market the house at the predetermined value and close the short sale under those terms and conditions.

    Two key benefits of HAFA:

    If you do not qualify for HAFA, then you could be considered for a traditional short sale.

    #2. Traditional Short Sale Process – Your Las Vegas short sale agent obtains an offer first and then starts the eligibility and approval process. The time frame for a government short sale program and a traditional short sale are about the same.

    #. FHA Short Sales – If you have an FHA loan, you will automatically be processed for an FHA short sale regardless of who is your lender. More on FHA short sales.

  9. My biggest concern about a short sale is my credit. How does a short sale impact my credit? The credit reporting agencies do not have a code for “short sale.” The credit bureaus are instructed by your lender’s short sale approval letter to mark your credit either:
    • Status Code = 13 “Paid or closed/zero balance”
    • Status Code = 65 “Account paid in full/A foreclosure was started)” if applicable.
    • “Settled for less than agreed upon amount.”
    • Or some variation of the above.

    What hurts a person’s credit score the most on a short sale are the late payments.

    But it could be worse. You could sign a deed-in-lieu of foreclosure, in which case, the credit bureaus are instructed by your lender to report this on your credit:

    • Account Status Code = 89 “Deed-in-lieu of foreclosure on a defaulted loan”

    Having a foreclosure on your credit is the most damaging to your credit rating.

    • You will have to disclose a foreclosure on the mortgage loan application (#1003) for 10 years which will almost certainly result in a higher interest rate.
    • Your car insurance rates will almost certainly go up. Insurance companies proactively check your credit while you have a policy with them.
    • It may cost you a higher interest rate on your credit cards.
    • You could be pursued for a deficiency judgment and have to file bankruptcy. This will further prolong your credit recovery.
  10. HOW SHORT SALES WORK

    See How “Short Sales Work”, video and diagram.
  11. What if I don’t get any offers to buy my property?
    A successful short sale depends upon a qualified Buyer making an offer to purchase your property. If you do not receive an offer, there is no short sale to process and you are headed towards foreclosure. Even if you have an acceptable hardship, it is possible you will not receive any offers on your property.
  12. Do I get a 1099 if I do a short sale?
    Almost certainly, yes. This is called “Phantom Income.” The lender has the right to file the loss they took on your short sale with the IRS and issue you a 1099 for that loss. The amount of that 1099 is subject to be taxed. Until December 31, 2012, there is a tax exemption on almost all short sales on principal residences. This can be obtained under the Mortgage Forgiveness Debt Relief Act of 2007. If your short sale was not your principal residence, you may qualify for tax exemption if you are insolvent. Ask your tax adviser about IRS Form 982. It is also possible to defer the taxes owed on the 1099 by doing a 1031 exchange. Please contact your tax adviser about this also. Focus Commercial Group and Tania Michaels are not tax experts. This information is provided as a courtesy only and needs to be verified..
  13. Do I have to make repairs if I put my property up for a short sale?
    No. See 4th paragraph from the bottom of the page: http://www.prlog.org/11918072-las-vegas-short-sale-agent-closes-chase-rental-property-short-sale.html
  14. What if I just deed my property over to someone else to avoid the time and hassle of a short sale?
    Deeding your property over to someone else without the knowledge of your lender can trigger the “Due on Sale” clause in your promissory note. This means the lender will call the entire balance of the loan due and payable because you transferred ownership of property without their consent.  You will want to obtain legal counsel before entering into this kind of agreement with a potential buyer.
  15. Short Sale Restrictions
    Your lender will prohibit you from selling your house to a family member or any other related party. This is known as an arms-length transaction.

NEVADA FORECLOSURE TIMELINE

DAY EVENT
DAY 1 Notice of Default and Election to sell is recorded.
An State of Nevada Election/Waiver of Mediation is sent to homeowner along with copy of Notice of Default and Election to Sell.
In the Next 10 Days Notice of Default and Election to Sell must sent out to the Trustor/Owner and all the Lien Holders by U.S. Post Office Certified Mail.
1st Day after Mailing the NOD A 35 day reinstatement period begins.
DAY 30 Election to Mediate expires 30 days from the date of the Notice of Default and Election to sell.
DAY 35 The right to reinstate expires. Not at midnight but at the end of the working day.
25 Days before Foreclosure Lender notifies the IRS (if applicable).
DAY 91 The lender has the right to send out a Notice of Trustee’s Sale. From the date of the Notice of Trustee’s Sale it’s 20 days to foreclosure, unless otherwise specified in the notice. Notice of Trustee’s Sale must be sent via U.S. Registered Mail to all parties who require notification. The notice must also be posted within the County where the sale is to be held and where the property is located.
1 Week before Foreclosure A bid price is typically established at this point. The bid amount includes principal, interest, advances and costs.
DAY 111 Day of Trustee’s Sale also known as the foreclosure day. Anyone interested in buying the property can bid on the property. Only cash or certified funds are accepted. After the sale, a new deed is provided for the new owner. The new owner may be the bank or the winning bidder.

 
*Neither Focus Commercial Group or Tania Michaels practice law. Information provided as a courtesy only and must be verified. For more information on Nevada foreclosure law, please contact an attorney.
 
SHORT SALE DOCUMENTS
Below is a general list of short sale documents to submit to your Las Vegas short sale agent. As your lender reviews your file, they will almost certainly request more specific items.

  1. Hardship Letter
  2. Evidence of your hardship if any, such as medical bills, a doctor’s note, etc.
  3. Financial Statement, form will be provided to you.
  4. Paystubs or Profit and Loss Statement, for the last 3 months.
  5. Bank Statements, for the last 3 months
  6. Tax Returns, last 2 years
  7. Mortgage Statement, most recent copy for all mortgages.

These documents become expired with the lender after 60 days so be sure to send in current documents to your Las Vegas short sale agent as they come in.
 
Are you a good candidate for a short sale?


“Together, we can do great things.”

TANIA MICHAELS
Focus Commercial Group
3455 Cliff Shadows Parkway #220
Las Vegas, NV 89129
(702) 546-6432