Patty Da Silva is the highest rated Short Sale Expert in South Florida and was instrumental in changing policy guidelines in the US Treasury Department.

Q. What is a short sale?

A. In a short sale the seller’s lender(s) agrees to accept less than what is owned on the loan for a property. . As such, it requires (it is contingent on) the lender(s)’s agreement(s), (Third Party Approval).

Q. How do I know if I qualify for a short sale?

A. The three must haves of a short sale are: Hardship, Monthly Shortfall and Insolvency.

1. Hardship: Divorce, death, disease, disability, job loss, reductions of hours/salary, etc..

2. Monthly shortfall: Monthly income is less than monthly obligations.

3. Insolvency: Seller cannot have assets that can be liquidated or used to cure the debt or monthly short fall.

Q. I have a little bit of money still left in my account. Will I qualify for a short sale if I have a hardship and a monthly short fall?

A. Yes. I am not saying the someone has be completely broke but if there is a good amount of money on the distressed homeowners possession, the mortgage holder is likely to ask for some, or all, amount in order to agree to release the mortgage and the note.

Q. How long does a short sale take?

A. There is no standard short sale process used by lenders so each lender has their own method and timeline to process a short sale. After the lender receives a complete short sale packet with an offer to purchase the home, the lender will require from 30 to 120 days to process the short sale. The sale must close within 30 days from the date the lenders issue the demand letter (aka approval letter).

Q. Is the seller’s lender involved in the offer/contract on a short sale?

A. No. The sale of the home is between the buyer and the seller. The seller’s lender is not a part of the contract in any way whatsoever. It does not agree or disagree with anything, it does not negotiate terms, (down payment amount, number of days for inspection, closing day, etc.). Seller’s lender approval is a contingency that must be met in order for the sale to go through. The banks make NO decision about accepting or denying an offer. The seller’s lender only verify that the seller is a candidate for a short sale and how much money will they be willing to receive in exchange for releasing the mortgage and the note of the home.

Q. Should the seller sign multiple offers and submit multiple offers to the lender?

A. No. It is very common for my listings to receive multiple offers. When that happens, I ask the buyers to sign a multiple offer disclosure saying that there is more than one offer being presented to the SELLER and the form provides the buyer with time couple to change their offer to best and highest. Once that day comes, I present all offers to the seller and the seller will pick the best and highest offer, executes it and that is the offer to be sent to the seller’s lender. Any other offer after that is a back-up offer. I have not found good language (nor would I advise me client to) sign more than one contract, a home cannot be sold to more than one purchaser and doing so leaves sellers open to much liability.

Q. How do lenders view multiple offers submitted on a short sale? A. As mentioned above, there is not one set of rules that all lenders follow. However, it is my opinion that asking a lender to take a huge loss while submitting multiple contracts (showing enormous interest on the home) is contradictory in fact. I have had this conversation with many loss mitigators and some supervisors and loss mitigation department directors and I can share that many MANY loss mitigator will NOT work on multiple offers. One of them told me “I am not a Realtor nor am I the owner of the home and I should not be doing their jobs”. He followed that sentence with.. “If I receive more than one offer I do not know which offer to work on and I have to close the file”.

Q. Will my lender require me to sign a note making me still responsible for the loan?

A. It is my experience that if there is only on loan on the home, the sellers have not been asked for a note. If the seller has a second mortgage on the property, it is likely that the lender holding the junior note (loan) is going to require something from the seller. As the number of short sale listings rise rapidly, the second mortgage holders are getting tougher to deal with. The seconds are requiring as much as 10% of the loan amount at closing and sometimes asking for a lump sum or an unsecured note for the difference (between the 10% they get a closing and the full loan amount) with monthly payments in order to release the secured note on the home and the sale to go through.

Q. Can the not be negotiated or waived?

A. Yes, I have been able to negotiate notes with balance of, $97,000 to $30,000 with interest rates are low as 4% and from $22,000 to $11,000 with zero interest. Lenders in the second position are not willing to just completely waive their “unsecured note” requirement.

Q. Are there tax consequences between the amount that is owed and what the house sold for or are the sellers forgiven?*

A. On primary residence, the seller will receive a 1099C (C = Cancellation of Debt) but Congress passed a law on December 2007 that will absolve that 1099C amount (up to 2 Million Dollars) on the short sale seller of a primary residence. The seller does not have to pay income taxes on the difference between the acquisition costs of the home and the short sale amount…

Be aware that on refinanced mortgages where the seller took equity out of the home. They seller is responsible to pay taxes on the amount that he/she took out if it was not put back into the home on repairs/remodeling.

On investment properties the law mentioned above does not apply and the seller will be issued a 1099C and will have to pay ordinary income tax based on his/her tax rate on the difference between the loan amount and what the home sold for.

There is something called “insolvency”, IRS form 982, that might help offset some of the “gains”.

I always recommend that my sellers consult with a CPA or a Tax Attorney to examine their particular situation.


* Patty Da Silva, CDPE©, team members, affiliates, officers, agents, employees, licensors and partners are not Attorneys, Accountants or CPAs and do not offer legal or tax advice. Please contact a legal advisor and/or a tax professional to review your particular situation.

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