1. Bridget Morrissey, Realtor®
RE/MAX Property Consultants
500 Bridge Street
Groton CT 06340
Call/Text: (860) 857-5165
bridgetmorrissey@remax.net
www.bridgetmorrissey.com
www.fb.com/mystichomes
Connecticut Short Sale Sellers:
Frequently Asked Questions
June 18, 2009
Phil Zimbardi Blog
trulia.com

2. What is a Short Sale?
 In real estate, a short sale is when a bank or
mortgage lender agrees to discount a loan balance
due to an economic or financial hardship on the
part of the mortgagor. The home owner/debtor
sells the mortgaged property for less than the
outstanding balance of the loan, and turns over the
proceeds of the sale to the lender in full
satisfaction of the debt. In such instances, the
lender would have the right to approve or
disapprove of a proposed sale.
June 18, 2009 Phil Zimbardi Blog trulia.com

3. What are the seller benefits of a
Short Sale?
 With a short sale, sellers avoid having to go
through a lengthy foreclosure process and prevent
the impact of a foreclosure on their credit score. In
a short sale, the seller and the lender work
together to determine the details of the
agreement, but typically sellers who complete a
short sale also avoid owing the balance of the loan.
June 18, 2009 Phil Zimbardi Blog trulia.com

4. What are the potential pitfalls of
a Short Sale?
 Sellers considering a short sale must understand a few
important things. First, not all lenders will offer to relieve
the seller of the responsibility of paying off the balance of
the loan. So, sellers should get a solid commitment from
lenders that states this is part of the deal. Also, though the
seller is avoiding a foreclosure, even a short sale may affect
their credit score to some extent. So, sellers should discuss
this issue with their lender to figure out how the process will
be reported to the credit agencies.
 Most importantly, not all sellers even qualify for entering
into a short sale. For example, few lenders will even think
about entering into a short sale agreement with sellers who
have not yet missed multiple payments. So, if you’re a
seller thinking about a short sale, you’ll want to talk to your
lender about the options available.
June 18, 2009 Phil Zimbardi Blog trulia.com

5. Why would a lien holder accept a
Short Sale?
 A short sale typically is executed to prevent a
home foreclosure. Often a bank will choose to
allow a short sale if they believe that it will result
in a smaller financial loss than foreclosing.
Additionally, a short sale is typically faster and far
less expensive than a foreclosure.
June 18, 2009 Phil Zimbardi Blog trulia.com

6. How long does it take for a
Lender to approve a Short Sale
sales contract?
 Short Sale approval depends on the number of
Short Sales the bank has open. The typical
response time for a Short Sale approval in 2008-09
is approx. 2-4 months (60-120 days).
June 18, 2009 Phil Zimbardi Blog trulia.com

7. Does just the 1st Mortgage need
to approve the sale? Or all lien
holders?
 Junior liens, such as second mortgagees, HELOC lenders,
and HOA (special assessment liens), need to approve
the short sale as well. Frequent objectors to short sales
include tax liens (income, estate or corporate franchise
tax – as opposed to real property taxes, which have
priority even unrecorded) and mechanic’s lien holders. It
is possible for junior lien holders to prevent the short
sale.
 While it is frequent if not common for a lender to forgive
the balance of the loan in question, it is unlikely that a
lien holder that is not a mortgagee will forgive any of
their balance.
June 18, 2009 Phil Zimbardi Blog trulia.com

8. Who’s selling the house in a
Short Sale deal, me or the lien
holder(s)?
 In Connecticut the seller ‘owns’ the property, not
the lender. Therefore the seller is the only one with
the ability to sell or not sell the property. The seller
must accept a contract before the lien holders will
even consider a short sale. After the property goes
to the foreclosure auction, and no one ‘wins’ the
property, the bank becomes the official owner of
title and will become the seller.
June 18, 2009 Phil Zimbardi Blog trulia.com

9. Do I need to add any additional
details to incoming sales
contract?
 Generally you will want to require your buyer to
add an addendum to their contract that states they
understand the sale of the property is void if any
lien holder refuses a required short sale payoff.
Otherwise, without this disclosure, the seller could
be held reliable to sell the property no matter if the
lien holders accept or decline the short sale.
June 18, 2009 Phil Zimbardi Blog trulia.com

10. What is involved in presenting a
Short Sale to a lien holder?
 Most lien holders have a ‘Short Sale Package’
ready for the seller once they are contacted with
the request to sell short. A Short Sale Package is
just a checklist of documents for ‘proof of
hardship’, or in other words, proof the home owner
is financially unable to continue making mortgage
payments, has no money in the bank and has no
liquid assets. Typical paperwork includes pay stubs,
bank balance sheets, tax returns, etc.
June 18, 2009 Phil Zimbardi Blog trulia.com

11. What happens after the seller accepts
a contract and the property is
considered ‘Under Deposit’?
 From their the seller or seller’s Listing Agent will send all lien holders the
signed sales contract along with the lien holders required proof of
hardship (aka Short Sale Package).
 Once the bank receives all the documentation, it is placed in line to be
reviewed by the loss mitigator. It can take several weeks just for the loss
mitigator to get to the file. Once the loss mitigator reaches the file and
begins assessing the situation, a BPO Agent or an Appraiser is sent to
the property to report the properties current value for the lenders
consideration. The Appraisal is sent back to the lender and again the
bank spends several days / weeks assessing and comparing the loan and
property values. Occasionally the lender will request a second appraisal
to get a more accurate property value.
 After several weeks (more like months), the bank finally comes to a
conclusion as to whether selling the property today nets them more
money than waiting months for a foreclosure, including the associated
attorney fees, realtor fees and property management fees, etc.
June 18, 2009 Phil Zimbardi Blog trulia.com

12. What happens if the bank
accepts the Short Sale sales
contract?
 If the Short Sale is accepted, the lien holder(s) will
contact the seller or listing agent to confirm and
supply a letter of acceptance stating the accepted
mortgage payoff. The lien holder(s) will also
usually require the closing be held no more than
30 days from the date of approval.
June 18, 2009 Phil Zimbardi Blog trulia.com

13. What happens if the bank denies
the Short Sale sales contract?
 If your Short Sale sales payoff is denied, the
purchase offer becomes void and their is no deal
(as per the Shot Sale Addendum). But, the bank
will often hint to the seller or listing agent a value
they will accept, and a new purchase can be
submitted with little lag time.
June 18, 2009 Phil Zimbardi Blog trulia.com

14. What is my next step after the
lien holders accept my Short Sale
sales contract?
 At this point any inspections and mortgage
financing should be pursued by the buyer and a
final closing date should be set.
June 18, 2009 Phil Zimbardi Blog trulia.com

15. What happens to the money
‘forgiven’ by the lien holder(s) of
the Short Sale?
 When the lender decides to forgive all or a portion of
a borrower’s debt and accept less, the forgiven
amount is considered as income for the borrower and
is liable to be taxed.
 However, after the signing of The Mortgage
Forgiveness Debt Relief Act of 2007 by President
Bush, amendments have been made to remove such
tax liability and allow the borrower and lender to
work freely together to find a common solution that is
beneficial to both parties. This protection is limited to
primary residences so consultation with a tax advisor
is necessary ensure that a borrower qualifies.
June 18, 2009 Phil Zimbardi Blog trulia.com

16. Thank you! My contact info is
 Bridget Morrissey, Realtor®
 RE/MAX Property Consultants
 500 Bridge Street
 Groton CT 06340
 Call/Text: (860) 857-5165
 bridgetmorrissey@remax.net
 www.bridgetmorrissey.com
 www.fb.com/mystichomes