Do I still owe the bank after a short sale?
Maybe. When you sell your home for less than the amount you owe against it, something needs to be done about the balance left over. This is called the deficiency balance. The bank can do one of three things:
- choose to forgive this balance, known as a waiver of deficiency.
- they can ask you to pay it back by carrying a unsecured note.
- they can pursue a judgement or collection on the remaining balance.
Some states like California have passed laws that require lenders to waive the deficiency if they agree to accept a short sale. Virginia does not currently have such a law so you will need to negotiate the waiver of deficiency
Do most banks waive the balance after a short sale?
Generally, most 1st position lien holders will waive the remaining balance on a short sale. 2nd liens get a much smaller portion of the funds in a short sale and as a result will generally want to make up the difference in some way. They may ask for you to contribute funds at closing, send your account to collections, or sue you in court to get a judgement against you.
There are federal short sale programs like HAFA, that require all participating lenders to waive the balance. There are other programs like the Chase Short Sale Outreach and the Bank of America Cooperative Short Sale Program that also have the deficiency waiver built in. If you are not participating in these programs, it is important that your agent negotiate this release and have it built into the short sale approval letter
Do I have to hire a real estate agent to do a short sale?
There is no state law that requires you to hire a licensed agent to sell your house in a short sale. The bank however may require that you list the home for sale with a local real estate professional to ensure that you are doing everything possible to get fair market value for the property. They can’t force you to list your home with an agent, but they can refuse to do a short sale if you don’t.
Do I have to show the bank my financial information?
Generally the bank will want to see that you do not have the capacity to continue to make your loan payments until it is paid off as agreed when you borrowed the money. Because of this, they will need to see that there is a reason for you to sell your home. If you are claiming that you can no longer afford to make your payments, they will require proof of that. This is done by having you supply tax returns, bank statements, and recent paystubs and a short sale hardship letter. There are some short sale programs that require a limited amount of documentation which would eliminate the need to supply financial documentation.
Do I have to pay for someone to negotiate my short sale?
No. You don’t have to pay to sell your home on a short sale. The commissions paid to real estate agents come out of the banks proceeds. Some states allow for short sale negotiators to collect a special fee for negotiating a short sale that will be separate from a real estate commission. It is beneficial but not necessary to hire a specialist to handle your short sale. They can often be paid by the buyer, bank, agent or the seller.
Judicial or Non-Judicial Foreclosure State?
The primary method of foreclosure in Virginia involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action but requires notice commonly called a sale under the power of sale. When the mortgage is initially signed, it will usually contain a provision called a power of sale clause, which upon default allows an attorney to foreclose on the property in order to satisfy the underlying defaulted loan, which is sometimes referred to as a note. Because this is a non-judicial remedy, there are very stringent notice requirements and the legal documents are required to contain the power of sale language in order to use this type of foreclosure method.
Does Seller Owe Deficiency Amount After Foreclosure or Short Sale?
Yes, a deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage secures. This means that the borrower still owes the lender for the difference between what the property sold for at auction and the amount of the original loan.
For a short sale, the deficiency can be waived if agreed in writing on the short sale approval letter.
State Foreclosure Laws for Negotiating Short Sales
- Section 8.01-427. Persons entitled under decree deemed judgment creditors; execution on decree
Law which regulates a notice be filed, giving the homeowner an opportunity to pay by a specific time before continuing the foreclosure process.
- Section 63.2-1934. Action for foreclosure of lien; satisfaction
Law which regulates the owner may cure a lien prior to being sold at auction.
- Section 63.2-1935. Satisfaction of lien after foreclosure proceedings instituted; redemption
Law which regulates the right of the owner to purchase back property after it has been sold.
- Section 6.1-422.1. “Flipping” prohibited
Law which regulates a lender or broker from refinancing a mortgage unless it benefits the owner.
- Section 8.9A-608. Application of proceeds of collection or enforcement; liability for deficiency and right to surplus
Law which regulates the owner’s right to any over payment of proceeds from the auction.
- Section 8.9A-616. Explanation of calculation of surplus or deficiency
Law which regulates the owner be provided a document which states, who, where, when and how proceeds were distributed.
- Virginia State Statutes