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Seller Advisory

Short Sale Seller Advisory

Arizona Department of Real Estate

A Resource for Real Estate Consumers
Provided by the Arizona Association of REALTORS®
A short sale is a real estate transaction in which the sales price is insufficient to pay the loan(s) encumbering the property in addition to the costs of the sale and the seller is unable to pay the difference. A short sale involves numerous issues as well as legal and financial risks. This Advisory is designed to address some of these issues and risks, but does not purport to be comprehensive.

Understand a Lender’s Options upon Loan Default

There are many types of loans that are secured by real property. These may be purchase loans, refinanced loans, home-equity loans, or one of the various other types of loans. The type of loan and type of property will determine what remedies a lender may have if the homeowner fails to make the agreed upon payments. The available remedies, the homeowner’s overall current or potential future financial strength, the lender’s cost in acquiring the loan and any shared loss or similar agreement if the loan was acquired by purchase or merger, are some of the many factors that the lender may consider in deciding how to proceed when a loan is in default. For an overview of these issues, go to www.aaronline.com/AZR/Dec/09LoanDefaults.aspx

Be Aware of Predatory “Rescue” Scams and Short Sale Fraud

Homeowners worried about foreclosure may be susceptible to predatory “rescue” scams which may cost you money with no results, result in the loss of your home entirely, or involve you in a fraudulent scheme. For more information, go to: efanniemae

“Red Flags” of fraudulent schemes include:
  • Guarantees to stop the foreclosure
  • Large upfront fees
  • Instructions not to contact the lender
  • Transfer of title or lease of the property
  • The proposed buyer is an LLC
  • Requests that the homeowner execute a power of attorney
  • The proposed buyer, at the buyer’s sole expense, retains a third party to negotiate the short sale for the seller’s benefit

Report suspected scams to the department of Financial Institutions at fraudline@azdfi.gov; the Attorney General’s Office at www.azag.gov/consumer/foreclosure/index.html#Complaint or
Neighbor Works© at www.loanscamalert.org/default.aspx

Contact a Free HUD-Approved Housing Counselor or Contact Your Lender Directly

Contact a HUD-approved housing counseling agency online at
or call (800) 569-4287 or TDD (800) 877-8339 for advice on your options. For additional HUD resources: http//portal.hud.gov/portal/page/portal/HUD/topics/avoidingforeclosure
Contact the Neighborhood Assistance Corporation of America at:

Contact the lender directly. To find the lender’s contact information, check the loan billing statement, or coupon book. Ask for the lender’s home retention department, loss mitigation department, (or other department that handles negotiation of loans in default), explain the situation and find out if the lender is willing to discuss options.

Utilize Free Services Available to Arizona Residents

Contact the Arizona Foreclosure Helpline at 1-877-448-1211 (toll free) or visit
Review the Arizona Foreclosure Prevention Task Force Workbook
This book will help you evaluate your options and provide you with tools to take action. Additional resources are available at www.azforeclosureprevention.org

Obtain Legal Advice

An attorney can advise you about your options and legal liability.
To find out if you are eligible for free or low cost legal assistance, contact a legal aid organization in your county or one of the organizations listed at
www.azbar.org/LawyersHelpingYou/freelegal.cfm or www.azlawhelp.org/housing.cfm
Contact the Lawyer Referral Serviced in your county where you can consult with an attorney for a small fee for a half-hour consultation.
Maricopa County: www.maricopabar.org/displaycommon.cfm?an=16
(602) 257-420
Pima County: www.pimacountybar.org/web/lawyer-referral-service-lrs
(520) 623-4625
Coconino County: www.coconinobar.info
Phone: 929-774-1478
Yavapai County: www.yavbar.org
Phone: 928-771-3344

Attorneys who are State Bar Real Estate Law Certified Specialists can be located at:

Obtain Tax Advice

For Mortgage Forgiveness Dept Relief Act and Debt Cancellation tax information, go to:
Attorneys who are State Bar Tax Law Certified Specialists can be located at:

Be Aware of the Consequences of Committing “Waste”

Damaging the property or removing fixtures such as sinks, toilets, cabinets, air conditioners, and water heaters may result in liability to the lender for “waste.” In other words, the lender may be able to sue you for damages if you have physically abused, damaged or destroyed any part of the property.

Consider All Options

A short sale may not be your best course of action. Consider all your options before making a decision.

Loan Workout

  •  Reinstatement: Paying the total amount owned by a specific date in exchange for the lender agreeing not to foreclose.
  • Forbearance: An agreement to reduce or suspend payments for a short period of time.
  • Repayment Plan: An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up.
  • Claim Advance/Partial Claim: If the loan is insured, a homeowner may qualify for an interest-free loan from the mortgage guarantor to bring the account current

Loan Modification

The lender may agree to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified or the loan term extended. Loan modification resources include:
  • Making Homes Affordable www.makinghomeaffordable.gov
  • National Foreclosure Mitigation Counseling Program:
  • http://findaforeclosurecounselor.org/network/home.asp
  • Homeownership Preservation Foundation: www.995hope.org — 1-888-995-HOPE™ Hotline


If the lender will not agree to a loan workout or modification, the homeowner may be able to refinance the loan with another lender. The HOPE for Homeowners Program will refinance mortgages for homeowners that can afford a new loan insured by HUD’s Federal Housing Administration. Learn more at:

Deed-in-Lieu of Foreclosure

The lender may allow a homeowner to “give back” the property. This option may not be available if there are other liens recorded against the property. Review the HUD requirements at

Work Out Sale

The lender may allow a specific amount of time for the home to be sold and the loan to be paid off. The lender may also allow a buyer to assume the loan to purchase the property even if the loan is non-assumable.


If you are considering bankruptcy as an option, consult with an attorney that specializes in bankruptcy cases:
www.azbar.org/LegalResources/findspecialist.cfm Access the Arizona Bankruptcy Court self help information by calling 866-553-0893 or visit www.azb.uscourts.gov/default.aspx?PID=78#866


Allowing the lender to foreclose is another option. The counselors at the Arizona Foreclosure Help Line can explain the foreclosure process, call: 1-877-448-1211. Ultimately, only you and your attorney can decide if foreclosure is the best option for you. Attorneys who are State Bar Real Estate Law Certified Specialists can be located at www.azbar.org/LegalResources/findspecialist.cfm Ask your attorney about the possibility of a deficiency lawsuit after foreclosure. Assuming all statutory requirements are met, the Arizona anti-deficiency statutes may limit the lender’s remedy to foreclosure, even if the amount due to the lender exceeds the value of the property. Also, seek professional tax advice about the consequences of a foreclosure and review the IRS information at www.irs.gov/individuals/article/0,,id=179414.00.html


The Mendoza Team

Keller Williams Realty Sonoran Living | Each Office Independently Owned and Operated
4001 E. Mountain Sky Ave , Suite 105 • Phoenix AZ 85044 | 480-706-7234