Understanding Short Sales A short sale occurs when a seller needs to sell their property for less then is owed on the mortgage (s) and the lender allows a release of lien from the property. In most cases the homeowner needs to show a HARDSHIP of either financial, medical, job related, such as a job relocation to approve a short sale. Most times the balance from the short sale is forgiven by the lender or the balance is negotiated as part of the short sale. Each short sale scenario is different, as the lenders decision depends on the seller’s financial picture, market value of the property in relation to the purchase offer price, the lenders investors requirements and their own Foreclosure ratios. Why would a lender accept a short sale? A short sale has a better return on investment to the lender than a foreclosure. They are able to cash out of the loan faster than a foreclosure process. Plus they do not have the legal fees which are normally attached to a foreclosure. As a homeowner, why would I choose to attempt a short sale? Let’s face it. Bad things happen to good people. There are many reasons why homeowners find themselves in a position of default…change in mortgage payments, loss of job, health issues, etc. When you get behind on your mortgage payments, the lender will start the foreclosure process, no exceptions. If the foreclosure takes place, you have ruined your credit for a period of up to 10 years. You can expect your credit score to go down about 200 points* or more, making it impossible to make any future purchases using credit. A foreclosure is usually a required disclosure you must make on any credit or job application. The lender may also file a deficiency judgment against you. A deficiency judgment can arise if the lender sells your home at auction for less than the mortgage debt. The lender then holds you responsible for the unpaid portion of the loan. The lender may take legal action to pursue payment, such as garnishing your wages. A short sale is usually listed as settled debt, and is much less harmful to your credit. You can expect a decrease in your credit score of approximately 50 - 75 points*. The loan may be forgiven, and no deficiency judgment will be placed against you. Is it true I will be given a 1099-C by the IRS, and will owe taxes on the unpaid loan amount? This has been a major concern for homeowners who choose to do a short sale. Previously, the IRS had the ability to consider the forgiven loan amount as earned income, and you could be taxed on that income. However, recently the House Ways and Means Committee voted to remove the phantom income tax that previously haunted distressed homeowners on primary residences. Contact your accountant or attorney for further information on 1099's in a short sale. Who should handle our short sale? The most important thing to consider when deciding to work out a short sale with your lender is to use a qualified professional to handle the process and negotiations. If the processor is not experienced in the short sale process, the deal can be over before it begins. A professional Real Estate agent will need to list your home on the market as the first step. Be sure they are aware you are attempting a short sale, and that they have experience working with short sales or experience working with a loss mitigator. The best scenario is to let the real estate agent handle the marketing of your home, and allow the loss mitigator to handle the short sale. What is the short sale process? The loss mitigation representative will explain the process and prepare your hardship package. They know upfront exactly what the lender will require when submitting your offer, and will be prepared fully to negotiate on your behalf. Your home is listed by an experienced short sale real estate agent, who prices the home according to market value yet being aggressive in price reductions if no offers are submitted by buyers. Remember, the goal is to bring in a quick offer and to prevent you from going into foreclosure. Once an offer is received, an entire package is presented to the lender, and the negotiations begin. Will the lender always accept a short sale offer? Unfortunately, not always. However, the more complete and detailed the short sale package submitted to the lender, the better the chances of getting an approval. The key is a good Short Sale Realtor listing the property, a qualified and very experienced short sale negotiator with a team of experts to handle each and every obstacle which could be encountered. |