What is a Short Sale?
A short sale is when a Borrower's house is sold for an amount less than what is owed on the property. In a short sale, the lender agrees to accept less than the full balance due on the debt, and usually ‘forgives’ all or a large portion of the difference.
How will the Short Sale affect my credit?
Lenders usually report the sale to the credit bureau as "Settled for less than amount owed". As far as your credit score is concerned, the impact it has your credit score depends on several factors, including the number of months you are late on your payment. In many cases, if you are only a few months late, you can complete a short sale with minimal impact to your credit.
If you are currently behind on your mortgage or facing foreclosure, the short sale will actually help your credit! How? Because once you are approved for the short sale, all collection activity will STOP and you will avoid foreclosure!
Who benefits from a Short Sale?
Short sales are a win-win situation. Lenders, Borrowers and Realtors all benefit from a successful short sale. Lenders get a majority of their money back, Borrowers get the relief they need and are able to sell their property and avoid foreclosure, and Realtors can facilitate the transaction and receive compensation (commission) from the sale of the property.
Why would banks forgive the difference?
To mitigate their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property ‘back’ through foreclosure, a short sale often makes a much wiser business decision for the bank.
This sounds too good to be true!?
Not really. Things that are ‘too good to be true’ usually don’t make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is, lenders are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.
What is Negative Equity?
Also known as being "upside down," negative equity is the difference between the value of an asset and the outstanding loan balance. For example, if your house is worth $400,000 and you owe $500,000 on it, you would have a negative equity of $100,000. Negative equity can result from a decline in the value of your home after it is purchased.
What happens if I owe what my home is worth?
Even if you owe exactly what your home is worth, you may still need to do a short sale in order to pay for the costs of the sale (Title Policy, Escrow Fees, Taxes, Commissions, and other seller closing costs).
Why not just let my lender foreclose?
NO! What is the first thing banks do when they foreclose on a property? Hand it over to a real estate agent to get rid of it quick! The foreclosure process is a lengthy and expensive process. It involves Trustees and it costs lots of money. Once they get the property back via foreclosure they must often sell it for MUCH LESS than market value and pay Realtor commissions and all customary closing costs. It simply makes more sense for them to approve a short sale at fair market value before foreclosing in most cases.
And, even when they do sell it through foreclosure... this does NOT remove your obligation to repay the remaining balance! It is not wiped away!!
How long does it take?
Short sale approval can take 60 days or longer, and then another 30-45 days to close escrow.
What if my home is already in foreclosure?
Your foreclosure sale will usually be suspended during the short sale process. That's why it's imperative that you contact us right away!!! I have an excellent track record of getting the lender to STOP the foreclosure sale to allow time to get a short sale negotiated.
Do I have to pay taxes on the debt forgiven?
In 2007 the U.S. Congress passed the Mortgage Debt Forgiveness Relief Act and it is in effect until 2012. As a result of that act, borrowers no longer pay taxes on the debt forgiven on their primary residence. So if the property is your primary residence, then you should not have to pay any taxes on the forgiven debt. As with all income tax-related issues, you need to verify this with your CPA.
If a property is an investment or a second home, then you need to consult with your CPA to determine if you qualify for other tax relief strategies, such as the "insolvency clause". Again, check with your CPA.
For more information go here: http://www.irs.gov/individuals/article/0,,id=179414,00.html
Do you think I should just do a loan modification instead of a Short Sale?
If you desire to keep your home and can afford to make the monthly payments, then YES you should keep it! In order to qualify for a loan modification, you will need to demonstrate to the bank that you are generating more income than your current monthly expenses, and the lender wants to see you mortgage payment be 30% of your income. If this is this the case, then you will need to call your lender and let them know you want to do a loan modification, and see if they will qualify you for their loan mod program.
If you aren’t approved for a loan mod, we can then move forward with a short sale. We can’t work the short sale at the same time you are working with your bank on a loan mod (i.e. you can't be trying to keep the home and selling it at the same time.)
Can I lease out my house while we’re waiting on the short sale.
We don’t recommend that you lease your home while waiting on the short sale to be finalized. Lenders will not be sympathetic to sellers who are collecting rent payments and not making their mortgage payment. Also, homes with tenants are subject to legal rules (tenant rights) and much more difficult to show and to sell.
Who will let me know what I need to do to the home to get it ready for sale?
We won’t be recommending that you do anything to the home that will cost you money. The truth is, since you won’t be netting anything from the sale, the last thing you probably want to do is spend more money on a home you no longer can afford. For that reason, we will be selling your home as-is. Our only suggestion is to clear out as much clutter as you can. Other than that you’re OK. The lender will price your home according to its condition.
Would you like to discuss your options?
