What if you simply owe more on your home than it is currently worth in today’s market?? Then you may want to consider a “short-sale”. What is a short sale? A short-sale is merely a process whereby a designated representative can help you negotiate with your lender to sign off on selling the home for less than is owed on the property. Sometimes this is due to a combination of a first-mortgage and a second mortgage (remember when lenders thought property could only appreciate, not depreciate???). Times have changed but “this too will pass”. However, in the meantime many people are caught in this conundrum.
What are the advantages of a short sale?
A short sale can minimize the damaging impact to your credit and can minimize your financial exposure and liability. A foreclosure can remain on your credit for up to seven years while a short sale usually gets reported as a “settled debt” and is significantly less damaging. With a short sale, your FICO score will not be as negatively impacted as it would be with a foreclosure, and you will be able to get into a new home much sooner as well. In certain foreclosure situations, the lender will ultimately sell the property at a significant discount once they foreclose and repossess the property. The homeowner can then be financially liable to the lender. While the same may be true with a short sale, the difference is with a short sale the homeowner is still involved in the process and can therefore contribute their input and have more control over the sale price of the property and the potential associated liabilities. In a foreclosure, however, once the lender repossesses the property, the homeowner typically cannot control what follows next.
Why would my lender agree to a short sale?
In most distressed mortgage situations, foreclosure is a last resort for all parties involved. Simply put, both the homeowner and the lender usually want to avoid foreclosure at all costs. That is why lenders have come up with various alternatives to foreclosure, which they are typically very motivated to pursue prior to going to foreclosure. A short sale gives the lender the ability to cut its losses upfront thereby avoiding the expense and time of a foreclosure and potentially greater losses. Lenders want to make loans; they do not want to be in the business of owning and managing real estate. In many cases, a short sale offers a better return on the lender’s investment than a foreclosure.
What is my potential liability after completing a short sale vs a foreclosure?
As with a foreclosure, there are several potential tax and liability considerations when doing a short sale of loan modification, however, they are typically less severe than they would be with foreclosure. After completing the short sale your lender may decide to issue you a 1099 for the difference between the price your home sold for and what you owed and you can later be taxed by the IRS on the amount as income. It is important to note that if specific criteria are met, the IRS may release the borrower from this tax liability. In some states and with certain types of loans and with certain types of loans, following a foreclosure sale, lenders may have recourse in that they can pursue a court decision called a “deficiency judgement” making you personally liable for the remaining amount owed to them above the foreclosure sale price. The lender has sole discretion whether to pursue a deficiency judgment in those instances when it is permitted. With a short sale, by contrast, the lender often releases the borrower from the difference between what was owed and what the property sold for, thereby erasing both the lien and the loan. In some cases, however, while the lender may release the lien, they may also ask you to pay a portion of the remaining loan balance in the form of an IOU. We diligently apply ourselves to every situation with the goal of negotiating with the lender to eliminate the remaining balance, minimize your tax liability and consider your debt as settled. Real Estate Resource cannot give you advice regarding the tax or legal consequences of a short sale, loan modifications, other loss mitigation solutions or any other transfer of the property. We strongly encourage you to seek independent tax and legal advice regarding the advisability of entering into a short sale, loan modification or other loss mitigation solution.
How do I qualify for a short sale?
In order to be eligible for a short sale, a homeowner must be able to prove to the lender that they are a victim to a “hardship” and are therefore unable to continue making payments on their mortgage. A hardship situation is one that is the result of some extenuating circumstance that forced the borrower into a position where they can no longer afford their mortgage payments.
How much will a short sale cost me?
Absolutely nothing out of pocket. Real Estate Resource provides our short sale negotiation services at no cost to the homeowner. Our short sale fees are never directly paid by the homeowner and we are only compensated by the bank if we successfully negotiate a short sale.
How long does a short sale typically take to complete?
Every short sale is unique and follows its own timeline. Timing depends on how quickly we can begin negotiating with your lender.
When should I begin the short sale process?
As soon as you possibly can. Foreclosure situations tend to be extremely time sensitive. The sooner we can begin the negotiations with your lender, the greater the chances of a successful resolution.
What do I need to send to Real Estate Resource in order to get the short sale process started?
We would only need a few documents from you in order to open your file here and get the process started. We will need: (1) a signed client agreement, (2) signed Authorization Form (one for each lender), (3) a completed Property Profile (4) most recent mortgage statements for all loans on your property and any correspondence from your lender(s) regarding your mortgage(s) and (5) a Hardship Letter (which we can help you construct).