Short Sales Experience
Today's reality has many home owners struggling to make mortgage payments they can't afford. With the decrease in property value many homes are worth less than the amount owed, so when owners can no longer make the payments the property goes into foreclosure. This gives the home owner two options; allow the lender to foreclose on the property or sell the property in a short sale. Many lenders will agree to accept the proceeds of a short sale on owner occupied homes, then forgive the balance of the debt. By accepting a short sale, the lender avoids a long and expensive foreclosure, and the property owner is able to pay off the mortgage for less than is owned.
We have extensive experience in short sales and will work for you with your lenders to reach the best possible outcome. Click here for a free consultation.
Short Sale Basics
Far too many homeowners throughout the country are either behind on their mortgage or stretched financially to the point that they are one "life event" away from mortgage trouble. Increasingly, the most common reason for homeowners struggling with their mortgages is they just can't afford it. They got in over their head or their mortgage payment adjusted up to a point beyond their ability to pay. If you find yourself in this position please contact us for a free consultation by filling out the form on the right!
1. What is a real estate short sale?
A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale on owner occupied homes, and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than he owes.
2. How late in the pre-foreclosure can you start a short sale?
Generally, foreclosures take 90 - 120 days, so allowing a minimum of 60 days to complete a lender approved short sale is encouraged.
3. Will a lender allow a real estate short sale when the seller has substantial equity remaining in the property?
Home owners with substantial equity find themselves in a difficult position as the lender will likely choose to continue the foreclosure process to regain title and dispose of the property at market value.
4. What documents are necessary to proceed with a short sale?
All mortgage holders being asked to approve a discounted payoff will want to review the homeowners’ financial circumstances before approving the proposed transaction. The following documents will nearly always do the trick:
Two years tax returns - most recent
Two months bank statements
Two month pay stubs
Personal financial statement
A signed, valid purchase contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender
5. Will the seller's credit rating be affected by a short sale?
It is up to the individual lender to decide what to report. What often happens is the loan will be reported a "paid" on the credit report. However, it may reference as "settled for less that owned". It is believed to be more advantageous to have a short sale referred to than a foreclosure on your credit report.
6. If a seller is in bankruptcy, will that affect the sort sale of the property?
Negotiation of a short sale is prohibited in bankruptcy.
7. Will the lender require an appraisal on the home in a short sale?
Most lenders require a full appraisal be submitted in the short sale package. Some may only require a broker’s price opinion. The lender requires a formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer.
8. Are there tax implications in the short sale of real estate?
Because a Short Sale results in the cancellation of debt - that's how the loan payoff discount is categorized - there are potential tax consequences related to a short sale.
However, most clients will qualify for an exclusion recognized by the IRS under which the "income" will not need to be reported.
Insolvency - total liabilities exceed total assets at the time of the debt settlement - the Short Sale.
The seller can complete IRS Form 982 or attach a Letter of Insolvency Explanation to their tax return. (Source Mortgage resolution Services)
We strongly recommend you contact your tax professional and/or attorney before considering a short sale.
9. Why would a lender allow a short sale to occur?
Simply, it may benefit both the lender and the seller. The seller is relieved of the home they cannot afford and the lender avoids a costly foreclosure proceeding.