What is a short sale?

A short sale is the process by which homeowners can sell their home for less money than they actually owe on the mortgage(s). This is accomplished by providing proper documentation to the lender(s) to convince them to reduce the mortgage balance to allow the sale. If the sale is approved, the mortgage lender(s) will actually take a loss on the mortgage. If a bank approves the discount of a mortgage, the home can be sold for a price lower than the amount owed without the seller having to come up with cash to cover the shortfall. The mortgage is satisfied and any foreclosure process stops.

What type of situation is the short sale best for?

Most short sales are accomplished on properties heading toward foreclosure. This means the homeowner is at least 3 payments behind, and the foreclosure process has already begun. Recently however, more mortgages that are simply behind or "in default" are considered short sale candidates without actually being in foreclosure.

Next, the homeowner typically has no equity or negative equity in the home. In other words, the total balance owed to the lender is equal to, or greater than, the price at which the house can be sold.

Does a homeowner benefit from a short sale?

First and foremost, a short sale relieves the stress of being in foreclosure and it allows the homeowner to get rid of their big mortgage payment and move on with their lives. A short sale allows you to stop a foreclosure proceeding and get a fresh start. In our experience, this is the primary benefit to the homeowner.

On the credit side, a short sale is arguably the lessor of two evils. Having some late payments, and a foreclosure filed has already done damage to your credit. However, a completed foreclosure generally does more damage than a short sale agreed to by a lender. Obviously, a bankruptcy significantly damages your credit score.

I'm an investor, can I short sale my rental property?

Yes, but remember the "hardship" element which must be present. For investors there may also be some income tax issues resulting from mortgage relief. Remember to consult your tax advisor.

Does it matter what kind of loan I have?

Possibly. In some instances there is a potential risk of a deficiency judgment or a lawsuit on a loan contract, as opposed to judicial foreclosure.

I am in foreclosure. Is a short sale for me?

Each situation is different and must be evaluated individually. The important factors in relation to a short sale are:

a. Property in foreclosure or default

b. Personal financial hardship

c. Little or no equity in the property

The value of the home has declined below the loan amount. If you feel you fit into these criteria, give us a call and we can discuss your specific situation.

What if my mortgage is an FHA, HUD or VA mortgage?

Short sales can still generally be accomplished on all of these types of mortgages, though each one has different criteria.

What options other than a short sale might I have?

a. Cure your mortgage default (bring your payments current);

b. Attempt a loan modification that adjusts the terms of your existing loan;

c. Refinance your mortgage with another lender;

d. Try to sell your home through normal channels;

e. Attempt to get your lender to accept a deed in lieu of a foreclosure; and/or

f. File for bankruptcy

What do I do about my back property taxes when I do a short sale?

Just as in a normal home sale, the property taxes are the responsibility of the homeowner until the date the sale is closed. Then they become the responsibility of the buyer. If your property taxes have not been paid this will affect the negotiations between the buyer and the bank, so you must inform us if any taxes are owed.

Why do I have to sign a Borrower's Authorization?

The Borrower's Authorization gives the lender permission to speak to your representative about your loan. That's all it does, but it is necessary. An authorization must be filled out for each mortgage and for each Realtor or escrow officer authorized to act on your behalf.

I have heard that I could owe income taxes after a short sale, is this true?

Possibly, but it's not that simple. There are a number of factors involved. For example, are you an investor or is the property your primary residence. Is the debt on the property "purchase money" or has the home been refinanced. If you're an investor or if the property was refinanced are you insolvent? You can see how the matter can become complex in very short order. You must consult with an attorney or CPA on this issue. However, without getting too complicated, we can provide our experience with this problem.

When a lender writes off part of a loan (discounts it) the portion written off is the equivalent of a cash infusion to the owner. This "mortgage relief" is then reported as income to you by means of a 1099C form.

Even if you receive a 1099C and declare it as income, there is a good chance you will owe very little tax. This is because there is an IRS rule regarding "insolvency" which essentially says if you are insolvent (more liabilities than assets) at the time of the short sale, you don't have to count the 1099C as income (instead you declare it, then obtain the exemption). There is an IRS form to complete to show you are insolvent. See the Internal Revenue Service website at www.irs.gov.

Again, please consult a CPA or tax adviser

My house needs a lot of repair; can I still do a short sale?

Yes, though it can make the process more difficult because the price must be lower to compensate for the repairs. The key is to show the bank's appraiser all the work that needs to be done. Let me know in advance if this is the case with your home.

Other people are on the deed with me, but they don't want to short sell. Can I still do a short sale?

No. All parties listed on the deed or mortgage must sign the short sale purchase agreement. There are no exceptions to this.

I have other liens (i.e. mechanics, IRS, court judgments) on my house; can I still do a short sale?

Yes, but it gets much more complicated and will take longer. If this is the case with your home, be sure to COMPLETELY list all liens you have. Each lien holder must be negotiated with individually. A short sale in this circumstance will take substantially longer.

I have 2 or 3 mortgages on my house. Can I still do a short sale?

Yes, each mortgage or line of credit (HELOC) can be negotiated individually. It is important to know which mortgage filed the foreclosure or, if more than one are in foreclosure, which one filed first.