Frequently Asked Questions About Short Sales
"Short Sale" is a relatively new expression to many homeowners, yet this type of sale has been part of the real estate market for many years. Unfortunately, most Realtors aren't familiar with the process, which has caused a lot of confusion in the community, with homeowners and even other Realtors. Because I am a Certified Distressed Property Expert, I thought it would be prudent to explain and dispel some of the misunderstandings.
What Is A Short Sale?
A Short Sale is when:
A homeowner is authorized, by the bank, to sell for less than what is owed on the mortgage.
The lender authorizes or accepts the sales price as a payoff.
The seller avoids a credit-destroying foreclosure, and sometimes they can also avoid a deficiency judgment.
The seller won't get any money at closing, yet they will avoid the financial and emotional damage that a foreclosure can cause. During our negotiations with the bank, we work to include a favorable wording for the forgiven debt of the mortgage, which can help the recovery of the homeowner. And I am able to do so in many circumstances.
Why Would A Lender Agree To Lose Money?
A lender loses significantly more money if they have to incur the additional expenses of a foreclosure, as opposed to accepting a short sale.
Lenders are in the business of lending money, not owning homes. The more money they have tied up with a property that they own, the less they have to lend out.
How Does A Short Sale Help Me?
It helps you avoid a credit-destroying, and an emotionally draining foreclosure process.
Avoiding a foreclosure will help save your credit. Typically a foreclosure will drop your credit score up to 300 points per loan.
You avoid having a foreclosure on your credit report anywhere from 10 to 15 years, which affects your future purchasing power and interest rates.
It could help you avoid a deficiency judgment from the lender after the foreclosure, as they try to recover their loses.
I've Already Received My Foreclosure Notice. Is It Too Late For A Short Sale?
The short answer is no. There are a few variables, though, that can affect the foreclosure timeline.
A qualified Realtor, or better yet, a Certified Distressed Property Expert, can help you extend the foreclosure timeline up to 6 months, and in many circumstances up to 7 or 8 months.
A home sale can be done and approved, up to the day of the bank sale, or auction of the home.
I Haven't Missed Any Mortgage Payments. Can I Still Do A Short Sale?
Oftentimes, the lender will not consider a short sale if there have not been any missed payments. That issue can be overcome if we can show a compelling reason (hardship) why the payments have been made, and why the payments are going to stop in the near future.
We would need to show how the payments were made, and where the money came from. If the payments were made with your credit cards, by borrowing from family members, or even if the money came from retirement accounts, as an example, it would help build the case. This will not guarantee that the lender will accept the short sale, however, there are instances where they have done so.
How Do I Pay The Realtor Commissions, Taxes And Other Expenses Associated With A Home Sale?
The homeowner doesn't pay any of the expenses associated with the sale of the home, such as commissions and other closing costs. Those expenses are paid by the lender. They are, however, included as part of the total shortfall that the owner would be responsible for, if the bank is successful with a deficiency judgment or promissory note.
The bank may ask the homeowner to reduce the lender's loss by making a payment, if the homeowner has any "extra" money in savings accounts, etc., or by signing a promissory note.
In December 2007, President Bush signed into law, the Mortgage Forgiveness Debt Relief Act, which eliminates the capital gain income tax that used to be levied on the forgiven portion of the primary residence's sale. The tax is still in effect for second homes, and investment properties.
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