Short Sale Information
What is a short sale?
A Short Sale is used to describe the sale of a home in which the homeowner owes the bank more than the home is worth. The bank agrees to allow the home to be sold for less than what is owed (AKA: Short Sale). Basically, the bank is agreeing to take less money for what is owed on the loan.
With foreclosures on the rise, banks are looking for any way they can to decrease the amount of loss due to these foreclosures. Basically, it is much more cost effective for a bank to do a short sale rather than a foreclosure. During the foreclosure process the bank may incur costs for attorney fees, damage to the property, resale costs, property tax, insurance and delays from the borrower bankruptcy. The foreclosure process is very costly to the lender, about $60,000 after all attorney, court and legal fees are paid. After taking such huge losses to foreclose, once the lender finally obtains possession of a property, many times it is worth even less due to neglect, acts of nature and even vandalism. Whenever a homeowner stops making mortgage payments, the loan becomes a "non-performing asset" to the bank. The bank will be losing money on this property each and every month, and would rather liquidate the property now to mitigate their losses in the long run.
Will I qualify for a Short Sale?
Most of the time: Yes. Contrary to popular belief, it is not difficult to qualify for a Short Sale. A good Short Sale candidate has no equity in their home and facing some sort of financial hardship. They are not able to sell their home and pay off all of the outstanding loans/debts that are secured against their property. If you owe more against your home than it is currently worth and want or need to sell it and can't bring cash to closing to make up the difference between what you owe and what your home is worth, then you may be a prime candidate.
What are some of the reasons I may be a candidate for a Short Sale?
Short selling you home isn't the right move for everybody. Here are a couple of important signs that can help you determine if doing a short sale is right for you. The following are typical reasons Short Sales are executed:
* You are experiencing a financial hardship: your income has decreased and/or your expenses have risen.
* You have "negative equity" and owe more than your property is worth.
* You are having difficulty making your mortgage payments.
* Your monthly mortgage payments have been rising due to increasing interest rates, property taxes, etc.
* You must relocate and keeping your current home is not financially possible.
* You are behind on your mortgage payment and are unable to keep up with all of your monthly obligations. Some of the reasons for falling behind on your mortgage payment may include sudden change in monthly household income, loss of job, divorce, and more.
* You are NOT behind on your monthly mortgage payment but know that you will soon be unable to keep up with all of your monthly obligations and therefore in the near future will not be able to afford to keep your home.
* You are NOT behind on your monthly mortgage payment but need or want to move. Reasons could include a job transfer, a health reason, retirement, and more.
If you match any of these scenarios then doing a short sale could be the perfect solution.
How much does it cost me for you to do a short sale on my house?
All realtor fees, attorney and title fees are paid by your bank!! You will never have to pay me or my company any of the typical real estate transaction fees associated with selling your home. Typically, clients walk away paying nothing to complete their Short Sales when they work with me and my team. My attorneys and team members negotiate aggressively with the banks to ensure you owe nothing. Occasionally, some banks will require financially capable homeowners that are completing Short Sales to contribute a nominal amount to facilitate the short sale. On rare occasions, sellers are asked to take small unsecured loans (promissory notes typically around $5,000) that the homeowner must pay off over 5-10 years. These loans are typically at zero percent interest. The banks do this as a good faith gesture on the part of the homeowner. While my team does its best to ensure you walk away owing nothing, we can’t promise that because the banks are in control. Even if you end up owing a small amount, it is MUCH better than going through foreclosure or bankruptcy where you could still owe hundreds of thousands of dollars even after they take the house.
Are there any tax ramifications to a Short Sale?
There could be. If you borrow money from a lender and the lender later cancels or forgives the debt, the lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. (With a Foreclosure, you will also get a 1099. In the case of a Foreclosure the 1099 is called a ?1099-A.?) You may have to include the cancelled amount in income for tax purposes, depending on the circumstances. Since we cannot give tax or accounting advice please be sure to consult with your tax professional. There is some good news however regarding ?forgiven debt?. The Mortgage Debt Relief Act of 2007 provides relief to many, many homeowners. For more information on the Mortgage Debt Relief Act, how it works, who it applies to, and more, please read more directly from the IRS website. And GREAT news! It has been extended to December 31, 2013!!
* The first thing to keep in mind is that the moment you go 30+ days behind on your mortgage payment, your bank has the right to report to all of the credit bureaus that you are 30 days behind on your payments. When a late payment is reported to the three major credit bureaus, it does have a direct affect on your credit.
* After going through a Short Sale or a Foreclosure, most people have multiple 30, 60, and 90+ day late payments reported on their credit report.
* When the actual Short Sale is completed, most banks will report to your credit report that your account was "paid in full for less than the full amount". Your credit report may also be marked as "settled". It is important to keep in mind that each lender has a different way of reporting that a Short Sale was done, but this is the most common language that is seen.
* If your home were to go to Foreclosure you would most often see the bank report "Foreclosure" on your credit report.
It is difficult to gauge how much of a credit scoring affect a Short Sale has vs. a Foreclosure. Credit experts will agree that neither a Short Sale nor a Foreclosure is favorable to your credit or credit score, however, the impact of a Foreclosure is much worse. We strongly advise you to work with a Credit and Credit Scoring Expert for more specifics on this topic, and ways in which to improve your credit after the Short Sale is complete.