It is understandable to have questions when coping with a new and challenging situation, especially when your home and financial future is at stake.
The reality is that millions of homeowners across the country are finding out that they have more questions than answers when it comes to short sales. At times like these, you need assistance from a local short sale specialist who can help you evaluate your options and choose the right solution.
Whether you are a homeowner who just lost employment, went through a divorce, lost a tenant, or experienced any other financial setback, a short sale may be the right choice. However, it is not always the case.
When short sale is the best option, I will assist you in creating the right strategy associated with the sale of your home. I will guide you through the entire process and answer any and all of your questions. I will be there every step of the way.
What Is A Short Sale?
A short sale occurs when the proceeds from a sale are BELOW the outstanding loan obligations on a home. A short sale must be approved by your lender(s) and potentially other lien holders.
How Do I Qualify For A Short Sale?
In order to qualify for a short sale, the homeowner must have the following:
- Financial hardship
- Monthly income shortfall
- Insolvency
What Is An Acceptable Hardship?
Amongst others: loss of job; business failure; death in the family; severe illness; divorce; job relocation; medical bills; military service; payment increase or mortgage adjustment; insurance or property tax increase; reduced income; separation; and incarceration.
How Do I Write A Hardship Letter?
A hardship letter is an important part of the short sale package and is required by most lenders before considering your short sale request. The hardship letter must relay your current situation in a factual and concise manner and can be typed or hand-written. You must state what your harship is and how you’ve dealt with it. All borrowers on the loan must sign and date the letter.
Why Do Lenders Accept Short Sales?
It is more beneficial for lenders to do a short sale rather than go through foreclosure. In most cases, the loss the bank takes is signficanly lower in a short sale. Foreclosure proceedings are expensive for lenders and take much longer than the short sale approval process. Banks are not in the real estate business. They are in the lending business. Their goal is to recover as much money as possible and as quickly as possible. Contrary to popular belief, the banks do not want your home.
Who Pays Real Estate Commissions In A Short Sale?
Real estate commissions are a part of settlement expenses paid by lenders.
What Are Common Mistakes In Handling A Short Sale?
- Selecting the wrong short sale realtor to handle your transaction
- Overpricing or underpricing the property
- Submitting an incomplete short sale package to lender(s)
- Accepting an offer from an unqualified buyer
- Submitting multiple offers to the lender(s)
- Having unrealistic expectations
Are There Any Income Tax Implications Stemming From A Short Sale?
Contrary to popular belief, the deficiencies associated with both short sales and foreclosures are treated as debt foregiveness by the lenders and, more importantly, by the IRS. Debt foregiveness is essentially a form of income that may result in additional tax liability unless the borrowers are exempt under Mortgage Forgiveness Debt Relief Act of 2007.
If you’re a homeowner in distress, you should consult a trusted tax advisor in regards to potential debt foregiveness and short sale tax implications. Please do keep in mind that a short sale, in most cases, yields a significantly lower deficiency than a foreclosure.
What Is A “Deficiency”?
A deficiency is the difference between the net proceeds from a sale and the outstanding loan obligations. It is the “short” in short sale. For example, if the seller owes $200,000 to the bank and the approved short sale yields only $125,000 as net proceeds, then the deficiency is $75,000. There may be tax implications stemming from this shortage and potentially subsequent deficiency judgements.
What is a Deficiency Judgment associated with a Short Sale?
After both, foreclosure or a short sale, the shorted lender(s) may proceed through the court system to recover the amount lost during the transaction from the borrowers. When someone goes through a foreclosure, there is no opportunity to discuss with the lenders what will happen to the deficiency amount and it is very likely that the lenders will pursue the deficiencies especially against those individuals who pursue strategic default rather than a short sale.
By electing to go through short sale process rather than simply walking away from the home, the borrower has an opportunity to control and negotiate the actual deficiency. Furthermore, the actual shortage is always lower in a short sale due to the fact that the property is sold with the assistance of a short sale realtor and for market value rather than significantly below as in the case of foreclosed home.
When evaluating your options, you need to have guidance from an experienced short sale professional. Call me today (540) 623-7567.
