A home short sale (short sale or short sales) is when you sell your house
for a sum that is often just enough to pay the mortgage. Often, the lender
gets less, but lets you off the hook anyway. Some lenders OK the sale,
but come after you for their loss. Once the house is sold, you must get
out so the buyer can occup the home. If you can pull off a short sale
and avoid paying any deficiency, this is a good way to help keep your
credit score from collapsing with a foreclosure. Loans are harder to
obtain. Therefore, many short sale attempts fall through due to lack
of financing. If have decided that you cannot afford to keep your home,
a foreclosure might be better than a short sale. In a short sale, you
will need to move out soon after the closing. In a foreclosure, you
don’t need to move out until the end of the foreclosure process.
Short sale definition
A short sale process involves the sale of real estate in which the proceeds
from selling the property will fall short of the balance of debts secured
by lien(s) against the property and the property owner cannot afford to
repay the liens’ full amounts, whereby the lien holders agree to release
their lien on the real estate and accept less than the amount owed on the
debt. Any unpaid balance owed to the creditors is known as a deficiency.
Short sale agreements do not necessarily release borrowers from their
obligations to repay any deficiencies of the loans, unless specifically
agreed to between the parties.
A short sale is often used as an alternative to foreclosure since it
mitigates additional fees and costs to both the creditor and borrower;
however both will often result in a negative credit report against
the property owner.
If have decided that you cannot afford to keep your home, a foreclosure
might be better than a short sale. In a short sale, you will need to move
out soon after the closing. In a foreclosure, you don’t need to move out
until the end of the foreclosure process.
Why do lenders allow a short sale?
The seller is out of the home the cannot afford and the lender avoids
the costly foreclosure proceedings.
Can I still profit on a short sale?
No. A seller may not receive proceeds from a short sale. SOMETIMES a
lender will pay a fee to encourage a home owner to proceed with a
short sale instead of dragging out a foreclosure.
How much time do I have to start a short sale?
In a Pre-foreclosure “Time is of the essence”.
Time lines starts from the date the notice to the borrower is filed.
Is there an application process to start a short sale?
Yes – In basic terms you are applying for a short sale in much the same
way you applied for your mortgage. The individual short sale process
will depend on the lender. Be prepared to submit a hardship letter
detailing the circumstances behind the short sale; Current financial
condition of the seller, ie; pay check stubs, bank statements,
a personal financial statement.
How will a short sale affect my credit rating?
Current estimate is -50 points. Each individual lender to decide what to report.
Often it will note loan as “paid” on their credit report, while in the footnote
it may reference “settled for less than amount owed”. though it is a mark on
the credit report, it is more favorable that “foreclosed” which
could be -200 FICO points.
I have filed for bankruptcy, can I still do a short sale?
Most lender would not consider a short sale if the homeowner is in the middle
of a bankruptcy proceeding. A short sale by nature is a collection activity
which is prohibited in a bankruptcy.
Will I need an appraisal for a short sale?
No. The lender will want its own 3rd party BPO to gauge the value of the home.
What are the tax implications in the short of real estate?
Generally, taxes are reported as a loss to the lender and a gain to the buyer.
If the lender forgives 20K on your mortgage, you would receive a form 1099C
in that amount as income, and responsible for paying the tax.
Note that a bankruptcy can eliminate the 1099C income.
What if your short sale realator says you don’t need a short sale attorney?
Play it safe and have a lawyer look over the transaction.
What is a short sale mortgage?
This just means the mortgage was part of a short sale.
