Short Sale
Homegate Realty has a remarkable Team of Short Sale Experts. Everyone of our Short Sale Agents is a Certified Distressed Property Expert. The CDPE certification is a rigorous process and offers constant continuing education opportunities for our Team, so they stay current in the latest Short Sale rules, tactics and negotiation points. Call Alan today at (775) 826-9696 to discuss if a Short Sale is the right option for your situation…and if so, how are Short Sale Team of experts can help you.
Ten FAQ’s About Short Sales
1. What is a Short Sale?
A short sale is the process by which homeowners can sell their home and the sales proceeds do not fully pay off the existing loans(s) and the lender(s) accepts a discounted payoff to satisfy the loan.
This is accomplished by providing proper documentation to the lender(s) to convince them to reduce the payoff balance to allow the sale. If the sale is approved, the home can be sold for a price lower than the total debt on the property without the seller having to come up with immediate cash to cover the shortfall. The mortgage is either fully or partially satisfied and any foreclosure process stops.
2. Why would a mortgage company agree to accept a Short Sale?
There are actually several reasons why a mortgage company would approve a Short Sale, including the following:
Legal Concerns: Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
Wall Street is Watching: Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender’s ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved quickly.
Asset Management Expenses: If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful Short Sale eliminates most of these costs.
Reserve Requirements: Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful Short Sale lets the lender put more money to work.
3. Can I simply deed my property to someone else and avoid the hassle?
The lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will still show on YOUR credit. Do not deed your property to someone else without consulting with an attorney.
4. What sort of hardship would my lender consider legitimate?
Generally, so long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. The key to getting the Loss Mitigation Department to accept a hardship is to submit a strong hardship letter. Below is a list of “hardships” that are common and frequently accepted by mortgage lenders.
- Family illness or injury
- Job loss or significant income loss
- Divorce of split of domestic partners
- Death of Spouse
- Adjustment in mortgage payment or unforeseen increase in living expenses.
5. I am concerned about my credit. How will a Short Sale affect my credit?
The big key here is to avoid foreclosure. Short Sales will affect your credit rating especially if you miss your mortgage payments during the process. But, by nearly any measure, a foreclosure is the most damaging event your credit status can encounter.
6. Can I be considered for a Short Sale if my loan payments are current?
Yes, however the required financial documentation must be submitted along with a detailed hardship letter explaining the inability to continue to maintain your loan payments and reason behind the Short Sale request.
7. Why Work with a Realtor?
Getting a Short Sale approved by the lender is a complicated, multi-step process. This requires a high level of patience, persistence and most importantly, experience. The Lender realizes that it is in their best interest as well as the borrowers to have the Short Sale file packaged correctly from the very beginning, by a Real Estate professional that does not have a conflict of interest. Also, the lender will require a listing agreement and purchase agreement in order to facilitate the short sale.
You get professional representation at LITTLE OR NO COST TO YOU! The lender pays the Real Estate commission along with most of the other sales costs, so that professional representation is FREE to you.
8. How does the Mortgage Forgiveness Debt Relief Act of 2007 work?
Prior to passage of this law, for any debt that was forgiven in a Short Sale or Foreclosure the homeowner would receive a 1099 and would have to report this forgiven (or cancelled) debt as income. This still holds true for those individuals who do not qualify for the exceptions of the act. From January 1, 2007 to January 1, 2012, the act eliminates the phantom tax on debt cancellation in mortgage discharge.
- Debt must have been debt incurred to acquire a principal residence
- Cancelled debt up to $2 million is eligible
- Sets forth rules for determining the allowable amount of exclusion for taxpayers with non-qualifying indebtedness and taxpayers who are insolvent
- Debt from a second (non-acquisition) mortgage or HELOC is not eligible Cancelled debt from investment properties and second homes is not eligible
9. What about Tax Consequences?
If you do not qualify for the above exclusions, the IRS defines the amount you are “short” as having been “cancelled”. It is also required for the lender that allows this debt cancellation to issue you a 1099 for this amount and you are required to claim this amount as income.
10. Will the Lender pursue a deficiency judgment against me?
In some cases, lenders also pursue a deficiency judgment against borrowers and attempt to collect the amount that was short. This does require a separate action to be filed in court causing the mortgage company in incur further expense. The mortgage company is acutely aware of your inability to pay and often see further collection as fruitless. In most cases, a short sale will get the lender more money than a foreclosure. The bank also has the right to pursue a deficiency judgment in a foreclosure. When considering all consequences, a short sale is almost always a better option than a foreclosure.
In many cases, with the help of your Realtor, you may be able to negotiate the deficiency outcome.
The information provided is for informational purposes only. Prior to entering into any Short Sale,you should discuss the matter with a qualified accountant or attorney regarding your options and the consequences of each.