Short Sale Information

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What is a Short Sale? Is this an option for you?

With tough economic times, and job losses, many homeowners are faced with foreclosure. A short sale is simply an alternative to salvage not only your credit, but your ability to purchase in the near future. While there will be a negative affect on your credit with both a short sale and a foreclosure, the short sale will minimize the damages.

A short sale is a negotiation between the seller, and the seller's mortgage company to sell the property for less than what is owed.  The mortgage company will then decide to either cancel the debt, or work out a payment plan as an unsecured debt agreement. However, this depends on you situation, as well as which mortgage company.

It is important to use an experienced agent such as myself, so that the short sale can be completed as fast as possible. Keep in mind that short sales are not all the same, and some banks will cooperate more than others. Hiring a full time real estate professional that is experienced with short sales will help speed up the process, and minimize surprises.

 

Do I have to pay taxes on the money that the bank provided for me to close on the property?

Possibly.  If the bank or mortgage company decides to cancel the debt they will usually issue a 1099-C (Cancellation of Debt) for the amount of debt that was cancelled for you to sell your home, and this amount will be reported to the IRS for when you file your tax returns. However, recent tax laws allow certain taxpayers to not pay taxes on this amount if they meet the criteria defined by the IRS currently for tax years 2007, 2008, and 2009. These factors are dependent upon your income bracket, whether this home was your primary residence, etc. Consult your tax professional on this matter, as they can advise you about the tax implications.

 

What are the negative effects to my credit score?

Every person's credit history is different, and there is no clear cut definition of what will happen, and no guarantee, but here are two actual credit score examples that we have encountered:

Seller A decided to let his home go to foreclosure, his credit before foreclosure was 700, after foreclosure his credit dropped to 580, and most lenders will not give a mortgage for 5-7 years, somewhat similar with a bankrupcy scenario.

Seller B decided to sell his home before they were inevitably late on their mortgage payments. Their 3 credit score average was also close to 700, however, after successively completing the short sale, their credit score was reduced to 660.

Do I have to qualify for a short sale?

Yes. I have an extensive application as well as documents that must be provided before listing the property. Most banks will cooperate with a short sale, however there are some banks that won't. I contain a list of banks, and their key contact persons, so that I can speed up the short sale process.

 

What is the short sale process and timeline?

  1. I meet with the homeowner, and I explain the short sale process, and the positives and negatives.
  2. Seller completes the short sale package
  3. I contact the financial institution to ask if they will accept a short sale, and send them any information they may need
  4. I list the property and get buyers to submit offers on your property.
  5. I qualify the potential purchaser, and send all the signed paperwork to the bank
  6. This is where we wait, and I make calls every day to get a response from the bank. This can take anywher from a week to 2 months to complete, and get a response from the financial institution.
  7. The financial institution will either accept, reject or counter-offer, at which time we notify purchasers and sellers
  8. My qualified title company will prepare a preliminary HUD statement, and send this to the financial institution for reviewal
  9. Closing is then scheduled.
  10. The entire process from initial meeting until closing can be as fast as 8 weeks. Normal circumstances takes 3-4 months to close after receiving an offer.

 

What fees apply to a short sale?

A preliminary, nonrefundable fee of $300 is required for preliminary title and record searches. The remaining Realtor commissions, transfer taxes, and title fees are normally paid by the bank. This is structured for minimal cost to the seller in their time of hardship.