What is a Short Sale?
A short sale occurs when a homeowner sells a home for less than what is owed on the loan and the lender agrees to accept that amount as payment in full. Properties that are “upside down” or “underwater” are sold as short sales.
What are the benefits to a Short Sale?
A short sale allows the homeowner to avoid foreclosure and the corresponding hit to his/her credit report. Foreclosure can be a mandatory 100-120 (or more) point hit to a credit report and that information remains on the credit report for as long as seven years. A short sale may be a 40-50 point hit, depending on how the lender reports it.
A homeowner makes no money on the sale of his/her home in a short sale situation.
Prior to the passage of the Debt Forgiveness Act in December 2007, any debt forgiven on the short sale of a home would be considered as income to the homeowner and would therefore be considered taxable by the IRS. The Debt Forgiveness Act, in effect through 2010, does not consider forgiven debt as taxbale income.
Why would a lender agree to a short sale?
Lenders view the benefits of a short sale primarily in financial terms. It’s very expensive for a lender to foreclose on a home. Cost can include legal fees, eviction costs, taxes, insurance, maintenance, HOA dues, and future selling costs.
If the lender does foreclose on a home, the property becomes BANK OWNED and now shows up as a liability on the lender’s balance sheet. Banks and lenders are in the business of lending, not owning.
Are you a good candidate for a short sale?
There are four general criteria for a short sale:
The market value of your home must be less than the loan amount.
You must be financially insolvent. A homeowner facing foreclosure will not be enough to justify a short sale. If the homeowner has money or assets elsewhere, the lender will not be open to negotiating a short sale. Even though the short sale will usually cost the lender less than a foreclosure, the lender is still losing money.
You must demonstrate a hardship that made it difficult or impossible to make loan payments. A hardship may be that the loan has adjusted, job loss or loss of overtime, a medical problem or the death of a spouse. Whatever the case, a homeowner must provide documentation to support the hardship. Most lenders will also ask the homeowner for a hardship letter explaining the particular situation.
You must be willing to cooperate with the short sale process. The homeowner must be willing to work with the Realtor, lender, and buyer. The lender will require specific docementation from the seller and the entire process can take months. Lenders may rejects offers and buyers may walk away from deals if they get impatient waiting for an answer from the lender.
How can we help you with the short sale of your home?
We understand the short sale process and the strategies, techniques, and tenacity it takes to get your home sold. Contact us for a consultation to discuss your personal situation. Or visit our website dedicated to sellers in a short sale situation: yourshortsalestrategy.com
