Will a Short Sale Help To Stop Foreclosure? (02/04/2009)
OK, you're three months behind in mortgage payments and the lender is calling every day. Most people in the situation think selling their home is the best and only solution. It seems everyone knows a realtor and of course they turn to that person for help.
After a review by your realtor friend you are told the bad news. Your home won't sell for enough to pay off the balance of the loan, the fees, and of course the real estate commissions. Many people still try to sell their home but eventually they accept the fact that foreclosure is inevitable.
What is a Short Sale?
Many lenders have an abundance of homes that have been repossessed and are willing to settle debts owed by homeowners through a process known as a "Short Sale." Simply put, a "Short Sale" occurs when a homeowner is upside down on their home loan. Unless they find a really giving investor the property will end up selling for less than what is owed on the mortgage loan.
In most cases a short sale would benefit a lender more than a foreclosure would. A short sale is a done deal. Money is received and a write off is taken. End of problem.
With a foreclosure the lender takes the house back and then has to dispose of it in order to mitigate his losses. If the house does not sell for months he carries the negative on the books. Additionally, there can be cost added to the ultimate sale that further reduces the loss recovery.
In a successfully negotiated Short Sale the lender agrees to accept the lesser amount and consider the loan as paid in full. Of course the homeowner will receive nothing from the sale of their home but that's no surprise. The good part is that no foreclosure is reported against your credit.
Be warned, if the short sale was not done carefully and correctly the homeowner will still owe the difference between what was owed and what was received.
To qualify for a "Short Sale", the homeowners must be able to demonstrate to the lender a real hardship and they must be financially insolvent. With your recent payment history it should be easy to demonstrate that you are unable to make your house payments. This is important. Otherwise there would be no reason for the short sale.
You will need a signed and accepted offer for your house. Finding a buyer is not as hard as it seems given the fact that this is a short sale and the house is probably going for a lot less than market value. A lender will not even look at a short sale package unless you have that offer.
Do I need a Lawyer to do a Short Sale?
Successfully negotiating a Short Sale is a difficult process. DO not consider doing a short sale yourself. You will need someone that is an expert in short sales. Your brother-in-law that read about short sales is not qualified. The short sale process will be a combination of negotiating with loan loss mitigation personnel and processing and submitting a ton of paperwork.
Lenders require a lot of documents and information. Giving the lender too much information or to many of the wrong documents can completely destroy your attempt. Additionally, the lender will want financial information about you the homeowner. You will need to demonstrate to the bank that you are insolvent. You need to give the lender precisely what they want but you cannot lie about your financial condition. You will need to present bank statements and tax returns that need to support your statements.
Your precarious position is that you need to demonstrate that you are now insolvent but at the time of your loan application you were not, or this could be considered mortgage fraud.
Are there tax implications with a Short Sale?
With a short sale the lender has money that was not covered in the sale. If that money was "written off" you can be sure that they will either seek a judgment against you or report the write-off to the IRS as 1099 income for the homeowner. Normally the amount of the 1099 will increase your yearly income and ultimately the amount of taxes due for that year. The judgment will appear on your credit for 10 years.
Conclusion
A short sale is not a cure all. If you've reached the point of foreclosure, contact your lender and ask for information on short sales. Put your request in writing. At this point a short sale will probably leave you better off than foreclosure and possible bankruptcy.
Source: Zimbio.com
« BackOffices
Main Office:
812 N. Wood Ave, Suite 304
Linden, NJ 07036
tel. 908-275-0787
fax 908-275-4859
Satellite Office: (By Appointment Only)
Park 80W, Plaza II
Suite 200
Saddle Brook, NJ 07663
tel. 973-883-0153