What is a Short Sale?
We have the short sale solution. We assist distressed property owners negotiate with their banks and get the home sold without the headaches. Even if you are in the foreclosure process, we can help. Call for more information: 215-591-3500 extension 102.
What is a short sale?
A short sale occurs when the proceeds from the sale of a home are not enough to cover the sellers’ mortgage balances and closing costs, such as property taxes, transfer taxes, and the Realtor’s commission. And the seller is unable to cover the difference.
Most short sellers may also be in default on their mortgage loans and be headed for foreclosure – but not all. Home owners who bought at the top of the market or who refinanced in the past few years and now need to sell because of divorce or job transfer may find themselves owing more than the home is currently worth.
Losing your home can be very emotional and most people don’t take any steps until foreclosure sets in.
If a seller has assets, such as stocks or a high-salaried job, their lender is not going to let them just walk away from a short sale without signing a note to repay the shortage.
What information do I give the bank in order to decide whether to accept a short sale?
The package should include W-2 forms from employers (or a letter explaining the seller is unemployed), bank statements, two years of tax returns, and other financial documents showing debts and assets. The bank will also need a broker’s price opinion (BPO) showing estimate of value.
In addition, the sellers should submit a “hardship letter,” explaining the circumstances that make it impossible for them to pay the full amount of the loan. The seller needs to be able to show true financial hardship. Someone with the assets or the income to pay will probably not be considered.
Be careful about discrepancies between your income and the income used to obtain the loan. A big gap may indicate mortgage fraud, unless circumstances have drastically changed.
Do I have other options besides a short sale?
Many lenders are more willing to offer loan modification options. This option can extend the term of the loan, add on delinquent payments to the loan principal, and/or reduce the interest rate to make the loan more manageable for the home owner.
Another option is a repayment plan that requires home owners to increase their monthly payments until the loan is current. Lenders will not postpone a foreclosure just because a property is listed, but they may postpone if you have a reasonable offer in the works.
How long does it take to complete a short sale?
Although response times vary from lender to lender, it can take two weeks or as long as 6 months to receive an approval of a short sale from a lender.
What can I do to make a short sale more attractive to a lender?
Getting a lender to approve a short sale comes down to dollars. You have to show that the amount of money a bank will realize on the short sale is better than the amount it may recoup from foreclosing on the property and selling it.
The estimated cost of a foreclosure to a bank is about $50,000 and could talk 18 months or longer. A bank’s decision includes the liability risk it assumes by owning the property after foreclosures, the money tied up during process.
A buyer who can close in 30 days and who can make a large down payment may make the deal more attractive than a buyer who wants 95 percent financing. All buyers should be preapproved for a mortgage before submitting the offer.
What are my options if a short sale is rejected by my bank?
There are a variety of reasons a bank will reject a short sale — from too low a price to being overwhelmed with too many files on the table. Banks don’t want to take properties back in foreclosure, so they are going to do everything they can to make it work. The seller needs to be prepared in advance for the possibility of foreclosure if a short sale fails.
What happens to my credit and to the balance of the loan as a result of a short sale?
Not all, but many lenders ask sellers to sign a promissory note for all or part of the difference between the proceeds of the short sale and the debt obligation. In such cases, the note gives lenders the right to sue a seller and attach other assets if the note is not paid when due. Having a portion of a loan forgiven may have an adverse affect on the seller’s credit. You are encouraged to try and sign a lease on an apartment before credit is further damaged.
What tax liabilities will I have as a result of a short sale?
A seller must count any amount forgiven by the lender as income and pay taxes on that income, even if no actual money was received. The IRS requires lenders to submit a Form 1099 stating the forgiven amount. The House of Representatives has introduced the Mortgage Cancellation Tax Relief Act (H.R. 1876), which would eliminate taxes on any debt forgiven on a principal residence through either short sale or foreclosure.
Feel free to call me with any questions you may have,
Rosalie Bucci
Broker/Owner
EXIT Supreme Realty
215-591-3500
