What is short sale?
Who can qualify for the short sale?
How long does it takes?
How will the Short Sale affect my credit?
Will my lender send me a 1099 on the debt forgiven?
Why would banks forgive the difference?
Can FHA, Conventional or VA loans receive a short
sale?
What if I owe what my home is worth?
What if I am not behind on my payments?
What if my home is already in foreclosure?
What is short sale?
In the world of Real Estate, a short sale refers to the sale of
real property for an amount less than the amount owed on the
property. In the short sale scenario, the bank agrees to accept
less than the full balance due on the debt, and usually ‘forgives’ all
or a large portion of the difference. The lender must be willing
to accept the short sale proceeds as full settlement of the debt. This
allows the property to transfer to the buyer even thought the
lenders did not receive the full amount that they were owed.
Short sales usually take place during the foreclosure process
when a buyer is trying to buy a property and the purchase price
will not cover the payoff of the mortgages in full.
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Who can qualify for the short sale?
In order for the short sale to take place, the property owner must
have financial hardship, no equity in the house
and be over-leveraged, and fallen behind in payments or
be about to. The property owner has to have some reasons why
he can’t pay. In order for a short sale to take place there
are certain steps that must be taken. The property owner must
be motivated, and everyone must work together to present the
short sale request to the lender.
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How long does it takes?
The short sale process can be long and tedious. Short sale approval
can take 30 days all the way up to 8 months or more. This is
based on the negotiation skills, preparing a package, and the
bank turn around time.
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How will the Short Sale affect my credit?
Short Sales still a relatively new concept. Banks have the option
of submitting the short sale to the credit bureau as “Paid
in Full” or “Settled for less than full balance”.
Since most lenders will not consider allowing a short sale until
a few payments have actually been missed you may also have a
few “lates” on your credit report. Neither of these
marks is a good thing to have but it’s possible to get
them off of your credit report within a few years or less. A
short sale can drop your credit score by 80-100 points. There
is also the possibility that through negotiation with the lender
you can avoid having the short sale reported to a credit agency.
A foreclosure on your credit report can take 7-10 years to remove
and can cost your credit rating (FICO) up to 200-280 points which
is a very big hit.
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Will my lender send me a 1099 on the debt forgiven?
No. When the lender decides to forgive all or a portion of a borrower's
debt and accept less, the forgiven amount is considered as income
for the borrower and is liable to be taxed. However, after the
signing of The Mortgage Forgiveness Debt Relief Act of 2007 by
President Bush, amendments have been made to remove such tax liability
and allow the borrower and lender to work freely together to find
a common solution that is beneficial to both parties. This protection
is limited to primary residences so consultation with a tax advisor
is necessary ensure that a borrower qualifies.
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Why would banks forgive the difference?
To mitigate their losses, banks often accept a settlement of less
than what is owed on the property. When faced with the option
of getting the property ‘back’ through foreclosure,
a short sale often makes a much wiser business decision for the
bank. The fact of the matter is that mortgage companies and banks
are not in the real estate business. They are in the lending
business. The last thing they want is that property back.
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Can FHA, Conventional or VA loans receive a short sale?
Yes they all can! You have to make a strong case in order for it
to happen.
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What if I owe what my home is worth?
Even if you owe exactly what your home is worth, you may still
need to do a short sale in order to pay for the costs of the
sale (Realtor’s fees, Title fees and other closing costs).
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What if I am not behind on my payments?
Short sales work – even if you have never missed a payment,
even though short sales have gotten a stigma a being only available
for people who are in foreclosure. Our loss mitigation department
successfully worked with borrowers who never missed a mortgage
payment! They just happen to be in a negative equity position and
need the short sale in order to sell their home. Negative equity
position, also known as being “upside down”, is the
difference between the value of an asset and the outstanding portion
of the loan taken out to pay for the asset, when the loan exceeds
the value.
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What if my home is already in foreclosure?
Your foreclosure sale will usually be suspended during that short
sale process. That is why it is imperative that you contact us
right away!!!
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