Short sales are just about everywhere...it seems like you can't get away from them. Many sellers, loan officers and Realtors say they know a lot about short sales, but don't know how the short sale process works or even why a short sale is a better alternative to a foreclosure.
A short sale will enable the seller to purchase a home about 2 years after a short sale completion while a foreclosure will make you wait 5 years. In addition, short sales are better for the lender and it will keep the house occupied, with water and electricity still on and also keep the lawn mowed. Plus the bank will lose less money through a short sale.
No Foreclosure - foreclosures can be a hard and stressful process for a family.
Being Proactive - facing a foreclosure head on will help give you some control over the process.
Start Newer, Faster - minimizing damage to your credit can help you and your family get back on your feet faster.
May not owe anything after the short sale - you can try asking the bank to cancel your debt altogether. It does happen, but not all the time. Primary residences are usually treated more favorably by the lenders.
There is still damage to your credit - when a short sale is done, it is still documented on your credit but won't have the same impact as a foreclosure for most creditors.
Tax Consequences - there may be tax consequences if the bank forgives the debit and will issue a 1099 to the IRS for the amount of debt forgiven.
Bank could demand payment for their loss - the bank doesn't have to forgive the debt. They are able to ask you to pay them back for the difference on the sale and what is owed, but you will need to agree to this.
There are no guarantees in a short sale - whether the bank will approve the sale or forgive your debt, but short sales offer a better alternative to minimize the downside of facing a foreclosure.
Disclaimer -There can be legal and tax consequences. You may want to consult with an attorney or tax specialist before attempting a short sale. A real estate agent cannot give you legal or tax advice.
DO YOU QUALIFY? - Can you answer Yes to all 4 Questions?
1. The Homes' Market Value Has Dropped. Hard comparable sales must substantiate that the home is worth less than the unpaid balance.
2. The mortgage is in or near default status.
3. The seller has fallen on hard times. The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the payments.
4. The seller has no assets. The lender will want to see a financial statement and recent tax returns.
WHAT TO EXPECT?
1. The lender will want to see your entire financial picture.
2. The bank may want you to sign a promissory note for the deficiency between the amount owed and the amount your home is sold for.
3. As the seller, you cannot receive any proceeds from the sale. None. Period. Your Realtor and title company may have to work for reduced fees.
4. The banks are overwhelmed with short sales and many times a decision can take up to 60 days or longer.
5. The property may be foreclosed on during the short sale process. Be sure to use an experienced short sale company who should be able to get the foreclosure postponed.
6. Do not expect to receive information on a regular basis, as there may be weeks that go by without news from your lender.
7. The bank will want to get a BPO (Broker Price Opinion) and/or an appraisal of your house.
8. Be patient. This is the best policy. Try to avoid being stressed out over something that you are not able to control.
Sara Mehrpouyan, CDPE
Specializing in Short Sale and Foreclosure in Los Angeles Area
If you are short selling then you dont have to make the payment. Your agent can negotiate with the lender so you dont have to pay for anything else. Call me at 714-264-5890, we can discuss your options.
I'm so sorry! I know it doesn't help....but there are so many people in the same position. I'm glad that you are not going to use your savings to keep things a float a little longer. Smart! So ok..let's talk about Short Sales and Loan Mods.
First...how I handle short sales is very similar to how I listing a "normal" sale. The only difference is that you will not have any out of pocket costs. All normal seller costs are handled with the short sale settlement we get from the bank. All realtors do things differently....but I work to find one solid buyer! We will negotiate and counter to get the best offer we can. We will look at the buyer's credit, down payment and make sure they are prepared for the short sale process. Then we will open escrow and put their deposit into escrow.
At this point we will package the deal, the buyers and your hardship situation and send it to the bank. I have a team of experts who are averaging getting my short sales closed in about 45-60 days....start to finish. I can't promise this...but this is my average. We will also work with the buyer to give you time to find a new home and move.
Once we have the bank approval, I will show you where the bank releases you of further responsibility. If we don't see it in writing...we don't go forward. Check with your CPA for all tax advice...but the Stimulus Package from last year eliminates the tax liability for the short sale deficit for your primary residence. California does this also.
One last thought.....if you and/or your husband does find work and decide to work on a loan mod while we are listed....you can always go that direction. We are going to work together to get the best outcome for your family that we can.
I have some more information on my website....and if you would like to discuss this further...and privately...send me an email and we can talk in more depth.
Take care...I would love to help you!
Here is a link to a Free Foreclosure Prevention Workshop. We discuss all the options and you decide which option is right for you. We discuss taxes, credit, short sales, subject too loans, assumable loans and more.
I am sorry to hear about your dilema. Hopefully you will both find work soon. The previous answers are good. With regards to your tax question, you will receive a 1099 from the lender if the short sale is completed. The amount forgiven is not taxable on your federal return, but as of the first of the year, the state treats the amount forgiven as ordinary income. Please consult with your tax professional to confirm.
Best of luck,
It is difficult to hear of another family that falling prey to the current economy and losing their home. Make sure when you list your home that the Realtor you use has experience negotiating short sales. Most realtors will say they can do this, the question is not can they, but have they successfully closed any short sales recently.
To answer your question, I am not a tax accountant, and this is best addressed by one. However, after spending a few years (15) in the accounting field and staying on top of this for my clients today, it is safe to say that the "forgiveness of debt" is a taxable event and the bank will most likely issue you a 1099 for this (although some of my clients have not received a 1099, this is probably just an oversight of the banks as they are so busy).
Banks will not negotiate on this as this could be construed, as one accountant told me, as conspiracy to commit tax fraud. There are, however, a number of ways to deal with the tax ramifications legally. To date, none of my short sale clients have had to pay taxes on the forgiveness of debt, however, every person's tax situation is different. If you would like a referral to a tax accountant who understands the impact of short sales, contact me directly. There is a local accountant who has researched this for some of my clients and can probably give you a reasonable idea if you will or will not have a tax liability. Some of the things to consider are:
1. Is your home your primary asset?
2. How much did you pay for it (there are capital gains taxes that are not based on the difference between what you owe and what the home is worth, but rather what you paid for it when you bought it and what you sell it for now, with a few adjustments thrown in)?
3. What are your other assets and liabilities?
4. Do you own any other real estate?
With all this, and perhaps some other information, a knowledgeable tax account will be able to advise you on the potential tax liability you would incur, if any.
Hope this is helpful. Again, if you would like to speak with a tax accountant who knows about short sales, do not hesitate to contact me. Dare to Dream.
Real Estate Consultant
RE/MAX Palos Verdes Realty
There are a number of issues you need to look into. First and Foremost have you spoken with your lender or lenders? Is your mortgage FNMA or Freddie Mac or neither? Have you visited the HUD website to determine if there are alternatives? http://www.hud.gov
If your loan is held by certain lenders that have entered into a partnership with the Government under the "Making Home Affordable" program you may be eligible for a Loan Modification or a Pre-Approved Short Sale. In any event NEVER pay for a Loan Mod, your lender will do it for free.
If you still want to pursue a Short Sale, make sure you use a REALTOR who has done many Short Sales successfully and can address your tax questions. Having said that, the only person who can really address your tax questions with authority would be a Certified Tax Advisor or CPA.
Best of luck and if you want to chat with a VERY experienced Short Sale Listing Broker, let me know. If your home is currently listed, I wish you the very best.
Broker & REALTOR
Orange County, CA
CONTACT OUR OFFICE TODAY
~ National Featured Realtor and Consultant, Lecturer regarding Credit Repair, Mortgage Loan Officer