I know it won't make you feel much better, but you are not alone--about 10% of the homes in the US are in the same situation you are. One difference, you put money down on your purchase, and during the last 4 or 5 years, not too many people did.
A short sale is a transaction in which the asking price is lower than the amount still owed on the mortgage, and where the bank agrees to accept the lesser amount to avoid a foreclosure. It usually occurs when the seller either chooses not to make payments on a house that has lost much of it's â€œmarketâ€ value or can no longer make the mortgage payments due to a life change such as a job loss, a divorce, unforeseen medical bills or an adjustable rate mortgage resetting itself at a higher interest rate.
But while the bank may accept the lesser amount, to make the transaction happen, there is usually more to the transaction that that. The bank may forgive the difference owedâ€”or require the seller to sign a note for the differenceâ€”depending on the seller's other assets. In any case a short sale will doubtless cause a major dip in the seller's credit scores.
As you can imagine, with all the approvals needed these transactions usually take much longer than anyone expects. When you look at them this way, they shouldn't call them short sales. Traditional transactions can speed through the system in a matter of only a few weeks. But short sales seem to last forever.
The federal government in the form of the U.S. Treasury has proposed a new set of rules that will speed up the system for the buyer and give the lenders a bonus to make the transaction happen quickly.
You, the seller must qualify and be eligible for the Obama Administration's program for struggling homeownersâ€”whose mortgage payments are greater than 31% of their gross income. But even if you do not qualify, the bank may request a short sale under the new guidelines for loans made prior to January 1stâ€”and for less than $729,750.
The bonus for everyone is the lender will have only 10 business days to deny a short sale requestâ€”rather than the months and months they sometimes take now. If it is accepted, you may be relieved of your remaining debt, and may even be eligible for $1,500 to be used toward moving. In this plan the lender will get a $1,000 bonus and the 2nd mortgage holder may get up to $3,000 from the proceeds.
All this is a design to make the short sales work faster and more smoothly. These guidelines are designed for the everyday buyers and sellers and are not designed to assist investors. The additional regs that are a part of the guidelines specify these transactions must be â€œarm's lengthâ€ meaning borrowers cannot list with or sell to a close friend, family member or business associate(and at the same time close out their debt).
The Government retains the right to treat the forgiven debt as income, and the IRS will no doubt look into these transactions, but during 2010 they may allow this â€œwindfallâ€ to be overlooked, especially if good records were kept and the amount in question is less than the down payment and repairs on a principal residence. Seek competent advice from a tax professional.
And finally, buyers of short sale homes may not resell them within 90 days of the closingâ€”again this applies to investors who might buy and sell a house the same day.
Hope this helps,
Broker in NH & Florida