Thoughts from Jenny


February 29th, 2012 2:16 PM by Jennifer McGuire

    Today I'd like to discuss the short sale.  First, let me explain what a short sale is:  simply put, the seller is selling their home for less than they owe the bank(s) for the mortgage(s).  Remember there can be more than 1 note against a property.  It's going to take all the lien holders to cooperate.

    For instance:  You purchased your home for $100,000.  You put 5% down.  Your current payoff is $95,000, but the market value is only $80,000.  If you sold your home for market value, then you would have a $15,000 shortfall.  It is up to your lender(s) if they will forgive you of that balance.  Meaning write it off.

    As a seller, you might have your home on the market for a price that covers your current payoff (and you may have cushioned the list price a little so you could have something to go forward with).  But, you're not getting any action because it's overpriced.  So, you think to yourself "well, I'll do a short sale".  It isn't that easy.  You must remember, it's up to your lender to decide if you qualify for this short sale.  You MUST prove a hardship.

    For a seller to qualify for a short sale, they need to prove hardship (explaining to the lien holder(s) why you are unable to make your payments).  THIS IS A MUST!  Some qualifiers might be loss of your job, divorce, extended illness, bankruptcy, or death of one of the parties to the note.  You will need to prove inability to pay off the note(s).  

    Sellers will probably have to show proof of assets to the lender(s).  If a you have cash in a savings account, own other real estate, stocks, bonds or IRA accounts, the lender may decide you have assets sufficient to make up the shortfall.  

    Another big qualifier for a short sale, is you MUST HAVE A BUYER!  Even if you personally qualify for a short sale, you will need a Buyer willing to place a contract to purchase your home.  Once you take that contract to the Bank, it will be up to the Bank to decide whether or not to accept the offer, and whether or not to write off the deficiency.

    Here is another thing to consider when doing a short sale.  As the seller, you may incur taxes on the deficiency written off by the Bank. You may be issued a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness. Be sure to talk to an accountant about this possibility. 

    Is a short sale better than a foreclosure?  YES!  Your credit will cdefinitely be damaged with a short sale, but not as drastically as with a foreclosure.

    Later I will discuss purchasing a short sale.  Some things to watch out for.

Posted in:General
Posted by Jennifer McGuire on February 29th, 2012 2:16 PM



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