Short Sales
Top Short Sale Questions Answered
Thousands of homeowners owe more on their home than what it is presently worth, and many of these homeowners have turned to the short sale process to remove themselves from this burden. In many cases, a short sale is a good alternative; however, it is important that these homeowners have a full understanding of what they are getting in to.
There is so much involved in the short sale process that it is hard to cover it all just in this article. However, we touch on some of the most frequently asked questions below.
What is a short sale?
A short sale is the process by which homeowners can sell their home for less money than they actually owe on their mortgage or mortgages. This is accomplished by providing the proper documentation to the lender(s) to convince them to reduce the mortgage balance to allow the sale. The mortgage lender(s) will take a loss in the mortgage if the short sale is approved. If a bank approves the discount of a mortgage, the home can be sold for a lower price than the amount owed without the seller having to come up with cash to cover the shortfall. The mortgage is satisfied and any foreclosure process stops.
Will the bank go after a seller for the shortfall difference?
The bank is attempting to mitigate their losses and recover as much money as they can even though they are going to incur a loss. The bank may seek to collect funds from the seller; however, if the seller is in true hardship, the lender(s) will probably not seek funds from the seller.
How will a short sale affect a seller’s credit?
The big key is To Avoid Foreclosure because a foreclosure is the most damaging event a credit status can encounter- worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and these will show up on your credit. If foreclosure is avoided, a seller will likely be able to resume normal borrowing such as car loans, credit cards, consumer goods, etc., relatively quickly.
Why does personal financial information need to be provided?
The financial information that needs to be provided will allow for an overview of the situation and determine rather or not you qualify for a short sale. All lenders require a complete short sale package that includes tax returns, bank statements, pay stubs, etc., to show that there is hardship or the need to sell.
Can an owner profit from a short sale?
The seller cannot profit (monetarily) from a pre-foreclosure short sale.
How do bankruptcies affect the possibility of doing a short sale?
Most mortgages won’t consider a short sale if the homeowner is in bankruptcy because negotiating a short sale payoff is considered a collection activity. Collection activities are prohibited in bankruptcy.
Can the IRS 1099 me for the amount of the debt forgiven?
The Mortgage Relief Debt Act of 2007 does not allow lenders to issue a 1099 to a borrower for a deficiency balance on a residence.
How long will a short sale take?
It varies from lender to lender so that is really hard to say. Working with an experienced short sale specialist can help push the process along faster.
Can I participate in a short sale if my foreclosure is coming up within the next couple of weeks?
Some lenders will postpone a foreclosure date if they have a complete short sale package from the seller and seller’s agent. This package will need to include a purchase contract as well as personal financial information.
Do I need legal help?
It is advised that you seek professional or legal help and are not personally involved in the short sale. If you have disposable income, assets to shelter or can face personal liability for a loan, you’ll want to speak to a lawyer.
Will the short sale cost anything?
The short sale will not cost you anything.
What options other than a short sale might I have?
There are other options available to you. These options include:
1.) Cure your mortgage default (bring your payments current)
2.) Attempt a loan modification that adjusts the terms of your existing loan
3.) Refinance your mortgage with another lender
4.) Try to sell your home through normal channels
5.) Attempt to get your lender to accept a deed in lieu of a foreclosure
6.) File for bankruptcy
Clearly, there is much to consider before entering into a short sale transaction. Scottsdale Law Group can provide you with accurate, professional information so that you can make intelligent choices for your future. It is assisting hundreds of clients with short sale transactions, bankruptcies and other means of asset protection. It can be your professional partner through these complex and difficult times. To learn more about this topic and the legal guidance Scottsdale Law Group can provide, please visit www.scottsdalelawgroup.com.
About the Author
Scottsdale Law Group is a law firm that brings together both legal and experienced transactional professionals to focus on legal matters associated with widespread real estate negative equity, government sponsored residential loan programs, property short sales, and bankruptcy protection. It is an industry leader in successfully processing, managing and achieving settlement offers with lenders and short sale transactions. To learn more about Scottsdale Law Group and the services it provides, please visit www.scottsdalelawgroup.com.
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